For many corporate legal counsels and conscientious professionals, capital projects and their financing often present unique legal obstacles. A recent legal development, however, could serve as a prescedential blueprint for future efforts. Primarily, the question of whether annual assessments can cover the cost of a new capital project has found its answer in a recent court case, Walsh v. Hawthorn Hills Owners of Rochester, Inc. 2023 WL 4144757, Not Reported in N.W.Rptr (Michigan, 2023).
The Walsh v. Hawthorn Hills Owners of Rochester, Inc. case involved a new construction project for street lights. The court decisively ruled that such a project could be categorized as a general and recurring expense and could, therefore, be included within the annual budget. The full details of this legal development can be found on
JD Supra.
The court’s ruling hinged on the specifics provided in the association documents. Therefore, while this case provides valuable insight, legal professionals should note the imperative nature of such documents when plotting the financing course for capital projects. To be included in the annual budget, the potential expense must be potentially part of the association’s budget as set out in its governance documents.
Whether the expense of a new capital project can be put under an annual budget or requires specific financing can drastically affect the project’s feasibility. The precedent set by this case may prove beneficial for corporate and legal professionals handling similar scenarios in their practices. The case serves as a stark reminder that legal professionals should scrutinize their organizations’ documents to determine whether a similar approach is feasible in their context.