Accounting changes will likely be an added expense

As I noted in the Nov. 18 column, new Section 1-45(h)(i) of the Common Interest Community Association Act and new Section 18.10 of the Illinois Condominium Property Act provide that: "An association subject to this Act that consists of 100 or more units shall use generally accepted accounting principles ("GAAP") in fulfilling any accounting obligation under this Act." This new law is effective Jan. 1.

I'm not an accountant, so I reached out to Mark Cantey, owner of Cantey Associates in Wheaton, who represents associations throughout Chicago, for an explanation of what GAAP means.

Cantey indicates that "to understand what generally accepted accounting principles means from a practical point of view for an association, the financial statements must now be prepared on the accrual basis, which is recording income when earned, not necessarily when received, and reflecting expenses when incurred, not necessarily when paid.

"In addition, a GAAP financial statement will provide, along with the balance sheet and income statement, a statement of cash flows, which attempts to reconcile the activity of cash flows for the year. Finally, a GAAP statement should include disclosures and footnotes as appropriate. Accordingly, the practical solution for the association to meet these GAAP requirements can be met with a compilation, review or audit at the end of the year."

The requirements imposed by the new law will no doubt increase the expenses of those associations making changes to fulfill accounting obligations under the respective statute governing their association. That's too bad because many associations are struggling to keep assessments at a level that are both affordable and that permit an association to adequately fund essential maintenance, repair and replacement projects. This new law may be another example of a legislative solution looking for a problem.

Q. I live in a townhouse association community. The majority of the homeowners present at the annual meeting made it clear they want to limit the number of units that can be leased, depending on what a lawyer would recommend as appropriate. Please advise as to the next steps. Should the board check with the lawyer first to see if this is feasible?

A. Typically, consideration of the imposition of a leasing restriction is driven by the board of directors of an association. Sometimes this is based on what the board thinks is best for the association, and sometimes based on the input of owners.

Here, it would be prudent for the board to investigate restricting leasing of units, given the significant number of owners that appear to be in favor of this.

The board should definitely consult with counsel familiar with association law. The attorney should be able to advise the board on how such a restriction is imposed. Typically, it requires an amendment to the declaration or bylaws requiring owner approval; occasionally, it may be accomplished by rules adopted by the board. This would require a careful review of the declaration and bylaws.

If owner approval is required, counsel will advise as to what percentage of the ownership is required for an amendment, and as to whether this approval is obtained by vote of the owners at a meeting, or by the owners signing the amendment without an owner's meeting.

Counsel should also provide guidance on what sort of limitations may be available, and as to dealing with existing leases and hardship situations. There is no "one size fits all" approach to limiting leasing, and each association needs to take its own situation into consideration.

• 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.