Assessment increases cannot be charged retroactively

Posted5/13/2017 6:00 AM

Q. The board of our association has not yet adopted the year 2017 budget, even though the declaration required the board to adopt the budget by mid-December of 2016. We have been paying assessments, in 2017, at the 2016 rate. The proposed budget for 2017, that will be adopted in June, calls for an increase in assessments. The documents provided by the board with the proposed budget and assessment increase state that the increase would be retroactive to Jan. 1. Can an assessment be enacted and payable retroactively?

A. No. An annual assessment cannot generally be adopted in June with a retroactive start date for the prior Jan. 1. How would that even work if units have been transferred between Jan. 1 and the date the budget increase is adopted? It couldn't, particularly if assessment status letters were issued for those units.

Most declarations require a budget to be adopted in advance of Jan. 1 of each year, and the first monthly payment is due Jan. 1. If a budget is not timely adopted, the typical declaration goes on to provide some language like "the unit owners shall continue to pay the monthly assessment charges at the then existing monthly rate established for the previous period until the new monthly assessment payment is due, which shall be more than 10 days after notice of the adoption of such new annual budget has been mailed."

Hence, an assessment increase established in the 2017 budget to be adopted in June can only be applied to future monthly payments for the year -- essentially from and after July 1. This means an assessment increase that would have been spread over 12 months, if effective as it should have been for Jan. 1, is just spread over fewer months of the balance of the budget year. However, it's still all due in the budget year.

Compressing the increase over fewer months can certainly "sting" the owners, so the board needs to better follow its declaration in establishing the budget in the future.

Q. The 2017 budget for our association includes a line item to replace the existing 10-year-old carpeting with an absolutely identical carpeting. However, the actual cost to replace the carpeting is going to be almost double the amount budgeted. Does the board have to obtain owner approval for this increase in expense?

A. No, an owner vote is not applicable here. Budgets are planning tools and a guide for the board. Actual expenses can be higher or lower than budgeted for a particular budgeted category.

Generally, a board can spend more than is budgeted for a particular item. To keep from operating at a deficit, the board will have to spend less in another budget category, if actual expenses for other budget categories exceed what was budgeted. That is, unless the board adopts a special assessment to make up an overall shortfall in the budget.

Q. Title to many of the units in our association is held in a land trust. Who votes on behalf of these units?

A. The trustee of the land trust, or the holder of the current beneficial interest in the land trust, can typically vote on behalf of the trust that holds legal title to a unit. The trustee can be requested to designate in writing a person to cast votes on behalf of the unit owner. That designation would remain in effect until a subsequent document is provided to the association. Note, too, that many association declarations provide, as does Illinois case law, that the beneficiary of a land trust is a unit owner. That would permit the beneficiary to vote. The board should require evidence of a person's status as a beneficiary of a trust.

• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.

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