Can a condo association use capital assessment monies allocated specifically for facade repairs to pay for other things?

ANSWERS:

We are assuming that you are referring to a separate capital assessment that was specifically assessed to the members in your association in accordance with the governing documents. You do not indicate whether this was an assessment that required the vote of the association members. If it was, you need to review the information that was provided to the members when they voted. Did it indicate that the only purpose of the capital assessment was to fund the cost of façade repairs? If so, then it would not be appropriate spend the money for flood insurance, roof replacement or emergency repairs. If, on the other hand the information provided to the owners indicated only that the assessment was for capital repairs or replacements, then it would be appropriate to also use the assessment monies for the roof replacement since that is also a capital item. It may be that emergency repairs are also involve capital assets, in which case it would also be acceptable to use the assessment monies for that purpose.

Alternatively, if the board adopted this assessment without the need for a vote by the association members, you should review the minutes of the board meeting at which it was adopted to locate the resolution or motion approving the assessment. If that resolution or motion contained a limitation on the use of the money, the money should only be used for the specified purposes. If, again, it was a general capital assessment, then the assessment monies can be used as indicated in the preceding paragraph. 

Lastly, if there is an immediate need or emergency and the governing documents do not contain strict limitations on the use of monies allocated for a specific purpose, the association could consider “borrowing” the needed money on a short term basis to fund the immediate need or emergency. However, if this is done the board should adopt a resolution expressing the need to transfer money from the assessed monies, and should provide a plan for restoring that money to the capital account in a reasonably short time period (say, 12 to 24 months).

J. David Ramsey
Becker & Poliakoff
1776 on the Green | 67 Park Place, Suite 702
Morristown, NJ 07960
Tel: 973.898.6502
Fax: 973.898.6506
DRamsey@bplegal.com

If reserve monies have a specific allocation, they cannot be used for any  other purpose unless and until there is approval of a change in the identified purpose. I would suggest that if members are not going to vote on the change, but rather the Board will, then members be notified in advance of the upcoming vote so that they can at least provide their opinions to the Board.

Sara A. Austin
Austin Law Firm LLC
226 E. Market St.
York, PA 17403
717.846.2246 phone
717.846.2248 fax
saustin@austinlawllc.com

The answer to the question will turn on the provisions of the restrictive covenants contained in either the declaration or master deed for the condominium project and on the provisions of the respective state’s condominium and perhaps planned unit development act.

Patrick O’Dea
Nelson Mullins
BNC Bank Corporate Center, Suite 300 
Myrtle Beach SC 29577 
(843) 946-5631 
patrick.odea@nelsonmullins.com 
http://www.nelsonmullins.com

The answer to this question depends on the wording of the association’s legal documents and the applicable state law in the state in which the association is located. Generally, Minnesota law does not require reserves to be allocated to specific items. However, other states may be different.
Furthermore, insurance seems like an operating expense, not a capital expense, so I would generally not use capital replacement reserve funds for that purpose.

David G. Hellmuth
Attorney at Law
P: (952) 746-2107
F: (952) 941-2337
dhellmuth@hjlawfirm.com
8050 West 78th Street 
Edina, MN 55439