Condo budget approval timeline explained

Q: Does the Illinois Condominium Property Act state a date by which a board must meet to adopt the annual budget?

A: The Condominium Property Act does not require that an annual budget be adopted by a specific date. That is generally set forth in the association's declaration or bylaws. In scheduling a meeting to adopt an annual budget, the board needs to keep some time frames in mind. Under the law, each unit owner must receive a copy of the proposed annual budget at least 25 days prior to the board adoption thereof. Additionally, each unit owner must receive formal notice of any board meeting concerning the adoption of the proposed annual budget and regular assessments. This notice must be sent in the same manner as provided in the Act for membership meetings which means unit owners must be given no less than 10 and no more than 30 days written notice of the time, place and purpose of the budget meeting. Most condominium boards send out one mailing with both the proposed budget and the notice of the board budget meeting between 25 and 30 days before the board budget meeting. That’s the easiest way to comply with both requirements.

Q: The declaration for our condominium association is silent as to what can or must be done with a year-end surplus of revenues over expenditures? What is the board permitted to do with the surplus?

A: The issue of an annual budget surplus (or a deficit) can be a rather complicated subject and the board or management should be prepared to seek counsel from the association’s attorneys as to the proper procedure. That said, this situation is addressed in Section 9(c)(5) of the Illinois Condominium Property Act.

At the end of an association's fiscal year and after the association has approved any end-of-year fiscal audit, if applicable, if the fiscal year ended with a surplus of funds over actual expenses, including budgeted reserve fund contributions, then the board of managers has the authority, in its discretion, to dispose of the surplus in one or more of the following ways:

• Contribute the surplus to the association's reserve fund;

• Return the surplus to the unit owners as a credit against the remaining monthly assessments for the current fiscal year;

• Return the surplus to the unit owners in the form of a direct payment;

• Maintain the funds in the operating account, in which case the funds shall be applied as a credit when calculating the following year's annual budget. Note that this only applies to the extent that there are not any contrary provisions in the association's declaration and bylaws.

If the fiscal year ends in a deficit, then, to the extent that there are not any contrary provisions in the association's declaration and bylaws, the board of managers has the authority, in its discretion, to address the deficit by incorporating it into the following year's annual budget. It is important to note that there is a procedure for the unit owners of the association to deliver a petition objecting to the action taken by the board. If a proper petition signed by at least 20% of the unit owners is received, the board must call a meeting of the unit owners. At the meeting, the unit owners may vote to select a different option than the option selected by the board of managers. However, unless a majority of the total votes of the unit owners are cast at the meeting to reject the board's selection and select a different option, the board's decision is ratified.

• 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.