Capital Expenditure

A significant expenditure for the acquisition, improvement, or replacement of a major common area component with a useful life extending beyond one year. Common capital expenditures in community associations include roof replacement ($200,000–$800,000), elevator modernization ($75,000–$250,000 per elevator), parking lot resurfacing ($50,000–$200,000), pool replastering ($20,000–$60,000), and exterior painting ($100,000–$400,000). These projects are typically funded from the reserve fund rather than the operating budget because they are infrequent, high-cost, and predictable through the reserve study process. The distinction between a capital expenditure and a routine maintenance expense matters for both accounting and budgeting purposes: capital expenditures extend or restore the useful life of a component and are funded from reserves, while routine maintenance preserves existing condition and is funded from operating. For example, patching a small section of roof is an operating expense, but replacing the entire roof is a capital expenditure. Boards should follow a competitive bidding process for major capital projects, typically obtaining at least three bids for projects exceeding $10,000. Project specifications, contractor selection criteria, payment schedules, warranty terms, and insurance requirements should all be documented. In California, expenditures from the reserve fund must be for components identified in the reserve study (Civil Code Section 5510), and the board should maintain records showing how each capital expenditure relates to the study's component inventory.