Reserves Under the Illinois Condominium Act

Section 9: "reasonable reserves"

Section 9(c) of the Condominium Property Act (765 ILCS 605/9) says each budget shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. It then tells the board what to take into account when setting that figure:

• the repair and replacement cost, and the estimated useful life, of the property the association must maintain;
• the current and anticipated return on investment of association funds;
• any independent professional reserve study the association may obtain;
• the financial impact on unit owners, and the market value of the units, of any increase in assessments;
• the association's ability to obtain financing or refinancing.

Note the third item. The statute names an independent professional reserve study as something the board takes into account, which is about as close as Illinois comes to saying "get one". And the first item, a list of components with their costs and remaining lives, is exactly what a study produces. Without one, a board weighing "estimated useful life" is guessing, and the minutes will show it.

The remaining factors are where the board's judgment comes in. A study gives you a recommended contribution; the board then balances it against what owners can absorb this year and whether borrowing for a large project is realistic. Both halves belong in the minutes of the budget meeting.

Can owners waive reserves?

Sometimes. Section 9(c) lets an association whose condominium instruments contain no reserve requirement waive the reserve provisions, in whole or in part, by a vote of two-thirds of the total votes of the association. That is two-thirds of every unit's vote, not two-thirds of those who turn up. The same two-thirds vote can bring the association back under the rule later.

If your declaration does require reserves, Section 9(c) gives no route to waive them; the declaration governs. Amending it is a separate process with its own voting thresholds.

After a waiver, the association has to disclose it in its financial statements and, highlighted in bold, in its answers to prospective buyers who request the resale information described in Section 22.1. The statute also limits the liability of board members and the managing agent for the lack or inadequacy of reserves after a valid waiver. How that protection applies to your facts is a question for the association's attorney.

Before any waiver vote, ask the association's attorney to confirm the declaration has no reserve requirement and to draft the ballot and the disclosure wording.

The budget itself: Section 18

Section 18(a)(8) (765 ILCS 605/18) sets the budget routine every Illinois condo board follows:

• Each owner receives a copy of the proposed annual budget at least 25 days, and no more than 30 days, before the board adopts it (Section 18(a)(8)(i)).
• The budget must indicate which portions are intended for reserves, capital expenditures or repairs, or payment of real estate taxes.
• Each year the board gives owners an itemized accounting of the previous year's common expenses, again showing what went to reserves.

That last point means owners see, year by year, whether the reserve line matched what was spent. A study helps the board explain the gap when a roof lasts longer than expected or a riser fails early.

The 115 percent petition

If the adopted budget, or a separate or special assessment, would push the year's total assessments above 115 percent of the previous year's, owners holding 20 percent of the votes can petition the board within 14 days. The board must then call a meeting within 30 days, and the budget or assessment stands unless a majority of the total votes is cast to reject it. Section 18 carves out some assessments from the petition, for example for emergencies or for work required by law; read the exceptions with your attorney before relying on one.

This is why a large catch-up in reserves is often phased over several budgets. A study can model that phasing so the board can show owners the trade-off.

What buyers are told: Section 22.1

When an owner sells, the association supplies resale information under Section 22.1 (765 ILCS 605/22.1). It includes a statement of capital expenditures the association anticipates for the current and next two fiscal years, and a statement of the status and amount of any reserve for replacement fund and any portion earmarked for a specific project. Thin reserves and a large known project show up in that disclosure, and buyers' lenders read it.

Townhome and single-family HOAs: the CICAA

Associations that are not condominiums, such as most townhome and single-family HOAs, generally fall under the Common Interest Community Association Act. Section 1-45 (765 ILCS 160/1-45) mirrors the condo budget routine with its own numbers:

• the proposed budget goes to members at least 30 days, and no more than 60 days, before adoption, showing which portions are intended for reserves, capital expenditures or repairs, or real estate taxes;
• the board provides a reasonably detailed summary of the previous year's receipts, expenditures and reserves;
• members with 20 percent of the votes can petition against a budget or assessment that takes the total above 115 percent of the previous year's.

Section 1-45 does not use the condo Act's "reasonable reserves" wording. Your declaration may still require reserves, and a board that budgets without a study has the same problem of explaining its numbers at the annual meeting.

Smaller associations can be exempt from most of the CICAA unless they choose to be covered (765 ILCS 160/1-75). Whether yours is exempt depends on its size, its budget and how it is organized, so check with the association's attorney.

Chicago high-rises: the exterior wall reports

On top of state law, the City of Chicago's Department of Buildings runs a required reporting program for the exterior walls of high-rise buildings (Department of Buildings). Licensed professionals inspect the facade and the building files reports with the city. Check the program page for your building's category, its inspection cycle and the next filing date.

The reports and a reserve study do different jobs. The inspection tells you what has to be repaired and how soon. The study spreads the cost of that work, and the next cycle of it, across future budgets. A Chicago tower board that keeps the two in step rarely gets surprised by a facade special assessment.

What a careful Illinois board does

1. Reads the declaration for any reserve requirement, and for which components the association maintains.
2. Commissions a full study with a site visit, then updates it, with a visit at least every three years in line with the CAI national standards. As of this writing the Act sets no interval; a bill in the 104th General Assembly (HB 2563) proposed five-yearly studies, so check with the association's attorney for recent changes.
3. Schedules the update so the figures arrive before the proposed budget goes out: 25 to 30 days ahead of the vote for condos, 30 to 60 days for CICAA associations.
4. Minutes how it weighed the Section 9(c) factors when it set the reserve line.
5. For towers, feeds the latest exterior wall report into the study.

Statute links go to the Illinois General Assembly. General information for boards, not legal advice.