LEGAL TIPS–Adopting Special Assessments – Legal and Procedural Considerations

Jul 26, 2022 | Articles

For various financial reasons, many Illinois community associations choose to fund large-scale repair projects or other major common expenses, at least in part through special assessments. If an association adheres to the applicable legal requirements for special assessments and follows through on the procedural details for adopting a special assessment, the association should be well positioned to smoothly implement the special assessment and minimize disputes relating to the payment of the special assessment.

General Authority to Adopt Special Assessments

In most cases, an association’s board of directors has the authority to adopt special assessments without a unit owner vote, subject to limited unit owner veto rights. The applicable procedures will depend primarily on the purpose of the special assessment and whether the association is a condominium association, a common interest community association subject to the Illinois Common Interest Community Association Act (“CICAA”), a master association, or a common interest community association which is exempt from CICAA.

Relative to Illinois condominium associations, Section 18(a)(8) of the Illinois Condominium Property Act (“ICPA”) governs the imposition of special assessments. Under Section 18(a)(8), if a special assessment will cause the sum of regular assessments plus special assessments payable from one fiscal year to the next to increase more than 15 percent, the special assessment may be subject to a unit owner veto procedure.

The unit owner veto procedure for condominium associations is described in Section 18(a)(8) of the ICPA and is summarized as follows. The unit owners representing 20 percent of the total number of votes in the association have 21 days after the board meeting at which the special assessment was adopted to submit to the association a petition for a unit owners’ meeting called to vote on whether to overturn the special assessment. At this unit owners’ meeting, if the unit owners representing a majority of the total number of votes in the association do not vote to reject the special assessment, the special assessment is deemed to have been ratified. The special assessment also is deemed to have been ratified If the unit owners do not deliver a proper petition within the 21-day period. However, the Section 18(a)(8) unit owner veto requirement cannot be invoked if the purpose of the special assessment is to fund expenditures relating to emergencies or to fund expenditures that are mandated by law (e.g., to correct municipal building code violations). Also, as discussed below, different procedures apply to special assessments adopted for the purpose of making additions and alterations to the property.

Per Section 1-45 of CICAA, CICAA associations are subject to the same unit owner veto procedure applicable to condominium associations, with the exception that the time frame for delivery of the unit owner petition is 14 days for CICCA associations.

Condominium and CICAA association boards should consider waiting until the applicable (21-day or 14-day) unit owner petition delivery period has expired before entering into binding contracts with vendors or lenders. An alternative is to make the contracts contingent upon the absence of a successful unit owner veto. Otherwise, if an association becomes contractually obligated to a third party while the unit owner veto rights remain operative, there is some risk that the association’s ability to perform under the contract will be jeopardized if the special assessment is overturned.  Master associations and CICAA-exempt common interest community associations may or may not require unit owner consent for special assessments and must comply with the approval procedures prescribed by their governing documents.

Special Assessments for Additions and Alterations

Unlike special assessments adopted for the purpose of funding the maintenance, repair, or replacement of existing building components and facilities, special assessments adopted to fund additions and alterations to the property generally do require a unit owner vote. With respect to condominiums, Section 18(a)(8) of the ICPA provides that special assessments for additions and alterations not included in the adopted annual budget are subject to the approval of two-thirds of the total votes of all unit owners. This unit owner voting requirement does not apply when the purpose of the special assessment is to fund emergency repairs or repairs that are mandated by law.

Per Section 1-45 of CICAA, the same unit owner voting requirement and exceptions relating to special assessments for additions and alterations apply to CICAA associations, with the exception that the unit owner voting threshold for CICAA associations is a simple majority of the total membership at a meeting called or that purpose.

Again, master associations and CICAA-exempt common interest community associations may or may not require unit owner consent for special assessments and must comply with the approval procedures prescribed by their governing documents.

Board Meeting Notices

Section 18(a)(8) of the ICPA requires that condominium associations furnish to unit owners not less than 10 and not more than 30 days’ notice of board meetings to adopt special assessments. Section 18.5(c)(3) of the ICPA contains the same notice requirement for master associations. Section 1-40(b)(4) of CICAA requires that associations subject to that statute provide unit owners with not less than 10 and not more than 60 days’ notice of a board meeting to adopt a special assessment. CICAA-exempt common interest community associations must comply with the meeting notice requirements contained in their governing documents.

Allocation of the Special Assessment

Under Section 9(a) of the ICPA, special assessments must be charged to unit owners in accordance with their respective percentages of ownership in the condominium. Governing documents for CICAA associations, master associations, and CICAA-exempt common interest community associations typically – but not always – provide for allocating special assessments equally to each unit.

Special Assessment Resolution

It is a preferred business practice for a board adopting a special assessment to document the features of the special assessment in a detailed written board resolution. This practice helps clarify precisely how a special assessment will be collected and creates a written record that can be used as a reference at a later time. A special assessment resolution would typically contain some contextual information regarding the purpose of the special assessment and, if applicable, a brief summary of the terms of the association’s bank loan. Substantive topics for inclusion in a special assessment resolution can include the following: (1) the total amount of the special assessment for the entire association; (2) payment due dates; (3) if applicable, lump-sum and installment payment options and features, including a prepayment option; (4) if applicable, whether and how association bank loan interest will be paid by unit owners who select an installment payment option; (5) if a unit is sold while the unit’s installment payments remain pending, whether the balance of the special assessment must be paid in full at the time of closing or whether the remaining balance and existing payment plan will be assumed by the unit purchaser; and (6) if the unit owner defaults on the payment plan, whether the remaining special assessment balance will be accelerated and must be immediately paid in full.

For any further questions, feel free to contact Bartzen Rosenlund Kasten at 312.450.6655 or at info@brkchicago.com

 

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