Np time limit for rules violation hearing
Q: The rules for our association provide that each rule violation hearing shall be no longer than 50 minutes. The fine for a violation of a rule is typically around $250. An owner in our association contends that the association has no authority to limit a rule violation hearing to 50 minutes. Do you know of any law that addresses the ability of the board of a homeowners' association to limit the time for a rule violation hearing?
A: I don't know of any Illinois appellate court decision, or statute, that addresses this issue. It is within a board's authority, using its business judgment, to set a reasonable time limit for a rule violation hearing.
As an aside, and to put this in some perspective, each side has about 30 minutes to argue a case before the U.S. Supreme Court, and they hear some pretty important issues. But then, just maybe, "the Supremes" would extend the time to hear about a dog pooping in the condominium lobby.
Q: The board of our condominium ran into some unexpected expenses this year. The board is going to borrow funds from the reserve account to pay operating expenses. We are trying to decide how much time we should allow to pay those funds back. One board member claims such funds must be paid back in two years. Is there such a time limit?
A: Initially, a board cannot typically use reserve funds to pay bills, per the Palm case. However, a board can "borrow" funds from the reserve to pay bills. The funds must be paid back to the reserve fund with a market rate of interest, and within some reasonable period of time. The transaction needs to be approved at a board meeting and documented in a Promissory Note. The board can determine the payback period, and there is no two-year limit.
That said, some declarations provide a limit on the length of contracts that a board can enter into without owner approval. The board needs to review the declaration for any limitations on the term of a contract.
Q: Do committees of an association have to keep minutes of committee meetings?
A: Yes, a committee of an association must keep minutes of committee meetings. Of course, I am assuming this is a true committee, and not an advisory commission improperly referred to as a committee.
Section 107.75(a) of the Illinois Not for Profit Corporation Act states that each corporation shall keep minutes of the proceedings of its members, board of directors and committees having any of the authority of the board of directors. The minutes should be kept with the books and records of the association.
Q: Does our community association need to pay income taxes?
A: Condominium and other forms of community associations are entities that must account for their taxable income. Even if no tax is owed, there is still a filing requirement. A community association will generally not qualify for tax exempt status under Section 501(c) of the Internal Revenue Code. Nonetheless, Section 528 of the Code permits a qualifying community association to make an election to receive certain tax benefits that, in effect, permit the exclusion of certain income (referred to as "exempt function income") from its gross income, thereby reducing (if not eliminating) its income tax liability. If such an election is made, the community association is not taxed on its exempt function income. However, the community association is taxed at the rate of 30% of the "homeowners association taxable income." This rate applies to both ordinary income and capital gains. Associations should speak with their accountant to determine on what form (Form 1120-H or Form 1120) it should file to have the least (if any) tax liability.
• 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.