Community association proposes buyer fee changes
Q. The board of our common interest community association has authorized an owner vote and recommended approval for proposed changes to our declaration that would delete the existing buyer/new member fee of a flat rate and establish a different buyer/new member fee based on a percentage of the gross selling price to be paid by the buyer. This would be in addition to an existing seller resale fee of a percentage of the sale price payable as the declaration states by the “grantor or grantee as their contract provides” which would not change.
When it was asked if other developments in Illinois have both a seller resale fee and a buyer new member fee the answer was “no.” This raises the issue of why new member initiation fees have not been adopted by other associations in Illinois to also get this revenue windfall.
Also, do the owners have the authority to amend the declaration to create a buyer new member fee in addition to an existing seller resale fee, and if so, are there limitations on that authority such as its rate?
A. That is a unique situation. It is not unusual for an association’s declaration to require an initial capital contribution to the association upon the sale of a unit or home from the original developer or builder to the first buyer. Most declarations limit that requirement to the first transaction.
However, there are associations whose governing documents require an ongoing capital contribution to the association upon the sale of a unit or home in subsequent transactions. The capital contribution requirement is usually a flat fee.
Personally, I do not recall seeing a buyer’s capital contribution and/or a seller resale fee based upon the percentage of the gross sale price for the home. From a legal standpoint, as long as the buyer or seller fee requirement is properly contained within the association declaration or by-laws, the fee requirement itself is a legal and enforceable condition of sale. Moreover, the fee may be based upon any formula (flat fee or percentage) as long as it is contained in the declaration. The use of those funds by the board or association would be further dictated by the terms and conditions of the declaration and by-laws.
I believe the practical reason why these types of fees are not as common is the potential negative impact on the marketability of the units or homes. Additionally, it is the board’s obligation to adopt adequate annual budgets that satisfactorily fund the operating expenses and reserve accounts for an association thereby eliminating the need of such capital contributions. Again, however, there is no legal reason additional capital contributions cannot be required.
Depending upon the precise language of your association’s declaration and by-laws, it is very likely that the unit or home ownership can change the requirement, formula and use of those capital contributions via an amendment to the governing documents as long as it is properly adopted and recorded.
Q: When it comes to associations, what is the difference between a board of managers and a board of directors?
A: Board of directors refers to the governing body for a condominium or common interest community association that has been incorporated as an Illinois nonprofit corporation. Board of managers refers to the governing body for a condominium or common interest community association that is not incorporated (not a corporation).
Practically speaking, the terms are typically interchangeable and often mean the same type of board.
• Matthew Moodhe 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.