A common question asked of our firm is whether approval by the association’s membership is required before it can conduct a capital improvement. Before looking at this question, it is helpful to define what constitutes a capital improvement.
While NRS Chapter 116 does not define a “capital improvement,” the Real Estate Division considers “a capital improvement for an association an expense for the acquisition or construction of new common element components. These new components then become part of the common elements and must be included in the association’s reserve study.” Division Advisory Opinion 16.01. Capital improvements are generally defined as betterments of a long-lasting nature which add to the capital value of the property. Litvak v. 155 Harbor Drive Condominium Ass’n, 614 N.E.2d 190, 194 (Ill. App. Ct. 1993) (Campbell, J.). With that general definition, we turn to Nevada law to answer the question of whether homeowner approval is required.
In that regard, an association may initiate capital improvement expenses only if authorized by the governing documents as a board’s authority to create a capital improvement is dependent upon the governing documents. Division Advisory Opinion 16.01. If the governing documents do not give the board authority for the capital improvement, the owners must approve an amendment to the governing documents to expand the board’s authority. The governing documents will dictate the process necessary for amending the governing documents.
If allowed by the governing documents, homeowner approval is only required if NRS 116.345.3 applies. NRS 116.345.3 provides that:
An association may not expand, construct or situate a building or structure that is not part of any plat of the planned community if the expansion, construction or situation of the building or structure was not previously disclosed to the units’ owners of the planned community unless the association obtains the written consent of a majority of the units’ owners and residents of the planned community who own property or reside within 500 feet of the proposed location of the building or structure.
Plainly stated, unless the proposed capital improvement was disclosed to the units’ owners on the community’s original plat maps, homeowner approval is required. That effectively means any capital improvement will require approval from a majority of the unit owners and residents who own property or reside within 500 feet of the proposed capital improvement.
It is worth reiterating that when it comes to capital improvements, Nevada law treats the vote required differently from other matters that require a membership approval. Rather capital improvements require approval of both owners and residents (i.e., tenants) who own homes or live within 500 feet of the proposed improvement.
The association’s governing documents must first allow the board to create the capital improvement. Once the improvement is permitted by the governing documents, a vote of those who own homes and reside within 500 feet of the proposed improvement must be obtained.
Questions surrounding capital improvements can be complicated and we strongly recommend consulting an attorney experienced with homeowners’ associations before moving forward. For additional information or assistance in addressing questions surrounding capital improvements, call Isaacson Law at (702) 529-2559.