A capital preservation fee is a one-time charge that is collected by a homeowners association when a home changes hands. It is paid at closing, usually by the buyer, and it is separate from the regular assessments that are billed afterward. It is often a surprise to buyers who were not told about it early.
This article is general information and is not legal advice. The association's attorney should be consulted.
What the Fee Is Called
The same charge is known by several names, depending on how the governing documents were written:
- Capital contribution
- Capital preservation fee
- Working capital contribution
- Resale fee or transfer fee
- New owner fee
Whatever the name, the idea is the same. A fixed amount, or an amount tied to the assessment or the sale price, is paid into the association each time a parcel is sold. In some communities a similar contribution is also collected on the first sale from the developer.
Where the Authority Comes From
The fee is not created by a board vote alone. The authority to charge it, the amount or formula, the person who pays it, and any exempt transfers are expected to be found in the recorded declaration or in an amendment that was properly adopted under the declaration's own amendment procedure. When the documents are silent, the fee should not be charged until the question has been reviewed by the association's attorney.
Exemptions are commonly written into the documents for transfers between spouses, transfers into a trust, or transfers by inheritance.
How It Shows Up at Closing
In Florida, the fee is disclosed through the estoppel certificate. Under section 720.30851, Florida Statutes, the certificate for a homeowners association must state whether a capital contribution fee, resale fee, transfer fee, or other fee is due, and the type and amount must be specified. The closing agent relies on that answer, and the fee is collected with the other amounts on the settlement statement.
Because the association is held to what the certificate says, the fee should be confirmed against the governing documents each time a certificate is prepared. More detail is available in our post on the
estoppel letter from a homeowners association.
Condominiums Are Treated Differently
For condominiums, fees charged in connection with a sale or lease are addressed in section 718.112(2)(k). Under that paragraph, a fee may be charged in connection with the sale, mortgage, lease, sublease, or other transfer of a unit only when the association is required to approve the transfer and a fee for that approval is provided for in the declaration, articles, or bylaws. The fee is set in the statute at no more than $150 per applicant, and that figure is adjusted every five years for inflation, with the current amount published by the Department of Business and Professional Regulation. Spouses, or parents and dependent children, are counted as one applicant.
A security deposit of up to one month's rent may also be required from a prospective tenant when that authority appears in the condominium documents. Whether any capital contribution beyond these amounts may be collected by a condominium association is a question that should be put to the association's attorney.
How It Differs From Reserves and Assessments
The three terms are often confused, and they should be kept apart in the association's books.
- Regular assessments are billed to every owner on a schedule and fund the annual budget.
- Special assessments are levied on all owners for a specific purpose that the budget did not cover.
- Reserves are budgeted savings for major repairs and replacements, such as roofs and paving.
- A capital preservation fee is paid only by a new owner, only once, at the time of purchase.
Where the money goes is decided by the governing documents. In some communities it must be deposited to reserves or to a capital fund. In others it may be used for operating costs. The fee should not be counted on as a substitute for reserve funding, because the amount collected each year depends on how many homes are sold. The risks of thin reserves are covered in our post on the
consequences of not having cash reserves.
Good Practice for the Board
- The section of the declaration that authorizes the fee should be identified and kept on file.
- The amount and the party responsible for payment should be disclosed to sellers, buyers, and real estate agents early.
- The fee should be reported on every estoppel certificate, and the ledger should show where each payment was deposited.
- Any change to the amount should be made only by a properly adopted amendment.
Questions About Closing Fees in Your Community
For associations managed by Condominium Associates, capital contributions are tracked and reported on estoppel certificates by our accounting team. To talk about how these fees are handled in your community,
contact us.
