From time to time, every co-op or condo community has to undertake big capital improvement projects—perhaps a total window replacement, roof repairs, an elevator overhaul, or major exterior renovations.
The laws and regulations that deal with these processes—as well as the building’s own bylaws— are often confusing. There are also plenty of steps to take before you can even begin work, such as dealing with contractors, architects and city bureaucracy, not to mention accountants and attorneys. Sometimes you'll have enough money in your reserve funds to cover these items, but at other times, you will need financing.
What Counts as Capital?
To begin with, what kinds of projects qualify as capital improvements? Most board members know, or believe they know, the difference between capital budget items and operating budget items. But there are several, although overlapping, ways of looking at this.
Attorney Lisa Smith, a partner with the law firm of Smith Gambrell & Russell LLP in Manhattan, quotes the definition used by the New York State Department of Taxation and Finance, which states that a capital improvement must “substantially add to the value of the real property or prolong its life; it becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property itself; and is intended to become a permanent installation.”