capital improvements

It is not uncommon for CC&Rs to require approval of owners in order for the association to spend more than a specified amount on "capital improvements."  When those CC&Rs clearly define capital improvements, the issue is closed.  An association must comply with its governing documents.  However, a problem arises when the term is not so defined.  The question of whether owner approval is needed for a given maintenance project then becomes a hotly debated issue.

IRS and Tax Context

Frequently, CPAs and those familiar with the tax code will want to apply the tax-related definition of "capital improvements."  The IRS distinguishes between capital improvements versus repairs for the purpose of allowing a deduction for capital improvements when a home is sold, but not for repairs.  In this IRS/tax context, the IRS has provided guidance in recent years.  IRS regulations indicate that recurring activities that are expected to be performed as a result of the use of property to keep the property in its ordinarily operating condition aren't capital improvements. The activity is considered routine if, at the time the property was placed in service, the taxpayer reasonably expected to perform the activity more than once during the property's life.  The IRS further indicates what constitutes a real property capital improvement as follows: Fixing a defect or design flaw; creating an addition, physical enlargement or expansion; creating an increase in capacity, productivity or efficiency; rebuilding property after the end of its economic useful life; replacing a major component or structural part of the property; and adapting property to a new or different use.

HOA Context

However, the distinction between capital improvements versus maintenance and repairs in the IRS and tax context is less relevant in the HOA context.  CC&Rs and the law require an association to maintain, repair and replace the common area elements and facilities.  It does not make sense to turn around and tie the association's hands by requiring approval of the owners in order to maintain the status quo of the common area facilities - that is, to engage in necessary maintenance, repair and replacement in order to maintain the usual and expected state of the facilities.  Instead, it would make sense that the requirement to obtain owner approval for capital improvements, when "capital improvements" are not clearly defined in the CC&Rs, is a requirement to obtain owner approval before new, optional improvements are constructed, rather than a requirement to obtain owner approval to do what the CC&Rs already require and that each owner already expects.

Utah Law

There are no Utah statutes addressing this question in the HOA context.  But, one unpublished memorandum decision of the Utah Court of Appeals does, although insufficiently and unsatisfactorily.  In Three Fountains Owners Association v. Leigh, the CC&Rs required a vote of owners for capital improvements costing more than $3,000.  The court, citing Bettinger v. Bettinger, noted that,

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Three Fountains v. Leigh (capital improvements) '98
HOA resources and laws annotated
HOA resources and laws annotated