Legal Tips – How to Adopt a Condominium Association Annual Budget

Budgets are required and, if using a good template, not very difficult to prepare, distribute and adopt. While your association’s governing documents will include some basic requirements, most of the process is dictated by the Illinois Condominium Property Act (“ILCPA”). The ILCPA obligates the board to prepare and send out a proposed annual budget setting forth an estimate of all anticipated common expenses by category, as well as anticipated assessments and other income. In a nutshell, the budget must be an estimate of what the association plans on: (i) collecting in assessments, (ii) spending to operate the association, and (iii) putting into the reserve account.

Many fear putting together this list of numbers by simply guessing at what may or may not be spent in the upcoming year. Some associations have the luxury of property managers who generally do a first draft, but the self-managed associations are on their own. Moreover, smaller association often do not have reserve studies (i.e., a report put together by an architect or engineer detailing the estimated useful life of an association’s infrastructure and mechanicals with corresponding price estimates), which are helpful when preparing that first draft.

Regardless of your association’s size, the budgeting laws are the same. The first place to look are Sections 9 and 18 of the ILCPA to learn the requirements. Let’s go through what the ILCPA requires.

When is the budget “due” and when must it be sent out to the unit owners?

The answer to this question can be found in the association’s declaration or bylaws, which may contain the specific date when the budget must be presented to the association. The ILCPA mandates only that the budget be prepared annually and delivered to all unit owners a minimum of 25 days before the board meeting at which the board plans to adopt the budget. So, review the declaration and bylaws first to see if there is a specific date the budget is “due.”

Are there legal requirements for sending the budget to the unit owners?

Yes. Pursuant to Section 18(a)(6) of the ILCPA, the board must deliver the budget to all unit owners a copy of the draft budget a minimum of twenty-five (25) days before the board meeting at which the board plans on adopting the budget (the budget should be delivered via hand-delivery or mailed – electronic delivery, such as email, is fine as well as long as the unit owners have agreed in writing to receive notices electronically). In other words, if the board has the budget adoption meeting planned for October 25th, that draft better be sent or delivered to all unit owners before October 1st.

Does the board approve the budget at a board meeting?

Yes, it’s approved by the board at a board meeting. The meeting at which the board adopts the budget also has special notice requirements (i.e. more than the standard 48 hours’ notice for a regular board meeting). We already said the ILCPA requires the budget draft go out at least twenty-five (25) days prior to the board meeting; it also requires notice of the board meeting at which the board plans on adopting the budget be delivered no less than 10 and no more than 30 days prior to that meeting.

So when should the notice and draft be sent out?

We recommend delivering the draft and the meeting notice in the same mailing package to each unit owner (either hand-delivery, USPS or electronically if the unit owner agreed in writing to electronic delivery) sometime within the 25 to 30-day window prior to the board meeting at which the board plans on adopting the budget. To use the same example from above, if the board plans on adopting the budget on October 25th, it should have the notice and draft delivered or postmarked sometime between September 25th and September 30th (25 – 30 days prior to the meeting). Also note, an easy tool to help calculate the dates is available at www.altuslegal.com, using the DecSpeak Budget Meeting Date Calculator app (free).

How does the board adopt the budget at the meeting?

Simply put, by a majority vote of the board (with a quorum of board members present). The unit owners do not vote on the budget; the board alone adopts the annual budget. The unit owners do, however, have the right to reject the budget by a certain procedure described further below.

Can the unit owners reject a proposed budget?

Yes. Section 18(a)(8) of the ILCPA provides a method for unit owners to reject an annual budget if that budget exceeds 115% of the previous year’s regular and special assessments. Let’s unpack that a bit with an example. If the board adopts a budget that includes an assessment increase that is 115% of the prior year’s assessments (i.e., if Unit A paid $100 in 2017 but the 2018 budget has Unit A paying $116, that exceeds the 115%), then the unit owners have the opportunity to gather 20% of the signatures of the total unit ownership and send those signatures, along with a petition to the board, within twenty-one (21) days of the date of the board’s adoption of said budget to demand a unit owner meeting. The board is then obligated to call a unit owner meeting where a majority of the total votes of the association can be cast to reject the adopted budget, sending the board back to the drawing board to come up with a different draft.

One last example to drive the point home; the board adopts a budget with assessments that exceed 115% of the prior year’s assessments; 20% of the unit ownership sign a petition within twenty-one (21) days of the board’s adoption of the budget and send that petition to the board; the board calls the required unit owner meeting. If more than half of the entire unit ownership vote at that meeting to reject the budget, the budget is scrapped and the process begins again. If less than half vote to reject the budget, the budget stands.