Capital contribution fees, initiation fees, new owner fees, and transfer fees - many names that all refer to the same thing. Capital contribution fees are a one-time fee that is associated with the transfer of property - here a condo or co-op - from one to another.
They are typically only paid once when a building’s developer hands over the association to the owners, though some building communities will charge these fees whenever a condo or co-op is sold to a new owner.
Let’s break down capital contribution fees - what they are, why condos and co-ops charge them, and what this money is used for in your building.
What's the difference between capital contribution fees and other building fees?
Capital contribution fees are paid specifically upon the transfer of a property. And although they’re usually used to fund the repair of common areas, they shouldn't be confused with monthly dues, which residents regularly pay to cover operating expenses and reserve funds.
Also, don’t confuse capital contribution fees with special assessment fees, which your condo or co-op board may charge from time to time when the reserve funds aren't enough to cover major repairs and long-term projects, such as siding and roof replacement.
How much do you have to pay for capital contribution fees?
Well, that depends on the specific condo or co-op you're seeking to join. There’s a wide range depending on the size, age, location, and upkeep of your building. The more amenities a building has (e.g., pools, decks, a lavish lobby, and other amenities), the more expensive the capital contribution fees may be.
For context, capital contribution fees are typically two or three times the amount of your monthly fees, which can be anywhere from $100 to $2,500 (maybe more) per month in New York. So, you can expect to pay anywhere from $300 to $7,500 (again, or more) to join a condo or co-op.
Why do condos and co-ops charge capital contribution fees?
Fees upon fees are no fun. But there's a good reason why many buildings charge capital contribution fees — to bolster the reserve fund, which is essentially the community's saving account. These reserves serve as a cushion for future large-scale maintenance projects, which include repairing and updating:
● Swimming pools
Your building may also use capital contribution fees for starting common area projects, adding a roof deck, constructing amenities, and repainting the building.
Are capital contribution fees legal?
Yes, capital contribution fees are legal and extremely common, though not every building charges them.
However, this doesn't mean there are no limits to capital contribution fees. There are some rules regulating how your condo or co-op can charge capital contribution fees. For example, according to New York law, all capital contribution fees must be stated beforehand in your community's governing documents.
If your building wants new owners to pay a capital contribution fee and its governing documents don't explicitly allow this, the board would first have to amend its governing documents to allow this practice, following the amendments requirements as stated in the governing documents. More times than not, you’ll need to connect with a real estate attorney to review and draft the necessary amendments to your governing documents then put it up for a vote with all owners or shareholders. Check if you need a majority or supermajority before adopting.
What happens if you don't pay your building's capital contribution fees?
It's understandable to not want to pay capital contribution fees. However, you typically have no option if the governing documents require them to join the building community.
Stay on top of your capital contribution fees
Understanding your duties as a board member can be trying, particularly if you've never been on a building’s board before.
Luckily, we at Daisy are here to help. We’re a tech-driven, full service management company that creates exceptional living experiences for residents. We partner with buildings to make board members’ and residents’ lives easier, and make their buildings even better. Learn more about us here.