How to set up legal budget reserves
Q. The declaration for our condominium requires the board to build up and maintain a reasonable reserve for contingencies and replacements, and requires the reserve to be "segregated and allocated for specific purposes." The budget for our association includes various general categories of reserve expenses, and describes a lump sum for each category. Is this sufficient?
A. The declaration of condominium in the Illinois appellate court decision in Palm v. 2800 Lake Shore Drive Condominium included the same language as in the declaration for your association. The appellate court found that a lump sum line item in the budget for reserves does not satisfy the requirement that the reserve be itemized.
Therefore, the annual budget must itemize the amounts of money set aside that year for each component of the property for which reserves are established. Given the language in your declaration, it would be prudent to have a reserve study, and to update it from time to time, and to itemize the reserve portion of the annual budget based on the components described in the reserve study.
Q. Every year, before the annual meeting to elect board members, our association struggles to understand the difference between noncumulative voting and cumulative voting in an election for members to the board of an association. What is the difference?
A. Pursuant to the not-for-profit corporation act, voting at a meeting to elect board members is going to be by noncumulative voting, unless the association's declaration or bylaws provide otherwise.
In noncumulative voting, an owner has one vote per candidate for each of the seats on the board to be filled at the election. For example, if the election is for three board members, a unit owner can cast one vote for each of three different candidates. That's pretty straight forward.
Cumulative voting, on the other hand, can be complicated. Cumulative voting is intended to permit a minority of the owners to elect a representative member to the board by using the power of cumulative voting. In cumulative voting, an owner can cast a total number of votes that is equal to the number of board seats to be filled at the election. The owner can cast those votes in any manner they wish among the candidates. However, owners must use whole numbers.
For example, if there are three open seats on the board, the owner may cast all three of their votes for one candidate and no votes for the other candidates; or two votes for one candidate and one vote for another candidate; or one vote for each of three different candidates.
You can see how cumulative voting can be used to lawfully "stack" voting for a candidate or candidates.
In a condominium, each owner's vote would also be weighted by their percentage of ownership in the common elements. That can make cumulative voting extra complicated, and using a computer program to tally votes can be essential.
Q. One of the candidates for our condominium association's board is in the middle of a mortgage foreclosure action involving his unit. Is this owner eligible to be voted to and serve on the association's board of directors?
A. Generally, ownership of a unit is the criteria for serving on a board of an Illinois condominium association. The mere filing of a foreclosure action by a lender does not affect ownership of an owner's unit. Until a unit is sold at a judicial sale at the conclusion of a foreclosure, an owner would be eligible to serve on the association's board. It is more of a practical issue as to whether the owners want to elect someone to the board who is involved in a foreclosure.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. 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.