Board responsibilities go beyond keeping assessments low
Q: The board of our condominium association thinks its primary responsibility is to keep monthly assessments low and to avoid special assessments. I would like to know what you think of that.
A: Keeping assessments low is a laudable goal. The board's primary responsibility is to provide for the operation, care, upkeep, maintenance, replacement and improvement of the common elements. The estimated costs to perform these functions should be used to determine assessment levels, and not an arbitrary philosophy to just keep assessments low.
The board is also responsible to maintain a reasonable reserve for capital expenditures and deferred maintenance for repair or replacement of the common elements.
The criteria set forth in the Condominium Property Act should be used to determine contributions to reserves. One of the criteria under the Act is "the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves."
The philosophy your board espouses may not reconcile with its actual responsibilities. Such a philosophy can result in expensive deferred maintenance, underfunded reserve accounts, and large future assessment increases and/or special assessments to fund the cost of work.
Q: At a recent association meeting, the owners were informed our association insurance went up almost 30%. The board said it is contacting the insurance agent to ask how we can reduce our increase. One option is to increase our deductible to as much as $20,000. A resident asked the board if they were going to get bids from other insurance agencies. The resident was told no, and that the board members were just too busy, and that if someone wanted to form a committee to look into this, they should do so. Does a board have the fiduciary responsibility to get other bids? Also, when board minutes were issued, that question and response were not recorded. Should they have been?
A: We appear to be in one of those cycles of increasing insurance rates for associations. I cannot say as a matter of law that the failure of the board to procure bids in this situation was a breach of fiduciary duty. However, obtaining bids would seem to have been a prudent approach.
Increasing the amount of the deductible can be a way to diminish the impact of rising insurance premiums, and is something a board should consider when evaluating insurance premium costs.
Minutes are not a transcript of a board meeting. Minutes should not generally include the dialogue you describe. Rather, meeting minutes are intended to reflect corporate actions/board decisions.
Q: We are a small condominium association and recently held our developer turnover meeting. Investigation has revealed the developer did not pay assessments on developer-owned units. Rather, the developer made payments to the association from time to time. However, the payments were less than what the developer-owned unit assessments would have been. The developer is now saying it did not have to pay assessment on the unsold units. Is that correct?
A: This is governed by Section 9(a) of the Illinois Condominium Property Act, and the developer is not correct.
Under that section, all common expenses incurred or accrued prior to the first conveyance of a unit are to be paid by the developer. During this period no common expense assessment is payable to the association.
However, it is the duty of each unit owner, including the developer, to pay his proportionate share of the common expenses (assessments) beginning with the first conveyance of a unit. The proportionate share the percentage of ownership in the common elements set forth in the declaration.
• 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.