- Community Associations, Finances
- Wisconsin, Indiana, Illinois, Florida
Community association boards often find themselves asking a familiar question: “How do we pay for that?” Whether it’s repaving roads, replacing aging roofs, or upgrading the clubhouse HVAC system, these large-scale capital improvement projects can quickly exceed an association’s regular annual budget.
Routine maintenance and minor repairs are typically covered by the association’s operating funds or through reserves. But when major infrastructure needs arise, especially those not anticipated in long-term planning, board members must explore funding options that may be unfamiliar, unpopular, or complex.
Examples of Community Association Improvement Projects
While each association is different, the following types of capital improvements or major repairs often prompt boards to seek outside funding or raise additional income:
- Roof replacements
- Elevator modernization
- Parking lot resurfacing or reconstruction
- Structural repairs to balconies, garages, or foundations
- Plumbing, electrical, or HVAC system upgrades
- Stormwater system improvements
- Security system installation
- Common area and association amenity renovations (ex. pool, gym, fitness center)
These projects are typically expensive, necessary, and time-sensitive which makes it critical for boards to understand their funding options.
Funding Options: 4 Ways to Pay for Community Association Capital Projects
- Reserve Funds – Many associations maintain a reserve fund specifically for long-term capital expenses. Reserve studies, which project the lifespan of community components and associated costs, are used to plan and budget for these expenditures in advance.
The benefits of utilizing the reserve funds can include that no new assessments are required, it avoids association, debt and shows strong financial planning. But if reserves are underfunded or depleted, they may not be sufficient to cover major projects.
Boards should ensure that reserve contributions are consistent with the reserve study and revisit the study every few years. Maintaining healthy reserves not only protects the association’s infrastructure but also helps safeguard property values for all owners.
- Special Assessments – A special assessment is a one-time fee charged to all unit owners to cover a specific shortfall or capital project. Depending on the size of the project and the number of units, assessments can range from a few hundred dollars to tens of thousands per unit.
Special assessments provide an immediate infusion of cash without creating long-term debt or interest obligations. However, they can create significant financial hardship for owners, may generate strong opposition, and sometimes require owner approval under the association’s governing documents.
Boards must strictly follow notice, voting, and collection procedures outlined in the association’s governing documents and state laws as failure to comply can result in legal challenges and delays.
- Bank Loans – Some associations work with banks that specialize in community association financing to secure loans for major projects. Loans provide the benefit of upfront funding, allowing projects to move forward immediately while spreading costs over time through manageable monthly assessment increases.
However, loans create a long-term debt obligation for the association, and interest and administrative fees can significantly increase the total project cost. Lenders may also require a legal review of governing documents, proof of board authority, owner approvals if necessary, and a structured repayment plan secured by assessments.
- Budget Increases – Instead of relying on special assessments or loans, some associations choose to raise their regular annual budget gradually to fund capital projects over time.
This approach can reduce the financial burden on owners by spreading costs more evenly and building long-term financial health. However, it may take several years to accumulate the necessary funds, which could delay urgent repairs or critical improvements.
Boards must communicate clearly with owners regarding the reasons for any increase and must comply with their association’s governing documents, particularly if owner approval is required for assessment increases beyond a certain threshold.
How Community Association Attorneys Help Navigate Funding
No matter which funding option the board pursues, the association’s attorney can assist by:
- Interpreting governing documents to determine whether owner approval is required
- Ensuring compliance with notice and voting procedures for special assessments or loan approvals
- Reviewing and negotiating loan documents to protect the association from unfavorable terms
- Helping draft clear communications to owners about the financial impact and legal basis for the board’s decisions
- Avoiding disputes by guiding the board through a transparent and legally compliant process
Your association’s attorney is more than just a resource during a dispute. They can be an essential partner in the planning, execution, and legal protection of your association’s capital improvement efforts.
Legal Resource
When faced with paying for planned or unplanned expenses, community association boards must weigh financial needs, member tolerance, legal requirements, and long-term planning. With the right guidance and a proactive strategy, boards can make confident, well-informed decisions that protect both the physical and financial health of their communities.
Questions about community association assessment delinquent recovery, loans, reserve requirements, or other legal issues? Do not hesitate to call 855-537-0500 or visit www.ksnlaw.com.
Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.
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