Publications
Do Assessment Increases Require Owner Approval?
Published November 21, 1998 as
How to deal with unanticipated expenses
Each year boards of directors are required to adopt their annual operating budgets which sets forth all of the anticipated sources of revenue, as well as the common expenses for the coming year plus an allocation for capital reserves. After reviewing the calculations and establishing and approving the budget, the boards then set the assessment level for the upcoming year, subject to notification to all of the owners, in compliance with the Illinois Condominium Property Act ("Act") and the by-laws of the association. (For homeowners’ associations and co-ops, this is governed by the operating documents exclusively.)
Oftentimes, an association (particularly one where the developer controlled the board of directors for a lengthy period of time) finds that there are either recurring or nonrecurring expenses, or a shortfall of cash for unanticipated expenditures, whereby the board is then compelled to raise the assessment level after a budget has already been adopted for the year.
Section 18(a)(8) of the Act addresses the issue of annual budgets for condominium associations, as well as special assessments. The statute takes precedent, notwithstanding what may be stated specifically in an association’s declaration. This is a problem for many associations that have older declarations that contain different formulas or caps, which have been superceded by changes in the law.
Formerly, the Act and pre-1990 declarations provided that the board could levy a special assessment up to $300, or five times the monthly assessment, whichever was greater. Any larger amount required the approval of 2/3rds of all owners.
The Act now provides that if a budget or special assessment exceeds 115% of the total of the previous year’s assessments, the owners can challenge this if they file a timely petition and obtain the veto of a majority of all owners. However, if the expenditure is an "emergency," there are no limitations. This procedure is the governing law that supercedes all declarations of condominiums.
This method was incorporated into the Act in 1990, and as a result there is much confusion over the proper procedure since the previous statute, as well as many declarations, require unit owner approval if assessment levels or special assessments exceed a certain amount.
The 1990 amendments also added emergency spending provisions. An "emergency" constitutes an immediate danger to the structural integrity of the common elements or to the life, health, safety or property of the unit owners. The board of directors has unlimited spending authority and the unit owners have no right to contest, challenge or veto the proposed assessment increase or special assessment. However, this is a dangerous area for a board. It cannot randomly declare every expenditure outside the budget an "emergency." There must be a good faith determination. It is a good idea to have a written opinion from an expert stating the emergency nature of the defect.
A word of caution! It may really get confusing if you read Section 18.4(a) of the Act in conjunction with Section 18(a)(8). When replacement of the common elements results in an improvement over the original quality, if that improvement results in an expenditure exceeding 5% of the annual budget, the owners have the same veto rights as with a special assessment with respect to the improvement (e.g., replacing aluminum siding with vinyl).
These types of provisions were incorporated into the Act in order to limit a board’s ability to spend without limits yet still handle the day to day problems of an aging property. However, when the board of directors wishes to upgrade the property and repair, replace or restore the common elements, the only portion of the expenditure subject to challenge is the upgrade itself.
The only section of the Act that absolutely requires approval of 2/3rds of the owners is for an assessment for additions and alterations to the common elements or to association property not included in the annual operating budget. [Section 18.(8)(i)] This section would refer to a special assessment for acquisition of a unit, purchasing vacant land, etc.
In conclusion, there are three separate sections of the Act dealing with extraordinary expenditures outside the budget. If the board of directors finds it necessary to increase assessments to make repairs, or in the alternative adopt a special assessment, if it does not exceed 15% of the annual operating budget adopted for the preceding year, the board has no need to seek owner approval. If it exceeds 15%, the board needs to wait 14 days from the date of adoption to determine whether a petition will be filed to challenge the board’s authority, before it goes forward in signing a contract to incur the expense. It is up to the owners to challenge an assessment they think is unwarranted. It is not up to the board to seek owner approval. However, a prudent board will always attempt to keep the owners fully informed about the need to undertake any major repairs programs.