Special assessments when reserve fund is insufficient

Hi everyone,

We are townhouse-style condos in Illinois. 110 units in 20 buildings; ~16 years old.

We will be having roofs, gutters, downspouts replaced. There is insufficient $$ in the reserve fund. (Please no comments on the deficient reserve fund – I KNOW the importance of having an up to date Reserve Study and properly funded reserve. That is not what this post is about.)

The Board will need to do a special assessment (SA) to cover the cost. What I am trying to determine is whether, per the IL Condo Act, copied below, the SA (SA amount meets the “exceeds 115% language” below) would need to be approved by 2/3s "yes" vote of all HOs. Our governing docs mirror the Act.

In addition, I interpret “2/3s vote of all HOs” to mean: we have 110 HOs; so 73 must vote “aye”.

Here is my interpretation of the pertinent paragraphs which were copied from the Act, provided below.

1. Para. (i) requires a meeting must be held re adoption of a SA before the Board votes to adopt the SA.

2. IF the SA amount added to the adopted budget exceeds 115% of the prior year budget, THEN Para. (ii) only requires a vote of the members IF there is a written petition representing 20% of the HO votes. Otherwise, the Board may adopt said SA.

3. Para. (iii) is straight forward.

4. Para. (iv) is not applicable in the scenario I’ve described.

5. Para. (v) requires a vote of the HOs for a SA not included in the adopted budget.

Your thoughts/interpretation would be much appreciated.
Thank you,
Bonnie

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From the IL Condo Act:
http://www.ksnlaw.com/E02E82/assets/files/Documents/Illinois%20Condominium%20Property%20Act.pdf

Sec. 18. CONTENTS OF BYLAWS. The bylaws shall provide for at least the following:

(8) (i) that each unit owner shall receive notice, in the same manner as is provided in
this Act for membership meetings, of any meeting of the board of managers concerning the adoption of the proposed annual budget and regular assessments pursuant thereto or to adopt a separate (special) assessment,

(ii) that except as provided in subsection (iv) below, if an adopted budget or any separate assessment adopted by the board would result in the sum of all regular and separate assessments payable in the current fiscal year exceeding 115% of the sum of all regular and separate assessments payable during the preceding fiscal year, the board of managers, upon written petition by unit owners with 20 percent of the votes of the association delivered to the board within 14 days of the board action, shall call a meeting of the unit owners within 30 days of the date of delivery of the petition to consider the budget or separate assessment; unless a majority of the total votes of the unit owners are cast at the meeting to reject the budget or separate assessment, it is ratified,

(iii) that any common expense not set forth in the budget or any increase in assessments over the amount adopted in the budget shall be separately assessed against all unit owners,

(iv) that separate assessments for expenditures relating to emergencies or mandated by law may be adopted by the board of managers without being subject to unit owner approval or the provisions of item (ii) above or item (v) below. As used herein, "emergency" means an immediate danger to the structural integrity of the common elements or to the life, health, safety or property of the unit owners,

(v) that assessments for additions and alterations to the common elements or to association-owned property not included in the adopted annual budget, shall be separately assessed and are subject to approval of two-thirds of the total votes of all unit owners,

(vi) that the board of managers may adopt separate assessments payable over more than one fiscal year. With respect to multi-year assessments not governed by items (iv) and (v), the entire amount of the multi-year assessment shall be deemed considered and authorized in the first fiscal year in which the assessment is approved;

and:

Sec. 18.4. POWERS AND DUTIES OF BOARD OF MANAGERS. The board of managers
shall exercise for the association all powers, duties and authority vested in the association by law or the condominium instruments except for such powers, duties and authority reserved by law to the members of the association. The powers and duties of the board of managers shall include, but shall not be limited to, the following:

(a) To provide for the operation, care, upkeep, maintenance, replacement and improvement of the common elements. Nothing in this subsection (a) shall be deemed to invalidate any provision in a condominium instrument placing limits on expenditures for the common elements, provided, that such limits shall not be applicable to expenditures for repair, replacement, or restoration of existing portions of the common elements.

The term "repair, replacement or restoration" means expenditures to deteriorated or damaged portions of the property related to the existing decorating, facilities, or structural or mechanical components, interior or exterior surfaces, or energy systems and equipment with the functional equivalent of the original portions of such areas. Replacement of the common elements may result in an improvement over the original quality of such elements or facilities; provided that, unless the improvement is mandated by law or is an emergency as defined in item (iv) of subparagraph (8) of paragraph (a) of Section 18, if the improvement results in a proposed expenditure exceeding 5% of the annual budget, the board of managers, upon written petition by unit owners with 20% of the votes of the association delivered to the board within 14 days of the board action to approve the expenditure, shall call a meeting of the unit owners within 30 days of the date of delivery of the petition to consider the expenditure. Unless a majority of the total votes of the unit owners are cast at the meeting to reject the expenditure, it is ratified.

Actually, I am glad to hear that -- thank you, Susan, for a great suggestion. From talking with some Board members, I have been given to understand that only a special assessment has been considered (thus far).

I am still interested in hearing interpretations/opinions on what I asked, though.

Thanks,
Bonnie

Bonnie,
Your read on this is how I also read it to be. However, I'd like to understand where you are heading with this. My take is that the special assessment needs 2/3 votes to approve under any circumstance. It doesn't matter if it is part of the budget or separate. Also, if there is any question, hold the vote, at least then the board cannot be faulted.

Also, on a different post, you mentioned wanting to discuss management companies. I posted my email address and would like to hear from you. [email protected]

Just a word of caution...... interest rates for HOA's are quite high, especially because so many are having problems and you already have money problems. You all pay in the end.... so make a good choice.

Thanks, Steve and Mary – your points are well taken.

If the roofs can wait long enough to allow the reserve fund to be built up enough to cover the project cost, I think that would be our best route to go. The key will be the Board’s willingness to increase Reserve contributions each year, beginning with the 2011 budget. This is something they have refused to do for several years now.

Bonnie

Thanks, Rick. No need to take time looking for that contact person at this point. Although if you have already found the name, then that would be useful to have.

Next steps - to learn the condition of the roofs via a report which I have been told will be presented at the August Board meeting. Then to learn what the Board is considering re timing of the roof project, and options to fund it. The proposed 2011 budget will come out to the HOs in the Fall – which may include an increase to the reserve fund – and may include some information regarding the roof project.

Thank you to everyone for sharing your thoughts. I’ll be back with an update & perhaps another question once there is more known.

Bonnie