How should common-area lighting project be financed?

Question: Our condo homeowners association is debating whether to buy new lighting for all the hallways, which would cost just under $200,000, or repair the existing lights at a cost of about $15,000.

In each case, should funds come from operating or reserve funds? How is the decision reached as to which path to take?

Answer: Operating funds are collected to meet the association’s day-to-day operating expenses, including utilities, gardening and routine maintenance such as replacing lightbulbs.

Reserve accounts are typically for funding capital expenses for major elements of the common property, such as painting exteriors, re-roofing and maintaining major sewer systems belonging to the development and located on the association’s commonly owned property.

Your association’s board is responsible for determining how much money should be collected or how much of a special assessment would be required to buy that hallway lighting. These deliberations should take place during a duly noticed meeting.

During that meeting, the board could determine that the money will come from operating expenses. In that case, there should be a line item for that expense in the association’s annual budget distributed to all owners, and every titleholder’s monthly assessments should reflect that increase.

Boards are required to indicate when they believe a special assessment would be necessary and for what purpose, along with the estimated amount, when they circulate the proposed budget for the coming fiscal year.

If the decision is that replacing lighting is a capital expense, the useful life of the lighting should have been determined when first installed or when the project was first turned over to the association. A decision on whether to collect money for that replacement would have had to be made by the board during that open meeting.

Send questions to P.O. Box 10490, Marina del Rey, CA 90295 or e-mail noexit@mindspring.com.