As you’re probably well aware, condominium, townhome, and homeowner’s association residents typically pay regular assessments to cover collective maintenance expenses. But what happens when there are financial needs outside of the community’s annual budget? Enter Special Assessments.
Let’s review the basics:
What are Special Assessments?
Special assessments are monies, in addition to the regular monthly assessment, collected by a condominium, townhome, or homeowner’s association from its members so that the Association can pay for expenditures not included in the Association’s annual budget.
An Association’s use of funds collected through a special assessment is generally restricted to the specific project for which the Special Assessment was approved as well as any ancillary costs (for example, engineering fees, building permits, construction bonds).
When an Association levies a special assessment, the board resolution may call for payment in a single lump-sum or in multiple installments – most frequently in monthly installments payable over the course of several years.
Special assessments payable in installment payments are often adopted in connection with a bank loan obtained by the Association. The interest cost incurred by the Association is passed through to only those association members that elect to pay the special assessment through installment payments.
Why Adopt a Special Assessment?
Associations may be forced to adopt a special assessment in connection with an unforeseen major expense. For example, a catastrophic loss that is not fully covered by the Association’s insurance coverage or when the Association finds itself in a position where construction defect litigation becomes necessary.
More often, special assessments are levied because an Association has elected not adequately funded its reserve account over the course of many years. Unfortunately, when the day comes where the Association is faced with a major repair cost, the reserve account doesn’t have enough money to fully cover the cost of the project.
Even when an Association’s annual budget includes a reserve fund contribution, they may find that a special assessment is still required because the board relied upon an unrealistic or outdated reserve study in connection with its planning for future maintenance, repair and replacement costs.
What Legal Restrictions Exist for Special Assessments in Condominium Associations?
There are four major areas where the Illinois Condominium Property Act regulates special assessments:
Notice of the Meeting. Unlike a regular board meeting, which may be called on as little as 48 hours’ notice, a board meeting called for the purpose of adopting a Special Assessment requires written notice to each member of the association no less than 10 days and no more than 30 days in advance of the meeting.
Owner Approval. Special Assessments for additions and alterations to common elements not included in the annual budget must be approved by a 2/3rds vote of all owners.
Owners’ Right to Veto. In very specific situations, the owners have an opportunity to veto the board’s decision by submitting a petition. The special assessment must be adopted for specific purposes and the total amount payable must exceed a specific threshold. In addition, the petition requires minimum participation from the total ownership and must be submitted very shortly after the board adopts the Special Assessment.
Emergency Situations. When a Special Assessment is adopted by a board in order to comply with any law, or in order to address an emergency situation presenting an immediate danger to the structural integrity of the common elements or to the life, health, safety or property of the owners, no owner approval is required to adopt the Special Assessment and the owners do not have the right to veto the board’s decision.
Why consult with an attorney?
The Illinois Condominium Property Act has many technical requirements, that vary depending on the circumstance, which must be met to adopt a special assessment. Failure to meet even a small requirement can invalidate the board decision and prevent the association from collecting the special assessment. Furthermore, once the special assessment has been adopted, the association must comply with legal restrictions around the use of those special funds.
To properly document a special assessment and protect the interests of the association, it is important to adopt a Special Assessment Resolution, which is a record of the Special Assessment purpose, repayment terms, loan details (if any), late fees, and delinquency process.
An experienced attorney can help an association smoothly navigate the special assessment process and maintain compliance throughout the term of the special assessment.
If your Association is considering levying a special assessment, do not hesitate to contact our law firm. Since 1983, KSN has been a legal resource for condominium, townhome, or homeowner’s associations throughout the Chicagoland area. We have multiple offices including downtown Chicago, Mundelein, and Naperville. Call 855-537-0500 or visit www.ksnlaw.com to get started.
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