Does the Board Need Approval for Expenditures Over $5,000?

Question from uncle bob, Does the Board Need Approval for Expenditures Over $5,000?

Answer from AI:

The paragraph you’re asking about seems to be from a document that outlines the powers and limitations of a board, likely within a homeowners association (HOA) or a similar entity. It’s important to break down the language to understand its implications fully. Here’s a simplified explanation:

The board is restricted in its powers to make certain financial decisions without obtaining prior approval. Specifically, the board:

• Cannot acquire and pay for any structural alterations, capital additions, or capital improvements to the common elements if the cost exceeds $5,000. This includes any changes or enhancements that are permanent and add value to the property.
• Is allowed to replace or restore parts of the common elements without needing this approval, suggesting routine maintenance or necessary repairs are exceptions to this rule.
• May act without this approval in emergency situations that require immediate repair, protection, or operation of the common elements, even if the costs exceed $5,000.

Approval requirements: For expenditures over $5,000 on non-emergency alterations, additions, or improvements, the board must obtain the prior approval of two-thirds of the attending owners at a regular or special meeting.

This means, in essence, that for most large projects or expenditures exceeding $5,000 that are not emergency repairs or routine maintenance/restoration, the board must seek and receive approval from a significant majority of the property owners present at a duly called meeting.

Why This Matters

This clause is designed to ensure that significant financial decisions, especially those that could impact the value of the property or the owners’ financial responsibilities, are made transparently and with the consent of the property owners. It serves as a check on the board’s power, promoting accountability and preventing unilateral decisions on large expenditures.

What to Do If You’re on the Board

If you’re a board member considering a project or purchase that falls into this category:

1. Review your governing documents and state laws to ensure compliance with all procedural requirements for calling a meeting and obtaining owner approval.
2. Prepare a clear presentation of the proposed expenditure, including its necessity, benefits, and costs, to present to the owners.
3. Consult with a legal professional to ensure that all steps taken are in accordance with the law and the governing documents of your association.

For Homeowners

If you’re a homeowner and believe the board is not following these rules:

1. Bring your concerns to the board in writing, citing the specific clause you believe is being violated.
2. If the issue is not resolved, you may need to seek legal advice to understand your rights and options.

Legal Advice: This explanation is meant to provide a general understanding of the clause you asked about. However, the interpretation and application of legal documents can vary based on specific circumstances and local laws. For personalized advice, it’s always best to consult with a legal professional who can provide guidance based on your situation.

For more information on homeowners associations and board responsibilities, you might find the U.S. Department of Housing and Urban Development (HUD) resources helpful.