2018 condominium and community association legislative changes

Accounting changes
Section 18.10 of the Condominium Property Act (Condo Act) and Section 1-45(h)(i) of the Common Interest Community Association Act (CICAA) now requires GAAP (generally accepted accounting principles) for Associations with more than 100 units. This change may impact the Association since GAAP has an accrual basis of accounting rather than a cash basis. Accrual basis reporting summarizes all income earned for the period whether or not it was actually collected and all expenses accrued whether paid or not.

Mortgagee approval may be involuntary after proper notice
Section 27 of the Condo Act and Section 1-20(e) of CICAA now provide that the mortgagee or lienholder consent to an amendment so the governing documents may be streamlined. A mortgagee or lienholder will be deemed to have given consent if they fail to return an objection or “no vote” within 60 days of notice mailing a notice. This will help avoid the roadblocks of mandatory mortgagee consent to certain types of amendments.

Condo surplus and deficit handling
Section 9(c)(5) of the Condo Act is changed to allow Boards to have authority to dispose of annual surplus funds over the actual expenses and reserve contributions as budgeted. Condo Boards may now, at their option:

1) add surplus funds to the reserve;
2) credit owners against their current balance;
3) refund the surplus to owners in a direct payment; and
4) keep the funds in the operating account and apply them as a credit to the following year’s annual budget.

There are some federal tax implications from IRS Revenue Ruling 70-604 that because the surplus could be considered income, it may be useful for the Association (likely the membership if not otherwise allowed for Board action) to pass a resolution allowing either a refund or a rollover into the next tax year as a credit.

Records access, contact information and Section 19 of the Condo Act
Owners now have expanded access rights for Association information and there is a shorter timeline in which an Association must comply. The 30-day compliance period is now reduced to 10 days. Associations must respond to a Section 19 request within 10 business days of the owner’s request.

Owners may now access records to obtain email addresses and telephone numbers for other owners so long as the request relates to the Association. Proper purpose requirements generally are reduced and, in most cases, removed (contracts, books and records). Owners may be required, though, when accessing contact information to confirm in writing that they shall not use the contact information for commercial purposes.

We suggest that Associations add specific rules to the governing documents that set the specific fine for commercial use of owner contact information. Associations remain responsible for owner legal fees for improper denial or withholding of access to accessible Association records.

Petition timelines changes for Condo Associations
Owners often have a right to petition the Board to challenge Board action on certain items. These timelines have been expanded as of Jan. 1, 2018, in Sections 18 and 18.4 of the Condo Act and are as follows:  

Hallway space use for combined units
Section 31 of the Condo Act is amended to allow an Association to grant an exclusive easement or right to use portions of common element hallway as a limited common element for a legally-combined unit.

Section 15 bulk sale deconversion owner benefits expanded
Unit owners objecting to Section 15 bulk sales have increased protections, including reasonable relocation expenses and the ability to demand (after proper objection) the greater of the appraised value of their unit or the existing mortgage payoff value. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: James R. Stevens, Principal

This alert originally appeared in the Condominium & Community Association Focus newsletter.