Board's budgeting process seems to set assessments arbitrarily
By David M. Bendoff
Q: Our homeowners association board approves the budget based on expenses and reserves only. The board never includes projected revenue from dues. The monthly dues always increase though, and we generate a six-figure annual surplus. Must the board include projected revenue when preparing the budget?
A: In establishing the amount of the annual assessments, and stated in an oversimplified manner, the board should be taking into consideration estimated expense for the year, less projects to be funded from the reserve, and income from sources other than assessments (like rental fees, if any). The assessment should be based on this number.
That is, the assessment isn't some arbitrary number that may or may not cover actual expenses. Sounds like the board should speak with an accountant as to the proper way to create the annual budget and assessment.
Q: The board of our association frequently makes decisions on contracts and expenditures outside of board meetings. When confronted about this, the president says the expenditures in question were included in the approved annual budget, and therefore a board meeting is not required to approve a contract for a budgeted expenditure. They make these decisions via email or phone calls solely among board members. Is that correct? What recourse do I have?
A: The board is not correct. The board's approval of the annual budget is not a substitute for approving actual contracts at an open board meeting. These emails and telephone calls are not a substitute for a board meeting and public vote.
Short of filing suit to compel the board to follow the Illinois Condominium Property Act and clear case law on these issues, like-minded owners should elect board members who are committed to following the law.
Q: For how long should our condominium association retain meeting minutes?
A: Section 19(a)(4) of the Condominium Property Act requires an association to maintain, for examination and copying by owners, "minutes of all meetings of the association and its board of managers for the immediately preceding seven years." That said, because meeting minutes are the corporate record of association actions, I suggest they be maintained in perpetuity. At some point, given storage space considerations, such records, and other records of an association, can be stored electronically.
Q: Typically, our annual meeting of the owners, then a meeting of the owners to elect the board of directors, and then a regular board meeting, are all held on the same night. Is there a sequence we must follow in ordering these three meetings?
A: Initially, the annual owners' meeting and the election of board members is the same meeting; it is not two meetings. So, I think you are really referring to two meetings.
The annual meeting of the owners and the election of board members is one meeting, followed by a board meeting. The purpose of the board meeting that occurs immediately after the annual meeting of the owners and election is typically to elect board officers.
Such a meeting may be too soon for newly elected board members to get up to speed on anything else that needs board approval.
However, sometimes there is business that the board must conduct before the annual meeting of the owners and election. In that case, there would be a meeting of the board, followed by the annual meeting of the owners to conduct the election.
Having a regular board meeting the night of the annual owners meeting and board election is not required by law. That said, the governing documents for some associations require an annual meeting of the board the same night as the annual meeting and election, or within some specified number of days.
The important procedural issue here is that the appropriate notices be issued for the meetings.
• 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.