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How to handle operating fund shortfall

Q: Our association has a capital reserve account. The association's bylaws specifically state the reserve account is to be used solely for making repairs and replacements to the areas maintained by the association. If the day-to-day operating expenses for the association exceed the annual assessments, can money be moved from the reserve account to the operating account to make up the shortfall?

A: The Illinois appellate court has said an association's operating account and reserve account are not fungible. That generally means a reserve fund for capital expenditures is not supposed to be used to pay operating expenses or to cover an operating account shortfall.

In the situation you describe, the board could consider borrowing funds from the reserve account to cover the shortfall. This needs to be documented with a promissory note that includes a market rate of interest and a repayment period. The loan to the operating account would, of course, need to be repaid, with the stated interest, to the reserve account. Alternatively, the board can speak with its bank to establish a line of credit to be used when cash-flow issues warrant.

Q: I live in a single-family homeowners' association. It is not fully built out, and the association is under developer control. I submitted a request for approval of a patio project to the developer. I have called the developer's office for information as to the status of my request. I am told review and approval of these requests takes 30 days, and that the developer will pass my concerns to the property manager and get back to me when they hear from him. However, I submitted my request more than 40 days ago and I have not heard from anyone. The village will not issue a permit without the association's approval. We're stuck. What recourse do we have?

A: There may be a lack of communication from the developer to the property manager, so an initial step may be to contact the property manager directly as to the status. I also suggest taking a look at the declaration of covenants for the association.

Some declarations provide that such requests are deemed approved if not denied within a certain number of days. If that sort of language is in the association's declaration, and the stated time has passed, you should issue a letter to the developer. The letter should reference the declaration language, recite the timeline for your submittal, and state that you deem the project approved since you have not received a response within the required time frame.

Failing all that, you could, as a last resort, pursue litigation against the developer/association seeking a court order to approve the project.

Q: New board members were elected at our annual meeting, which took place before the recent stay-at-home order of the governor. The board met in private after the annual meeting and determined who would serve as president, secretary and treasurer. Was the election of officers in this manner appropriate?

A: This was not appropriate. The election of the association's officers - the president, secretary, treasurer - must be conducted by the board at a duly called and held board meeting or portion of a board meeting that is open to all of the owners. The meeting in private after the annual meeting does not meet these requirements.

The governing documents for many associations require the board to meet immediately after the annual meeting to elect officers. However, this still requires proper notice and that the election of officers be conducted in a portion of the meeting that is open to all unit owners.

• 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.

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