Question: Our condominium developer collected a “capital contribution” from each purchaser at closing. The money has been turned over to the association along with the control of the board. Some people say that since this money is a contribution for “capital” items, it can only be used for upgrades. Some people want to use the money to move some partitions and put in an exercise room. Would this be a legal use of this money? S.K. (via e-mail)
In order to add an exercise room, you need to determine what your declaration of condominium has to say about “material alterations or substantial additions” to the common elements. Clearly, adding an exercise room would fall into this category. By law, material alterations or substantial additions must be approved as set forth in the declaration, and if the declaration is silent, by a seventy-five percent vote.
The Florida Condominium Act really does not offer much guidance as to the permissible uses of capital contributions. The law does say that while the board is under developer control, and if the developer is excused from paying assessments (and therefore funding any budget deficits), capital contributions cannot be used to offset developer obligations.
Capital contributions are usually established as working capital, in recognition of the fact that a condominium association begins its corporate existence with no money in the bank. As such, other than the restriction against developer use of the money during a budget guarantee, there are no other restrictions placed on the use of these monies by law.
Generally speaking, the board will have fairly wide latitudes in determining how capital contributions should be used. Many look at the money as an operating cushion. The association should also discuss the use or characterization of these funds with its accounting consultant, as there are also potential income tax consequences that could arise in certain scenarios.