Today's column addresses the many questions I have been receiving about association budget and expenditure issues.
Q. For many years, the board of our association held a meeting of the owners to discuss the proposed budget before the board voted on the budget. Last year, the board did not do this, and only called a meeting of the board to adopt the budget. Was the board required to hold a meeting of the owners to discuss the proposed budget?
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A. Whether a condominium or a common interest community association, the board does not need to call a meeting of the owners to discuss the proposed budget. Here's the procedure that has to be followed by the board to adopt the annual budget. A copy of the proposed budget needs to be mailed or delivered to owners at least 30 days prior to the board's adoption of the budget. Also, written notice of the date, time, place and purpose of the board meeting needs to be mailed or delivered to the owners no less than 10 and no more than 30 days prior to the board meeting to adopt the annual budget. In order to avoid two mailings, both the proposed budget and the notice of board meeting should be mailed or delivered to owners exactly 30 days before the meeting where the board will adopt the annual budget.
Q. The 2012 budget for our association includes a line item to replace our existing hot tub with an identical hot tub. However, the actual cost to replace the hot tub is going to be almost double the amount budgeted. Does the board have to obtain owner approval for this increase in expense?
A. Budgets are planning tools for the board. However, actual expenses can be higher or lower than contemplated for a particular budgeted category. Generally then, a board can spend more than is budgeted for a particular item. To keep from operating at a deficit, the board will have to spend less in another category, unless it adopts a special assessment.
Q. The total amount of regular and special assessments that were payable in 2011 for our association was $100,000. The 2012 budget calls for assessments of $110,000. Now the board is proposing a special assessment in the amount of $10,000 to pay for higher than anticipated operating expenses. There are no other special assessments due in 2012. Does the board need to obtain unit owner approval for this special assessment?
A. Whether a condominium or a common interest community association, the board does not need to obtain unit owner approval to adopt the proposed special assessment here. However, the owners can invoke a procedure that would require the special assessment to be put to a vote of the owners.
A board can generally adopt a special assessment without unit owner approval at a duly called and noticed meeting of the board. However, under certain circumstances and after it is adopted by the board, the unit owners have an opportunity to call a meeting and vote to reject the special assessment. Specifically, owners can invoke a procedure if any special assessment adopted by the board would result in the sum of all regular and special assessments payable in the current year exceeding 115 percent of the sum of all regular and special assessments payable during the preceding year.
Here, the owners with 20 percent of the votes of the association have a right to file a petition with the board within 14 days of the date the board adopted the special assessment. If the board receives a petition, the board must then call a meeting of the unit owners within 30 days of the date it receives the petition. The purpose of the meeting is to permit owners to vote on the special assessment. However, unless a majority of the total votes of all unit owners in the association are cast at the meeting to reject the separate assessment, it is approved.
Note that a special assessment for expenditures relating to emergencies or mandated by law can be adopted by the board without being subject to unit owner approval. "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.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to homeowner associations. This column is not a substitute for consultation with legal counsel.