Board intends to borrow to pay property manager

Q. We are currently a self-managed condominium association. The board of our condominium is approving hiring a professional property manager for 2019 at an upcoming board meeting. The management expense is not in the 2019 budget, and the board does not anticipate there would be any available operating funds to pay the management fees in 2019. Can we use funds from the reserve account that was established for capital expenditures and deferred maintenance for repair or replacement of the common elements to pay for the 2019 management fees?

A. Section 18(a)(8)(iii) of the Condominium Property Act provides "that any common expense not set forth in the budget or any increase in assessments over the amount adopted in the budget shall be separately assessed against all unit owners." A strict reading of the act would require the board to adopt a special assessment to fund the payment of this new management expense that was not included in the 2019 annual budget. Using the reserve fund to pay the management expense would not be appropriate.

However, there may be a creative approach that can be employed to fund the 2019 management expense without having to levy a special assessment. The board could consider borrowing the money from the reserve account, with repayment to begin in 2020. I say 2020 because there is no 2019 item in the budget to repay a loan - so loan repayment in 2019 would require a special assessment. Of course, the 2020 budget would have to include a line item for repayment of the loan. Such a loan from the reserve fund would have to be approved by the board at a board meeting, and memorialized in a Promissory Note, and a market rate of interest would have to be paid on the borrowed funds. The 2020 budget and annual budgets thereafter should also include a specific line item for management fees.

I would also suggest having the association's accountant comment on whether this would raise any issues from an accounting standpoint.

Q. I have a question regarding the 2019 budget for our condominium association. The proposed budget was just approved for mailing to ownership at the last board meeting in December, and there will be an assessment increase in 2019. We will not have 25 days before the end of the year to distribute the proposed budget to owners and to adopt the budget. The board suggested adopting a budget in early January 2019, and increasing the assessment payments beginning in February. We are trying to determine how to send out the proposed budget to owners letting them know that the budget will be adopted in January. Do you have any advice and can the board make the assessment increase go into affect in February?

A. As you noted, under the Illinois Condominium Property Act, each unit owner must receive, at least 25 days prior to the adoption thereof by the board of managers, a copy of the proposed annual budget. Further, written notice of the board meeting to consider the 2019 budget must be mailed or delivered, giving members of the association no less than 10 and no more than 30 days' notice of the time, place and purpose of such meeting. Note, too, that the notice may be sent, to the extent the condominium instruments or rules adopted thereunder expressly so provide, by electronic transmission (email) consented to by the unit owner to whom the notice is given.

So, you are correct that there is not enough time to adopt the 2019 annual budget and assessment in 2018.

The board should issue a notice of a January 2019 board meeting to adopt the 2019 budget. The notice should also provide that the proposed budget is being provided with the notice. To avoid confusion, as to what the assessment will be in January 2019, it would be prudent to note in the notice that the 2018 monthly assessment amount will continue for January 2019, and that the 2019 monthly assessment increase will commence with the February 2019 monthly assessment.

That should do it. As an aside, the full year 2019 assessment increase will have to be compressed into the assessments payable in February through December 2019.

• 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.