Capital contribution fees explained

Want to be a board member for your condo or co-op homeowners association (HOA)? Before you hand in your application, you may have to pay capital contribution fees.

Also known as working capital contribution fees, initiation fees, new owner fees, and transfer fees, capital contribution fees are a prerequisite for becoming a board member for certain HOA communities. They are typically only paid once, when the developer gives the association to the owners. However, some HOA communities charge these fees whenever a condo or co-op is sold to a new owner.

Differentiating between capital contribution fees and other HOA fees

As an HOA board member, you also have to pay other fees or dues. Don't confuse them with capital contribution fees, though.

Capital contribution fees are paid specifically upon the transfer of a property. Although they are usually used to fund the repair of common areas, they shouldn't be confused with HOA dues, which homeowners regularly pay to cover the HOA's operating expenses.

You should also distinguish capital contribution fees from special assessment fees, which HOAs may charge from time to time when their 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?

That depends on which HOA community you're seeking to join.

HOA fees have a wide range depending on the size, age, location, and upkeep of your building. As a rule of thumb, the more amenities your building has (i.e. pools, decks, a lavish lobby, and other amenities), the more expensive your capital contribution fees will be.

They are typically two or three times the amount of HOA fees, which are around $100 to $2,500 per month in New York depending on your HOA. So you can expect to pay around $600 to $7,500 to join an HOA in New York City.

Why do HOAs charge capital contribution fees?

No one wants to pay a fee for no reason. But there's a reason why many HOAs charge capital contribution fees — they go straight to the HOA's 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:

● Elevators
● Lobbies
● Swimming pools
● Patios
● Lighting
● Signage

HOAs 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. In fact, they're extremely common, although not every HOA community has them.

However, that doesn't mean there are no limits to capital contribution fees. There are some rules regulating how HOAs can charge capital contribution fees. According to New York law, all capital contribution fees must be stated beforehand in your community's governing documents.

If your HOA wants new members to pay a capital contribution fee and its governing documents don't explicitly allow this, the HOA would first have to amend its governing documents to allow this practice. The HOA would also have to follow its governing documents' requirements for amending the document. For instance, the HOA may have to get the consent of the majority of its board members before amending its governing documents.

HOA board members are also required by law to charge members of the same voting class the same capital contribution fees.

For example, let's say your HOA has the following membership classes:

Class A: Class A members are owners of units and have one vote for each lot or
unit they own.
Class B: Class B membership is reserved for the developer, who has three votes
for each lot or unit they own.

To comply with New York law, all Class A members would have to pay the same amount of capital contribution fees. The same goes for Class B.

What happens if you don't pay your HOA's capital contribution fees?

It's understandable to not want to pay HOA capital contribution fees. However, you typically have no option but to pay the fee if your HOA's governing documents require HOA members to pay before joining.

Stay on top of your HOA 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.

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