CAPS ON SPECIAL ASSESSMENTS IN CONDOMINIUM ASSOCIATIONS

In reviewing condominium association declarations over the past several years, on several occasions we have noted a similar provision in many condominium declarations which places a cap on the amount of a special assessment the board of directors can adopt without an owner vote. Typically, this provision provides that the board of directors may adopt a special assessment, but if the special assessment is for more than three hundred dollars ($300) per unit or more than five (5) times the monthly assessment per unit, then owners with at least two-thirds (2/3) of the total votes in the association must approve the special assessment before it can be adopted. Such a provision would seem to restrict a condominium association’s board of directors’ ability to adopt a needed special assessment if the special assessment would be more than the capped amount.

However, while this language related to a cap on special assessments remains in many condominium declarations, and in particular those declarations drafted in the 1970s (or earlier), 1980s and early 1990s, it is outdated based on changes to the Illinois Condominium Property Act (765 ILCS 605/1 et. seq. and referred to as “Condo Act). While the relevant changes to the Condo Act took place more than twenty (20) years ago, based on my experiences there remains some confusion amongst condominium associations as to the applicability of these provisions related to caps on special assessments.

Specifically, the Condo Act used to have a section, Section 9(d), which provided that special assessments over a certain amount could not be adopted by a condominium association board without the approval of owners with at least two-thirds (2/3) of the vote in the condominium association. Presumably, this former section of the Condo Act is the reason many older declarations contain a cap on special assessments. The Condo Act was amended in 1994 by Public Act 88-417 to eliminate Section 9(d). The historical notes to the Condo Act provide that “P.A. 88-417, effective January 1, 1994, repealed the unit owner approval requirement of Subsection 9(d) and replaced it with amended procedures set forth in Subsection 18(a)(8) giving condominium boards substantially greater latitude with respect to increases in special assessments.” The historical notes to the Condo Act further provide, in discussing PA 88-417, that the language in Section 18(a)(8) of the Condo Act “was intended to totally replace the procedure previously set forth in Section 9(d), which had placed the burden on the condominium board to obtain approval from unit owners with two-thirds of the interest in the condominium before a large special assessment could be adopted.”

Thus, in 1994 the Illinois General Assembly removed the requirement that all special assessments over a certain amount must be approved by owners with two-thirds (2/3) of the total vote in a condominium association. Instead, the provisions of Section 18(a)(8) of the Condo Act apply with respect to special assessments. Section 18(a)(8) of the Condo Act provides in part:

“that except as provided in subsection (iv) below, if an adopted budget or any separate assessment adopted by the board would result in the sum of all regular and separate assessments payable in the current fiscal year exceeding 115% of the sum of all regular and separate assessments payable during the preceding fiscal year, the board of managers, upon written petition by unit owners with 20 percent of the votes of the association delivered to the board within 14 days of the board action, shall call a meeting of the unit owners within 30 days of the date of delivery of the petition to consider the budget or separate assessment; unless a majority of the total votes of the unit owners are cast at the meeting to reject the budget or separate assessment, it is ratified, (iii) that any common expense not set forth in the budget or any increase in assessments over the amount adopted in the budget shall be separately assessed against all unit owners, (iv) that separate assessments for expenditures relating to emergencies or mandated by law may be adopted by the board of managers without being subject to unit owner approval or the provisions of item (ii) above or item (v) below. As used herein, “emergency” means an immediate danger to the structural integrity of the common elements or to the life, health, safety or property of the unit owners, (v) that assessments for additions and alterations to the common elements or to association owned property not included in the adopted annual budget, shall be separately assessed and are subject to approval of two-thirds of the total votes of all unit owners, (vi) that the board of managers may adopt separate assessments payable over more than one fiscal year. With respect to multi-year assessments not governed by items (iv) and (v), the entire amount of the multi-year assessment shall be deemed considered and authorized in the first fiscal year in which the assessment is approved;”

Accordingly, the Condo Act permits a condominium association board of directors to adopt a special assessment of any amount in most cases. But, if the board of directors adopts a special assessment that results in the total assessments each year exceeding one hundred and fifteen percent (115%) of the total assessments in the prior year, then owners can petition the board for a meeting of owners to vote on such special assessment. The petition must be signed by owners with at least twenty percent (20%) of the total votes and presented to the board within fourteen (14) days of the board’s approval of the special assessment. If such a petition is presented, the board must call a meeting of owners within thirty (30) days, and at the meeting owners with a majority of the total votes in the association must vote to reject the special assessment, or else it is ratified.

Further, Section 18(a)(8) of the Condo Act provides that all special assessments related to emergencies (as defined above) or mandated by law are not subject to veto by the owners. However, there is also a requirement in Section 18(a)(8) of the Condo Act that any special assessments for additions or alterations to the common elements or other association owned property must be approved by owners with at least two-thirds (2/3) of the total votes in the Association.

As a note, one of the questions we often receive along with questions about caps on special assessments within condominium declarations is a question about a cap on expenditures within condominium declarations. Many condominium declarations we have reviewed contain language prohibiting the board of directors from making expenditures over a certain dollar amount without the approval of a certain percentage of owners. While these types of spending caps remain valid, Section 18.4(a) of the Condo Act contains language which limits what these spending caps apply to. Specifically, Section 18.4(a) of the Condo Act provides in part that:

“Nothing in this subsection (a) shall be deemed to invalidate any provision in a condominium instrument placing limits on expenditures for the common elements, provided, that such limits shall not be applicable to expenditures for repair, replacement, or restoration of existing portions of the common elements. The term “repair, replacement or restoration” means expenditures to deteriorated or damaged portions of the property related to the existing decorating, facilities, or structural or mechanical components, interior or exterior surfaces, or energy systems and equipment with the functional equivalent of the original portions of such areas. Replacement of the common elements may result in an improvement over the original quality of such elements or facilities; provided that, unless the improvement is mandated by law or is an emergency as defined in item (iv) of subparagraph (8) of paragraph (a) of Section 18, if the improvement results in a proposed expenditure exceeding 5% of the annual budget, the board of managers, upon written petition by unit owners with 20% of the votes of the association delivered to the board within 14 days of the board action to approve the expenditure, shall call a meeting of the unit owners within 30 days of the date of delivery of the petition to consider the expenditure. Unless a majority of the total votes of the unit owners are cast at the meeting to reject the expenditure, it is ratified.”

Accordingly, Section 18.4(a) of the Condo Act gives the board of a condominium association much flexibility with expenditures by providing that spending caps included within declarations do not apply to expenditures by the condominium association for “repair, replacement or restoration” of the existing common elements. While a definition for what constitutes a “repair, replacement or restoration” is provided in the Condo Act, if a condominium’s declaration contains a spending cap, it is a good practice for the board of directors considering an expenditure of an amount greater than the spending cap included in the condominium’s declaration to consult with the association’s attorney prior to approving the expenditure to determine whether the spending cap applies to the proposed expenditure.

In summary, any condominium declaration which contains an outright prohibition on a board adopting a special assessment over a certain amount (such as $300 per unit or five (5) times the monthly assessment) is outdated. The Condo Act was amended more than twenty (20) years ago to give condominium association boards more flexibility in passing special assessments. The Condo Act gives condominium association boards the ability to adopt most special assessments, while reserving to owners a veto option for special assessments over a certain amount, and still requiring the approval of a certain percentage of owners for special assessments used for additions or alterations of the common elements or other association owned property. Further, even if an association can raise funds through a special assessment, its declaration may contain a spending cap. For an association facing a spending cap in its declaration, the association should consult with its attorney to determine the applicability of the spending cap.