Written by: Julie Chatz Lerman
Legislation set to take effect on January 1, 2018 imposes new obligations on condominium associations in Illinois. The law amends both the Illinois Condominium Property Act (the “Condo Act”) and the Common Interest Community Association Act. For the purposes of this article, the focus is on the changes to the Condo Act. Anyone who lives in a condominium, serves on the board of a condominium association, or is an attorney who advises condominium association boards, should be aware of these upcoming changes.
Association Disposition of Surplus Funds Over Actual Expenses
The new law adds a new Section 9(c)(5) which states that, at the end of an association’s fiscal year, and after the association has approved any year end fiscal audit (if applicable), in the event the fiscal year ended with a surplus of funds over actual expenses (including budgeted reserve fund contributions), then, to the extent that there are not any contrary provisions in the declaration and bylaws, the board has the authority to dispose of the surplus is one of the following ways: (i) contribute the surplus to the reserve fund; (ii) return the surplus to the unit owners as a credit against remaining monthly assessments for the current fiscal year; (iii) return the surplus to the unit owners in the form of a direct payment; or (iv) maintain the funds in the operating account, in which case the funds shall be applied as a credit when calculating the following year’s annual budget. If the fiscal year ends in a deficit, then, to the extent there are no contrary provisions in the declaration and bylaws, the board has the discretion to address the deficit by incorporating it into the budget for the following year. Section 9(c)(5) also provides that the unit owners may object to any action taken by the board as follows: If 20% of the unit owners delivery a petition to the board objecting to the board’s action within 30 days after notice to the unit owners of the board’s action, the board shall call a meeting of the unit owners within 30 days of the date of delivery of the petition. At the meeting, the unit owners may vote to select a different option than selected by the board. The unit owners need a majority of total votes cast at the meeting to reject the board’s selection and chose a different option. If not, the board’s decision is ratified.
Sale of the Property (Deconversions)
Section 15 of the current law provides that if unit owners representing at least 75% of the total percentage ownership interests in the association vote to sell the entire condominium, all unit owners are bound by that decision and must sell their units. In a Section 15 sale, each unit owner gets a share of the purchase price based on the percentage ownership interest of that unit owner.
Under the new law, if a unit owner objects to the sale of the condominium property such unit owner may be entitled to more compensation than under the current law. The unit owner who does not vote in favor of the transaction is entitled to receive the greater of (i) the value of his/her interest, as determined by fair appraisal, less the amount of any unpaid assessments; or (ii) [new language] the outstanding balance of any bona fide debt secured by the objecting unit owner’s interest which was incurred by the unit owner in connection with the acquisition or refinance of the unit owner’s interest, less the amount of any unpaid assessments. The new language encompasses the amount to satisfy any underwater mortgage on a unit. In addition, the new law adds that the unit owner is also entitled to receive from the proceeds of a sale, reimbursement for reasonable relocation costs (e.g., moving expenses and payments for the added cost of renting or purchasing comparable replacement housing). The new law will apply to any Section 15 transactions that are pending on January 1, 2018.
Unit Owner Petitions- Increases in Regular or Special Assessments
Under the current law, by filing a petition signed by 20% of the unit owners, the unit owners can challenge a decision made by the board to increase regular or special assessments in excess of 115% of the prior year’s assessment. The new law amends Section 18(a)(8)(i) of the Condo Act to increase the amount of time to file the petition to the Board from 14 days to 21 days after the Board’s decision to approve the increase in assessments.
Unit Owner Petitions- Contracts with Board Members
Under the current law, by filing a petition signed by 20% of the unit owners, the unit owners can challenge a decision made by the board to enter into a contract with a current board member, a board member’s immediate family, or a company in which a board member or immediate family member has a 25% or greater interest. The new law amends Section 18(a)(16) of the Condo Act to increase the amount of time to file the petition to the Board from 20 days to 30 days after notice of the Board’s decision to enter into such contract is given to the unit owners.
Unit Owner Petitions- Rules Permitting Voting by Mail In Ballot or Electronic Voting
Under the current law, by filing a petition signed by 20% of the unit owners, the unit owners can challenge a decision made by the board to adopt a rule permitting the use of mail-in absentee ballots or electronic voting for board elections in lieu of proxies. The new law amends Section 18(b)(9)(c) of the Condo Act to increase the amount of time to file the petition to the Board from 14 days to 30 days after the Board’s decision to adopt the rule.
Unit Owner Petitions- Capital Improvement Projects
Under the current law, by filing a petition signed by 20% of the unit owners, the unit owners can challenge a decision made by the board to approve certain capital improvement projects in excess of 5% of the budget. The new law amends Section 18.4(a) of the Condo Act to increase the time to file the petition to the Board from 14 days to 21 days after the Board’s decision to approve the expenditure.
Generally Accepted Accounting Principles
The new law adds a new Section 18.10 to the Condo Act. This new section states that associations with 100 units or more shall use generally accepted accounting principles in fulfilling any accounting obligations under the Condo Act.
Association Records to be Maintained; Unit Owner Access to Association Records
Section 19 of the Condo Act sets forth the books and records that must be maintained by the board of the association and under what circumstances such books and records are made available to a unit owner for inspection and copying. The new law makes several changes to Section 19 of the Condo Act.
Current law [Section 19 (a)] provides that the board of the association must maintain the following records at the association’s principal office: (1) the association’s declaration, bylaws, and plants of survey, and all amendments; (2) the rules and regulations of the association, if any; (3) if the association is incorporated, the articles of incorporation of the association and all amendments thereto; (4) minutes of all meetings of the association and the board for the immediately preceding 7 years; (5) current policies of insurance of the association; (6) contracts, leases and other agreements then in effect to which the association is a party or under which the association or the unit owners have obligations or liabilities; (7) a current listing of the names, addresses, and weighted vote of all members entitled to vote; (8) ballots and proxies related to ballots for all matters voted on by the members of the association during the immediately preceding 12 months; and (9) the books and records of account for the association’s current and 10 immediately preceding fiscal years.
The new law changes item (7) above to add that the board must also maintain a list of the email addresses and telephone numbers of all members. It is important to note that this new provision may be in potential conflict with Section 18.4(s) of the Condo Act that permits the board to adopt rules and regulations (i) authorizing the electronic delivery of notice and other communications required under the Condo Act to each unit owner who provides the association with authorization for electronic delivery and an electronic address to which such communications can be electronically delivered. an owner to consent to receive notices by email and (ii) authorizing each unit owner to designate an electronic address or U.S. postal service address on any list of unit owners which the association is required to provide upon request under any provision of the Condo Act.
The new law also changes the categories of documents to which a unit owner is entitled to have access by written request. Under current law [Section 19(b)], a unit owner has the right to inspect, examine, and make copies of items (1) –(5) above at the office of the association, simply by making a written request to the board stating the records sought to be examined. The new law expands the documents to which a unit owner is entitled to examine simply by making a request in writing to include items (6) and (9) above. These documents were previously only available to a unit owner for examination and copying if such unit owner demonstrated a “proper” purpose.
The current law [Section 19(e)] requires that the unit owner state a proper purpose to be entitled to examine the books and records specified in (6)-(9) above, not just a request in writing. As stated above, the new law eliminates (6) and (9) from this requirement. However, with respect to the documents specified in (7) and (8) above, the new law adds a condition to the exercise of this right that the board may require a unit owner to certify in writing that the information will not be used for any commercial purpose or for any purpose that does not relate to the association. The new law [Section 19(e)] also (i) shortens the time period within which the board must comply with a unit owner’s request from 30 business days to 10 business days; (ii) adds the right of the association to impose a fine on any person who makes a false certification; and (iii) removes the provision stating that in any action to compel examination of records, the burden of proof is on the unit owner who requested the documents to prove that the unit owner is requesting the documents for a proper purpose.
The new law adds a new subparagraph 19(d-5) that sets forth the definition of “commercial purpose” as the used of any part of a record or records described in Section 19(a)(7) and Section 19(a)(8), or information derived from such records, in any form for sale, resale, or solicitation or advertisement for sales or services.
Finally, the new law amends Section 19(f) to provide that the board may, but is no longer required to, charge the actual cost of retrieving and making the records available for inspection and examination, or the costs of reproducing the records, to the requesting unit owner. The imposition of these costs is no longer mandatory.
Legal Combination of Units
Under Section 31 of the Condo Act, the new law provides that when 2 or more units are legally combined, the board is authorized to grant to the combined units the exclusive use of the common elements adjacent to the combined units (e.g., the use of a portion of the adjacent hallway space between the units), as a limited common element, provided that such portion of the common elements is not necessary or practical for use by other unit owners. The new law also provides that the board’s granting of the exclusive use of such portion of the common elements, is not a diminution of the ownership interests of the other unit owners requiring the unanimous consent of all unit owners.
The foregoing is a summary of the changes to the Condo Act effective January 1, 2018. For further information, please contact us.