Tuesday July 14, 2026
What is a capital improvement project in California HOAs?
A capital improvement project is a major addition, upgrade, replacement, or restoration that improves a community asset or extends its useful life.In California HOAs, capital improvement projects often involve common area components like roofs, roads, elevators, pools, clubhouses, gates, lighting, or building systems. They should be planned around the governing documents, budget, reserve study, and applicable Davis-Stirling Act requirements.
Examples of capital improvement projects
Common capital improvement project examples include:- Replacing a clubhouse roof
- Repaving private streets or parking areas
- Upgrading pool equipment or pool decks
- Replacing elevator systems
- Installing new entry gates or access systems
- Renovating a lobby, clubhouse, gym, or amenity space
- Replacing major lighting systems
- Upgrading irrigation or landscaping infrastructure
- Installing security cameras or access-control equipment
- Repairing or replacing balconies, decks, railings, or walkways
- Replacing major plumbing, electrical, or mechanical systems
- Adding EV charging infrastructure in common areas
- Improving drainage, slopes, or stormwater systems
Repairs vs. capital improvements
A repair usually restores something to working condition, while a capital improvement project usually adds something new, replaces a major component, extends the useful life of an asset, or improves the property beyond routine maintenance. For example, patching a small roof leak is usually a repair, while replacing the full roof system may be a capital improvement project.Paying for a capital improvement project
California HOAs often pay for capital improvement projects through reserve funds, special assessments, loans, or a combination of funding sources.- Reserve funds: Reserve funds may generally be used only for the repair, replacement, or maintenance of existing major components, not for new improvements. California’s 2026 reserve fund requirements say that funds may generally be used for the repair, restoration, replacement, or maintenance of major components the association is responsible for maintaining, or for certain related litigation (Cal. Civ. Code § 5510(b)).
- Loans: Loans have become increasingly common for funding capital improvements in recent years, a trend that has been mirrored at FirstService Financial.
"FirstService Financial facilitates about $400 million in loans for clients annually and has closed more than $3.5 billion in loans, overseeing the entire lending process — from negotiation to closing."
Before determining if a loan is the right option for your community, consult with your association attorney and HOA manager as some governing documents require a membership vote before securing a loan.
Karla Chung, senior vice president of FirstService Financial
- Special assessments: If your reserves are insufficient to pay for what your community or building needs or the project is not outlined as a reserved item, the community will need to look for alternate sources of funding. This means potentially levying a special assessment, an additional HOA fee that allows homeowners to make payments and finance the project's cost over time.
While a special assessment allows the community to avoid taking on debt, it is also the least popular option among homeowners. Large, unexpected assessments can create hardship for residents, who may challenge the decision or direct a lawsuit against the community for neglecting its fiduciary responsibilities.
If homeowners cannot afford the additional payments and require a payment plan, the community may need more funds to begin the project and pay it in full. Before imposing a one-time special assessment on your community, check your governing documents and consult with your legal counsel to support compliance with California HOA laws.
Preventive maintenance: capital improvement’s close cousin
In contrast to capital improvements, preventive maintenance is generally less costly and performed more frequently. It is funded from your association’s operating budget under the line item “Repairs and Maintenance (R&M),” and it is meant to restore your major components (or “assets”) to their original condition or prevent them from deteriorating further.Adhering to the preventive maintenance schedule outlined by the manufacturer or installing contractor for a component enhances the possibility of that component achieving, or even surpassing, its projected lifespan — that is, the duration it is expected to function as intended. Extending the useful life of a component means postponing the need for replacement or significant repairs, ultimately leading to financial savings for your organization.
However, there are caveats.
"Sometimes, repairs to an older component can get very expensive; in fact, it may cost less to replace the component altogether. If the repairs cost about the same or are more than a replacement, you should replace the component. The new component may even be tax deductible, or you may get a tax incentive."New equipment may also come with a manufacturer’s warranty, be more energy efficient, and have a longer life expectancy.
Christopher L. Pappas, senior vice president at FirstService Residential
In some instances, maintenance jobs can turn into capital improvement projects unexpectedly. For example, roof damage could appear to require a simple repair, but further inspection might reveal that the entire roof needs to be replaced.
The role of reserve studies
A reserve study allows you to plan and budget for long-term repair and replacement of major components (and sometimes large-scale upgrades depending on the association’s planning approach). A specialist from a reserve study firm (preferably an engineer) should conduct the study, which consists of:- A physical analysis. The reserve specialist performs a site inspection to assess the condition of common-area assets within your community, such as clubhouses, lobbies, and pool areas. Based on this assessment, they estimate the remaining useful life and make recommendations for their repair or replacement.
- A financial analysis. After the site inspection, the reserve specialist estimates the cost for each repair or replacement as well as any additional improvements (like adding a playground or expanding the fitness center). Based on these costs and your current reserves, the reserve specialist recommends a funding plan and calculates the monthly contribution required from each homeowner.
This thorough examination will furnish a more precise understanding of the necessary work and associated costs. For such detailed assessments, consulting with local professionals like contractors, engineers, and architects is recommended.
How FirstService Residential can help
FirstService Residential supports California communities with local expertise backed by national resources. Our teams help boards plan and manage capital improvement projects by coordinating reserve study updates, organizing vendor bids, tracking project timelines, supporting homeowner communication, and helping boards evaluate funding options such as reserves, loans, and special assessments.For more than 40 years, our dedicated teams have helped boards stay organized with governance support, recordkeeping systems, financial management, vendor coordination, banking and insurance programs, resident communication, and 24/7 customer care.
We help boards apply consistent processes that align with their governing documents and California law, so board members can stay focused on long-term community goals instead of day-to-day administration.
Contact a member of our team today to learn more.
This information is provided for general informational purposes only and is not intended to constitute, and should not be relied upon as, legal, regulatory, financial, or operational advice, or as a representation or guarantee of any specific services, capabilities, or outcomes. Property management needs, regulatory requirements, market conditions, and available services vary by jurisdiction, property type, and community. FirstService Residential provides services through locally based affiliates and associates, and services and results may vary by community, region, contractual terms, and applicable law.