Detail of year-end fund reports in question
Q. Under the Illinois Common Interest Community Association Act (“CICAA”), regarding the year-end summary for the budget year, does the board of directors need to furnish reserve fund information to the owners? The property manager does the report and the only report that is furnished to owners is the reserve fund balance. No adds/deletes/transfers or any transactions are furnished. Does this type of reserve fund year-end report comply with CICAA.
A. Section 1-45(b) of CICAA requires the board to “provide all members with a reasonably detailed summary of the receipts, common expenses and reserves for the preceding budget year.”
That section goes on to state that the “board shall (i) make available for review to all members an itemized accounting of the common expenses for the preceding year actually incurred or paid, together with an indication of which portions were for reserves, capital expenditures or repairs or payment of real estate taxes and with a tabulation of the amounts collected pursuant to the budget or assessment, and showing the net excess or deficit of income over expenditures plus reserves or (ii) provide a consolidated annual independent audit report of the financial status of all fund accounts within the association.”
With respect to your reserve fund question, I would contend that these sections do not require a report that describes every transaction during the year. Rather, a comparison between budgeted amounts and actual amounts should suffice. Keep in mind that an owner who wants more detailed information could make a request to the board under Section 1-30(i)(1)(ii) of CICAA for “detailed and accurate records in chronological order of the receipts and expenditures affecting the common areas, specifying and itemizing the maintenance and repair expenses of the common areas and any other expenses incurred.”
Q. The board of our condominium association maintains and contributes to a reserve fund. However, the reserve money sits in an account that does not earn any interest. Is it a breach of fiduciary duty by the board/property manager to not invest our reserve funds?
A. One of the criteria that the board is to consider in determining the amount of reserves that are appropriate is the “current and anticipated return on investment of association funds.” In my judgment, it would be a breach of duty if the board fails to invest reserve funds. These investments should not put principal at risk. The property manager would have exposure if the board directed that reserve funds be invested and does not carry out that directive.
Q. The developer of our condominium association was having financial problems. As a result, the developer sold the last 30% of the units to another developer at a discount. A question has come up as to whether this owner of the remaining units is a successor developer.
A. This scenario was perplexing for a long time.
The question raised by this is whether the purchaser of the developer’s remaining units is a successor developer who inherits developer liability and/or developer benefits under the declaration, or is the purchaser merely a bulk purchaser of units.
This was addressed by the legislature some time ago. As a result, “(a)ny assignment of a developer’s interest in the property is not effective until the successor: (i) obtains the assignment in writing; and (ii) records the assignment.” This is described in Section 9.5 of the Illinois Condominium Property Act and Section 1-47 of the Illinois Common Interest Community Association Act.
That said, I still find that some developers are not aware of these requirements and create controversy over their status. This can result in litigation that could have been avoided.
• 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.