Who Pays the HOA Capital Improvement Fee?

Homeowners Associations (HOAs) often require financial contributions beyond standard monthly dues to maintain and enhance community assets. HOA capital improvement fees fund significant, long-term projects that benefit the entire community, ensuring the upkeep and appreciation of shared property. Understanding these fees is important for any homeowner or prospective buyer within an HOA-governed community.

What are HOA Capital Improvement Fees?

HOA capital improvement fees differ from regular monthly HOA dues, which cover routine operational costs and general maintenance. These fees are for major, non-recurring projects that enhance, preserve, or replace significant common assets. Examples include replacing roofs on multiple buildings, resurfacing community roads, renovating a clubhouse, or upgrading swimming pool facilities.

The HOA board of directors identifies and approves these projects, often after a professional reserve study assesses the condition of common elements. Governing documents may require a homeowner vote for large projects or those needing substantial funding. These fees ensure the association’s long-term financial health and maintain or improve property values.

Standard Homeowner Responsibility

Homeowners are responsible for paying HOA capital improvement fees. This obligation stems from the Covenants, Conditions, and Restrictions (CC&Rs) and bylaws, which are legally binding documents homeowners agree to when purchasing a home in an HOA community. These documents outline financial responsibilities, including contributions to capital reserves and special assessments for major projects.

The governing documents also stipulate the method for assessing these fees. Common methods include assessment equally per unit, based on property size, or according to the assessed value of each property. Often, capital improvement fees are structured as special assessments, which are one-time or short-term additional fees for expenses not covered by the regular budget.

Situations Affecting Payment

The question of who pays an HOA capital improvement fee can become more complex in specific scenarios, particularly during property sales, for rental properties, or based on the formal assessment process.

Property Sales and Transfers

The timing of a capital improvement fee assessment relative to a property’s closing date impacts whether the buyer or seller is responsible. If a fee is assessed and due before closing, the seller is typically responsible. If levied after closing, the buyer generally assumes responsibility. The purchase agreement and escrow instructions stipulate how such fees are handled, including potential proration.

Buyers receive an HOA estoppel certificate (also known as a resale certificate or disclosure packet). This legally binding document details outstanding or upcoming financial obligations, including capital improvement fees. It provides a snapshot of the homeowner’s financial standing with the HOA, protecting buyers from unexpected debts and ensuring transparency by outlining all fees to be collected at closing.

Rental Properties

For rental properties within an HOA, the legal responsibility for capital improvement fees rests with the property owner, or landlord. The HOA’s agreement and enforcement authority are primarily with the deeded property owner, not the tenant. While a landlord may attempt to pass these costs to tenants through a lease agreement, the HOA will always pursue the registered owner for payment if the fee is not remitted.

The lease agreement should clearly state any arrangement between the landlord and tenant regarding HOA fees, including capital improvement assessments. If a tenant fails to pay a fee the landlord made their responsibility, the landlord still bears the financial and legal consequences from the HOA.

Assessment Process and Deadlines

HOAs follow a formal process to assess and notify homeowners of capital improvement fees, especially when levied as special assessments. This includes providing a notice period, often 14 to 60 days, before the assessment is due. The notice must specify the purpose, amount, and payment terms.

Compliance with payment deadlines is crucial, as non-payment can lead to significant consequences. HOAs can impose late fees, charge interest on overdue amounts, and place a lien on the property. A lien serves as a claim against the property that must be satisfied before it can be sold or refinanced. Continued non-payment may even lead to foreclosure proceedings by the HOA.