It is a fact of life: Over time, property will require repair or replacement due to normal lifecycle and usage or damage. A homeowners association (HOA) Board of Directors is responsible for the maintenance and repair of common elements. However, many HOAs have language in their governing documents that limit the Board of Directors’ ability to make capital improvements, typically requiring a super-majority vote of the unit owners. How can a Board of Directors tell a proposed repair from a capital improvement? Unfortunately, at least in Oregon, there is no clear answer; but rather, there is a fact sensitive inquiry into the scope and character of the work being performed.
No Oregon appellate level court has addressed the distinction between repairs and capital improvement. However, Oregon trial courts have addressed the issue. For example, in Jensen v. Cornell Meadows Condominium Assoc., Washington County Circuit Court Case No. C131670CV, a unit owner sued her HOA asserting that a comprehensive building envelope repair was an “addition or improvement” and therefore required approval from 75% of the unit owners. The HOA argued that the work was “maintenance or repair,” and the board of directors could authorize such work without a unit owner vote. The Honorable James L. Fun agreed with the HOA. According to Judge Fun, the building envelope repair was “necessary for the health of the entire condominium complex,” so the scope of the work fell on the maintenance and repair side of the equation because the work did not change the general character of the buildings being repaired. The work did not change the aesthetics of the buildings (e.g., from lap siding to stucco); the work did not alter the structure of the buildings (e.g., from classic to modern); the work did not make additions to the community (e.g., a pool). Thus, according to Judge Fun, the work in question was repair and maintenance, not a capital improvement.
Judge Fun’s decision is not binding on other courts, and there may be other decisions, in Oregon and outside of Oregon, distinguishing between repairs and capital improvement in another manner. So, if you are a unit owner or director of a HOA faced with a question of whether a proposed repair is a capital improvement, you should consult with experienced counsel.