Guidelines for setting up a reserve account

Q. Our townhouse association is preparing a 10-year budget forecast and would like to know if there is any formula for determining the amount of dollars to be maintained in the association's reserve account?

A. There is no formula or rule of thumb to determine the amount of a reserve fund, or as to the amount that should be contributed to the reserve fund each year. However, the Illinois Condominium Property Act does provide factors that the board of a condominium needs to consider when determining the amount of a reserve account.

The Condominium Property Act states that to determine the amount of reserves appropriate for an association, the board of managers must take into consideration the following:

• The repair and replacement cost, and the estimated useful life, of property the association is obligated to maintain, including but not limited to structural and mechanical components, surfaces of the buildings and common elements, and energy systems and equipment.

• The current and anticipated return on investment of association funds.

• Any independent professional reserve study the association may obtain.

• The financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves.

• The ability of the association to obtain financing or refinancing.

Note that there is no similar statutory guidance for a master association or common interest community association. However, those types of associations could certainly use these guidelines, as well.

In my view, the professional reserve study is the cornerstone of a board's determination of the amount that should be in a reserve fund.

Q. The board of our association is considering plowing snow from the individually owned driveways in our townhouse association. The association does not now do this, and only plows snow from the private streets in our association as required by our governing documents. What's the risk of this added burden?

A. At common law, there is no duty to remove natural accumulations of snow or ice. That said, the Illinois courts have recognized two exceptions to this rule - a voluntary undertaking and a contractual assumption of duty. A contractual assumption of duty could be found in an association's declaration of covenants. If the association voluntarily undertakes to plow snow from driveways, when it does not otherwise have a duty to do so, the association is exposed to liability if the association performs the task negligently. This exposure is typically from the "slip and fall" injury.

Q. The board of our association historically held a meeting of the owners to discuss the proposed annual budget before the board voted on the budget. This year, our board does not plan on holding an owners' meeting to review the proposed budget, and only intends to call a meeting of the board to adopt the budget. Is the board required to hold a meeting of the owners to discuss the proposed budget?

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. Let's review 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 that board meeting needs to be mailed or delivered to the owners. This notice to the owners must be issued 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.

• 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 condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.