Can an Illinois condominium board approve a $250,000 roof project without asking the unit owners to vote on it? The answer usually turns on whether the work is an Illinois condo capital improvement or the replacement of an existing common element — a distinction most declarations draw but almost none define.
Illinois community association board of directors generally face questions regarding what constitutes a capital improvement. In Litvak v. 155 Harbor Drive Condominium Ass’n, Inc., 244 Ill. App. 3d 220, 614 N.E.2d 190 (1st Dist. 1993), the Illinois Appellate Court addressed the distinction between a capital improvement and a mere replacement.
This article will discuss the court’s ruling in Litvak and provide practical steps Illinois community association boards should take before authorizing a major common element project.
What Counts as an Condo Capital Improvement?
Litvak defined capital improvements as “betterments of a long-lasting nature which add to the capital value of the property.” Under that definition, work such as rewiring, new light fixtures, new fencing, and roof and gutter replacement can qualify as a capital improvement.
Painting and carpeting generally do not. The court reasoned that this work is performed solely for ordinary maintenance or cosmetic reasons and does not add lasting capital value to the common elements. For an Illinois condominium board, that line has real consequences: the same declaration provision that lets a board repaint a lobby on its own authority may require a two-thirds owner vote before it upgrades that lobby’s finishes.
Background of the Illinois Condominium Association Dispute
155 Harbor Drive Condominium Association governs a 742-unit high-rise. Section 5.07(b) of its declaration barred the board from paying for “structural alterations, capital additions to, or capital improvements of the Common Elements” costing more than $100 multiplied by the number of units, $74,200, without the prior approval of voting members holding two-thirds of the total votes. The provision carved out expenditures made “for purposes of replacing or restoring portions of the Common Elements.”
The board authorized the following three projects: (i) approximately $251,860 to replace the roof, (ii) approximately $125,000 to renovate the health club, and (iii) approximately $107,245 to redecorate a function room. Each exceeded $74,200, and none went to a membership vote.
Separately, the board approved the 1991 estimated operating budget on November 20, 1990, and mailed copies to unit owners on November 27, after it had already acted.
Unit owner Matthew Litvak sued the association and its board president, alleging that the expenditures violated the declaration and that the budget process violated 765 ILCS 605/18 of the Illinois Condominium Property Act. The circuit court granted summary judgment to the association on all counts, and Litvak appealed.
The Appellate Court’s Analysis of the Illinois Condominium Association Dispute
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“Capital Improvement” and “Replacement” Are Not the Same Thing
The court began by defining the term “capital improvement”. Capital improvements are “betterments of a long-lasting nature which add to the capital value of the property,” and can include rewiring, new light fixtures, new fencing, and roof and gutter replacement. Painting and carpeting are not, because they are performed solely for ordinary maintenance or cosmetic reasons.
Turning to the declaration’s exception, the court explained that to “replace” means to place again, to restore to a former condition, or to supplant with a substitute or equivalent. The court also noted that the replacing or restoring exception contemplates that the replacement of common elements will not result in an improvement over the original quality of those elements when they were initially acquired. The court found support in the legislative history of the Illinois Condominium Property Act, which distinguishes repair-and-replacement expenditures from capital expenditures involving expansion or better-quality facilities. Although not binding, the court considered those notes persuasive.
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Conclusory Affidavits Do Not Establish That an Expenditure Was a “Replacement”
The association’s motion rested on the affidavit of its property manager, which broke down the expenditures and asserted that less than $74,200 of each was attributable to non-replacement or non-repair costs. The appellate court was unimpressed. The affidavit contained nothing indicating that the affiant had applied the definition of “replacement” the court articulated, or that a property manager was better qualified than the plaintiff to apply it.
With the record largely devoid of evidence beyond conflicting and conclusory testimony, a material question of fact existed as to whether the health club and function room expenditures required a membership vote, and summary judgment was reversed on those counts.
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The Roof Claim Failed on Pleading Grounds
The roof project came out differently. The property manager’s affidavit stated that the old roof was being replaced with a virtually identical roof, which fit squarely within the declaration’s exception. Litvak argued the roof did not need to be replaced completely, but the court held that this was a challenge to the board’s fiduciary duties, not to the board’s compliance with the association’s governing documents. Because Litvak never pled breach of fiduciary duty regarding the roof, the claim was waived on appeal, and summary judgment was affirmed.
Key Takeaways and Practical Guidance for Illinois Community Associations
- Mixed projects require line-item analysis. Where a project blends true replacement with betterment, the board should be able to allocate costs between the two based on actual documentation.
- Conclusory affidavits will not carry a summary judgment motion. Contractor scopes of work, bid documents, and before-and-after specifications create a defensible record.
- Declaration claims and fiduciary duty claims are distinct. An owner who pleads the wrong theory loses it, but a board that satisfies the declaration is not automatically insulated from a properly pled fiduciary duty claim.
- Obtain a written scope of work before authorizing any project. Illinois community association boards should obtain a written scope of work that identifies what is being replaced in kind and what is being upgraded, allocate costs accordingly, document the analysis in the minutes, and confirm with counsel the approval process required under Illinois law.
Conclusion: Confirm the Approval Process Before You Authorize the Project
Litvak gives Illinois community associations a workable framework for determining whether a major project constitutes a capital improvement. Illinois community associations facing a major reserve project or a common element upgrade should have legal counsel determine the procedures the association must follow to approve these projects. The attorneys at Hirzel Law, PLC, regularly advise Illinois community associations on capital expenditure authority and the procedures required to adopt special assessments.
