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Given the increased focus that community association directors and property managers are dedicating to their growing budgets and the status of their reserve funds for future repairs and replacements, many associations are considering capital contributions. These one-time charges for new buyers and association members are common staples for Florida homeowners associations, but not so for the state’s condominium associations.
In fact, the collection of capital contributions from new owners is not allowed for condominium associations under state law. The Florida Condominium Act includes the following provision: “An association may not charge a fee in connection with the sale, mortgage, lease, sublease, or other transfer of a unit unless the association is required to approve such transfer and a fee for such approval is provided for in the declaration, articles, or bylaws. Any such fee may be preset but may not exceed $150 per applicant.”
Accordingly, condominium associations cannot charge a fee for new buyers and community members to contribute to reserve funds or working capital, but rather they can only charge up to a maximum of $150 if their approval for unit transfers is required and it is so stipulated in their governing declarations.
The state statutes governing homeowners association do not include such a restriction limiting such fees for unit-transfer approvals, and many developers of HOA communities include such one-time capital contributions in their charges to the initial buyers of their new homes to provide a source for start-up funds. Upon the eventual turnover of control of associations for newly developed communities to the charter-member homeowners, HOAs can and often do continue to charge capital contribution fees for all future resales of properties if permitted by their governing documents.
These capital contributions take the form of non-refundable fees paid by new buyers at closing, and they are typically allocated to fund association reserves for future maintenance and repairs. The amounts for such fees are usually determined by an association’s documents, and the members can vote to modify those sums after turnover. While there is no cap under the law, the amount must remain reasonable.
Also known as initiation fees or transfer fees, capital contributions should be viewed as part of buyers’ closing costs that also typically include taxes, title insurance, and real estate agent commissions. They essentially give owners equity in the new association they are joining, which presumably already has reserve funds that represent an immediate and unearned benefit for all new members who have not yet paid any dues.
If a new owner fails to pay a required HOA capital contribution fee, the association can generally charge an additional late fee and even interest, which will further add to the buyer’s obligation. Ultimately, the association’s lien and foreclosure rights can come into play.
For HOA directors and property managers taking a look at capital contributions, they should bear in mind that the fee must be authorized by the association’s governing documents and must be reasonable. Changes should only be considered under the guidance of experienced community association legal counsel.
Our firm’s South Florida community association attorneys write about important matters for associations in this blog and our Miami Herald column, which appears every two weeks on Sundays, and we encourage association directors, members and property managers to click here and subscribe to our newsletter to receive our future articles.