APRIL 2009 | VOLUME 13 | NUMBER 1
THE SOURCE FOR INFORMATION ON COMMUNITY ASSOCIATIONS, CONDOS, TOWNHOMES, CO-OPS & HOAS
ECONOMIC CALAMITY & CHALLENGES CONTINUE F E AT U R E S
Managing an Association’s Finances Manager Selection and Contracts Seven Financial Issues in a Distressed Economy Dysfunctional Condo Board Can Happen Recommendations and Revisions to Illinois Condominium Property Act Update on the Chicago High Rise Life Safety Ordinance Voice Communication Systems
Creating Lifestyles From The Outside In™…
Kinsella Landscape, Inc.
708.371.0830 • www.kinsellalandscape.com
contents COVER STORY
02 Economic Calamity & Challenges Continue By David Mack M O N E Y M AT T E R S
08 Managing an Association’s Finances By David Mack BOARD BASICS
10 Manager Selection and Contracts By David Mack M O N E Y M AT T E R S
14 Seven Financial Issues in a Distressed Economy By Howard S. Dakoff, Esq.and Mimi Y. Kim, Esq., Levenfeld Pearlstein, LLC EVENT HIGHLIGHTS
16 MCD Pool Party featuring Condolympcis BOARD BASICS
17 Dysfunctional Condo Board Can Happen By David Mack 20 From the Editor 21 Professional Directory 27 Industry Happenings / Government Briefs Compiled by Sherri Iandolo and Michael C. Davids L E G A L U P D AT E
28 Recommendations and Revisions to Illinois Condominium Property Act S P E C I A L F E AT U R E
35 Update on the Chicago High Rise Life Safety Ordinance – Voice Communication Systems By Mark Suski, Schirmer Engineering Corporation
REUSE~REDUCE~RECYCLE No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2009©.
B Y D AV I D M A C K
Economic Calamity & Challenges Continue the current financial crisis strangling the U.S. and world economies is holding its grip.
n fact, all indications point toward conditions worsening before improvement begins as unemployment numbers continue to increase, home foreclosures mount, real estate values persist in their descent, personal and corporate bankruptcies escalate, credit remains hard to get and the stock market, as represented by the Dow Jones index, while showing some recent upward movement, hovers precariously at a level thousands of dollars below the record high it reached a couple of years ago.
Financial Distress Community associations share in the burden with the rest of the country of having to deal with the financial distress and overall malaise of these ongoing calamitous times. We have been tracking this situation in Condo Lifestyles over the last few years and in this article will look further at what is happening through the eyes of a number of seasoned professionals who labor in the association field to see how bad they believe conditions really are and whether they can perceive any light at the end of the tunnel.
Foreclosures & Assessments As the overall economy has persisted in its slide southward so has the association industry. The same problems that we have discussed in earlier issues are getting worse. “We are seeing a greater number of foreclosures than we had in a number of associations,” said Fred Rodriguez of Wolin-Levin, Inc. “Additionally individual association receivables balances are creeping up, residents are paying slower and more late fees are being assessed.” Lou Lutz of Legum & Norman MidWest also fingered a decline in assessment income as the most important factor causing trouble for associations, calling it the “greatest crisis”all other problems contribute to that fall off in receipts. “Association members have
been affected by the economy just as the rest of the public- unemployment, deterioration of their investments and poor economic performance of their companies.” Lutz cited one sixty unit association in which one owner stopped paying assessments and declared bankruptcy. The association incurred substantial legal costs and the unit remained vacant with no revenue coming in because the lender was prevented from pursuing foreclosure due to the bankruptcy. He expects that eventually because of the loss of income and the legal costs the association will lose an amount equivalent to two percent of total income. “That shortfall will (likely) require deferring projects or dipping into the reserves.”
Rentals Increase Rodriguez also noted the growth in rentals where owners can’t meet their financial commitments and are unable to find buyers for their homes. “We have seen rental percentages increase from five percent to as much as twenty percent in some communities as a result of residents not being able to sell their units,” he said. This increase in rentals as well as the growth in assessment delinquencies handicaps associations that may want to apply for loans to take care of deferred maintenance. “Associations are having difficulty in qualifying for financing because a high receivables balance with higher rental percentages typically doesn’t sit well with lenders.” (More on lending issues later.)
Some May Not Recover Just as Rodriguez and Lutz, Tim Snowden of property management agent Heil Heil Smart &Golee is witnessing the same exacerbation of earlier problems that associations began to experience at the outset of the sub-prime crisis and economic meltdown. “It is still the high level of unit owners who do not pay their assessments as well as the units
that have been foreclosed on,” he said, adding that the strategy used by some associations, and which we have previously reported on, of special assessing to offset uncollected regular assessments simply is not working because many of the owners who have been keeping up with their monthly dues can’t afford to pay the additional assessments. Snowden is pessimistic about the most seriously affected associations being able to turn around their financial predicaments. They, “look as if they will never recover.” This problem of assessment delinquencies is especially critical with new associations which developers have turned over to owner controlled boards but in which they still have a number of unsold units. “New developments are suffering,” said Michelle (Micky) Tierney of Community Specialists, Inc. Developers are having difficulty getting bank financing to help them carry the unsold inventory. “This delays assessment payments to the associations on (those) units, which may create cash flow problems.”
Unemployment Has Huge Impact This continued growth in non-payment of assessments and the rising incidence of foreclosures is primarily attributable to one major factor that Lutz mentioned but which Tony Briskovic of Chicagoland Management & Realty emphasized because of its persistently growing impact. “People are losing their jobs,” he said. Every week more people are laid off due to the general business slowdown or because of jobs being shipped overseas by corporations to save on wages and benefits. Over 3,000,000 jobs have been lost according to the Obama Administration and the count continues to mount with every report out of Washington.
Disgruntled Residents This loss of employment is having an obvious impact on unit owners who are finding it difficult to make both their mortgage and assessment payments and, as Rodriquez noted, can’t find buyers for their
No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2009©.
COVE R STORY
units. Lutz knows from experience that,” owners (who) cannot sell become unwilling members of the association and tend to oppose long term association needs.” According to Tierney this situation has resulted in association boards and management having to deal with a lot of “disgruntled residents.” She also put in that category owners who are dissatisfied with what they perceive as a lessening of the quality of their living environments because of their associations’ financial struggles and consequent cutbacks in services. These, “residents have a shorter fuse when dealing with building issues resulting in greater anxiety for board members and management.” Rosemarie Wert of Community Specialists, sees the same attitudinal problem amongst unit owners that Tierney has been sensing. “Owners in general are more sensitive and negative,” she said. “People who were always reasonable are sometimes grumpy and unreasonable.”
Capital Projects Being Delayed As a result of seemingly ever diminishing collections, associations are continuing to look for ways to avoid insolvency. “Major projects are being delayed,” said Briskovic, a situation we have emphasized in prior issues of this magazine. That’s because they are using money that might otherwise go into the capital improvement reserve funding to pay operating expenses. “Many associations are deferring their reserve funding,” said Snowden, which will likely have a long lasting impact on their ability to meet their future capital improvement needs. “There does not seem to be any way in the foreseeable future to catch up.”
income, Wert stated that her company has also been encouraging directors to put a contigency reserve in budgets to offset potential cash flow deficits resulting from assessment delinquencies, a tactic that has also been mentioned in our earlier articles on this subject. This, in effect, creates a kind of special assessment to cover potential losses. But, whereas Snowden said that straight special assessing for this purpose hasn’t worked very well for associations he manages, the more subtle approach of including an extra expense line item in budgets has been more effective. “Where boards took our advice, they are successfully avoiding budget shortages,” Wert said.
Chicago Hi-Rises Looking for Relief
Budget Busting Cutting expenses is a tried and true way for businesses to deal with slow revenue flows and associations, as businesses, are using this approach to keep their financial ships afloat. “Associations are looking to reduce expenses when preparing budgets for 2010,” said Tierney. On the other hand, to assure more
One area where Chicago associations-in particular high rises- have been looking for relief is in the enforcement by City administrators of the various local ordinances regarding façade inspections and maintenance, life safety, etc. Briskovic said there has been, “no relief at all. No one has come forward (from the City) to try to assist these asso-
MANAGING YOUR ASSOCIATION’S BUSINESS IS OUR BUSINESS REAL ESTATE ESTATE PROPERTY PROPERTY MANAGERS MANAGERS FOR FOR TOWNHOMES TOWNHOMES REAL & CONDOS. CONDOS. FOUNDED FOUNDED ON ON 30 30 YEARS YEARS OF OF PERSONAL PERSONAL SERVICE, SERVICE, & GROWTH, COMMITMENT COMMITMENT & & TEAMWORK TEAMWORK GROWTH,
Hillcrest Property Management 3 Offices in Chicagoland to serve you more conveniently GLENVIEW
630-627-3303 WWW. HILLCRESTMGMT. COM
No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2009©.
ciations,” by easing up on the requirements of pertinent laws. Wert added, “I have heard of no relief efforts from the City or aldermen.” Tierney feels a little differently in that she has sensed some relaxation in oversight by local officials in certain areas but not those that are critical. “We believe the City has cut back on their number of employees who are assigned to condos (and apartments and commercial buildings too) resulting in fewer spot inspections,” she said. But where Chicago would have liability in the event it had not discharged its duties and someone was hurt by say a falling terra cotta piece, it has not cut back noticeably, if at all. “Normal inspections related to facades, elevators, etc, remain constant.” Lutz feels trying to obtain such relief from City statutes is the wrong approach. “I’m not sure that trying to defer life safety is in the best interests of association members,” he said. “Rather than oppose ordinances that require improvements that make associations sounder and safer there are a number of areas where associations can oppose City fees, which, if eliminated, have no adverse effects
on members.” He went on to name areas where associations should appeal to City Hall for alleviation, including the new rubbish container tax, increased city and county parking taxes and unfair delays in reimbursing associations for rubbish hauling. In addition to the seeming unwillingness of the City to not give high rise associations additional leeway in meeting municipal requirements, Wert sees an equally large, if not bigger, immediate problem in Chicago’s failure to meet some of its service obligations, especially when it comes to street repairs. “Our biggest complaint is that the City is not fixing very large potholes around the properties.” Hopefully that will change when further asphalt and concrete deterioration ceases with improvement in the weather.
Poor Contractor Oversight? Rodriguez expressed a different concern regarding Chicago’s oversight of associations. He indicated that in connection with the various ordinances concerning life safety the local administration seems to have been approving some contractors who are unqualified to per-
form the work satisfactorily. City inspectors are not visiting some sites in a timely manner to assure that work being done meets the requirements of the applicable ordinances. That, he suspects, will lead to financial penalties being imposed on associations where retrofit work is found to be inadequate. “There hasn’t been a full court press at this juncture in the fining process,” he said, adding, though, that at some point he expects the City will be hitting associations with fines for failure to meet ordinance upgrade requirements as the result of shoddy contractor repairs. “Our assumption is that the City, as everyone, is looking for sources of revenue (through) whatever means necessary.” If his apprehensions prove accurate, some associations will have both paid for necessary work and assessed penalties by Chicago because the work was substandard, another expense that will place further strain on already hard pressed budgets.
Staying Afloat Although money is tight in these perilous economic times, most associations seem
STONE REPAIR & REPLACEMENT TERRA-COTTA | TUCKPOINTING | BRICKWORK WATERPROOFING | CAULKING FLASHING SYSTEMS | FACADE INSPECTIONS BALCONY REPAIR | MEMBRANE COATINGS
Condominiums, Townhomes & Highrises
Abel Building & Restoration
847.543.9800 Visit our website @ www.abelrestoration.com
No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2009©.
COVE R STORY
to be able to satisfy their creditors and keep the lights on, gas flowing and services available, although perhaps in some cases diminished. “So far, so good,” said Briskovic. “We are paying all our bills.” The same holds true for the associations managed by Wolin-Levin although Rodriguez has noted a slowdown in their writing checks to creditors. “We haven’t seen any associations that aren’t meeting their financial commitments,” he said, “however, they are presently less inclined to pay as expeditiously as they did in the past.” Tierney’s boards have also been able to keep up with their obligations. “Associations I am dealing with at this point are capable of paying their operating costs,” she said, which has enabled them to avoid going hat in hand to lenders seeking financial help. “I have not experienced approaching a bank looking for a small loan to pay operating expenses.” Wert added that the overall experience with the clients of Community Specialists has been that operating expenses have been covered by cash flow. When it comes to casting about for outside sources of financial assistance. “I agree with Micky,” she said, “in that I have not expe-
rienced the need.” Nor have the condominiums managed by Legum & Norman, MidWest. “No associations we manage have had to take out loans to pay for operating expenses,” said Lutz, who added that if any had sought such assistance they likely would have been turned down. “An association that would be trying to obtain a loan because (it) cannot cover operating costs will face a very difficult time finding a lender interested in that type of loan.”
Bank Loans Not for Operating Expense Applications for funds to cover shortfalls in operating revenue have not been a large part of the business that banks that lend to associations have been considering. “We have received a few but no more than usual,” said Peter Santangelo of Community Advantage of Barrington Bank &Trust Co. The same is true at Harris Bank. It receives only a handful of such inquiries from associations each year, according to David Zimner of The Homeowner Association Banking Group at Harris. “We have not seen any increase in these types of requests.”
Capital Improvement Loans Increase The two financial institutions are, however, experiencing different volumes of applications for capital improvement loans. At Community Advantage, the receipt of such requests continues, but, “they have slowed,” said Santangelo because of the economy. At Harris Bank, however, there has been no decline in loan submissions. “In fact, I would say that they have actually increased since the fall,” said Zimner. He attributed this to what he perceives as fewer lenders providing such loans thus resulting in more business being directed toward Harris because of its seemingly greater receptivity to requests. Another reason Zimner suspects is that associations are going the borrowing route because unit owners are reluctant to pay lump sum special assessments for improvements because of the additional strain such levies would place on their already strained financial situations. And, ironically, it appears that, in at least one respect, the economic slowdown will prove to be an advantage for some associations that has led to their seeking loans for overdue major improvements at this time. It, “has led
to lower overall construction costs and lower prices for associations,” and, “many that have deferred maintenance are now benefiting from lower project costs and have elected to move projects forward this year.” This was confirmed by Lutz who said, “contractors are all very anxious for business so competitive bidding is fierce and the associations benefit with lower fees.”
Loan Underwriting Policies Both banks are adhering to their usual credit evaluations. “We are continuing to underwrite based on our standard policies, however, there are fewer exceptions to the standard policies,” said Santangelo, than were granted previously during better times. Examples of such exceptions are owner occupancy ratios less than the 75% normally approved by Fannie Mae and Freddie Mac or assessment delinquencies exceeding acceptable guidelines. Lutz acknowledged this more rigid policy. “Loans for healthy associations are available but lenders are being very careful reviewing the association’s financial information. But, “we are lending money,” Santangelo
said, adding a general observation about lenders as a whole. They will continue to,” adhere more closely to their (credit) policies and not make many exceptions until the resale market picks and unemployment drops.” Harris is also essentially pursuing the same lending policies it always has. “We have not changed our credit criteria at all,” said Zimner. “We feel these types of loans, if underwritten correctly, are resilient to changes in the economy.” Associations are considered good risks and the collateral for such loans- the assessments- is a sound repayment source. Banks that have stopped making such loans or seriously restricted their approvals have generally pulled back because of having been beaten down by the sub-prime mortgage mess to which they had some degree of exposure, Zimner feels. While they have stopped or seriously curtailed lending, Harris and banks in the same comfortable financial position continue to do so. “Lenders such as Harris that stuck to their credit criteria have found this to be a good environment to continue to provide for borrowers’
needs.” Wert added that she is encouraging some of her associations to move projects forward for this reason.
Defaults Down the Road? Associations have so far been able to repay their outstanding loans despite the financial pinch some are feeling. Santangelo, however, thinks there is a possibility there may be defaults down the road. “In general, based on what is happening with the economy and unemployment rates, we may see this happen,” he said. At Harris, Zimner is more sanguine about the future of the loans on his bank’s books. “Our portfolio is not showing signs of stress,” he said, adding that although he has noted a slight increase in unit owner assessment delinquencies this situation, “has not translated to problems with the repayment of any of our loans.” He does not anticipate any defaults.
Some Healthy Associations Too Have any associations been able to avoid problems associated with the economic downturn or are they all experiencing some degree
Property management services for Chicago’s finest high rise residential properties. 312.337.8691 680 N. Lake Shore Drive Suite 1326 Chicago IL 60611
COVE R STORY
of financial turmoil? Briskovic works with some that have been able to skirt thin ice successfully. “Those associations have followed reserve studies closely and auditors’ recommendations,” he said. “They set money aside for the bad times.” Snowden’s experience has been the same. “Our firm has many associations that are not feeling the economic crisis,” he said, noting further that, “in those associations the unit owners are paying their assessments.” While those associations are escaping serious troubles they probably are experiencing at least some minimal financial adversity although not enough to threaten their solvency. Tierney, on the other hand, has a more universal view and considers any degree of financial loss as troubling She hasn’t seen any associations come through the stressful times unscathed, lamenting that, “all associations I am involved with are affected by the economic crisis.” Lutz used very similar language to describe the situation.” All associations are affected by the negative effects of the economy.”
Point of No Return for Some?
6 30 .9 9 0 .9 5 9 5 K 2 N
Are there any signs or indications that associations impacted by financial troubles will be able to withstand the economic shocks they are experiencing now and make a comeback financially when conditions improve? Briskovic isn’t sure about the longer run but doesn’t see any recovery for those hardest hit, especially in Chicago, in the short term. “Not as long as the economy continues in a downward spiral,” he said. “Not as long as (local) government agencies continue to mandate expensive changes for associations,” related to facades, life safety, elevators, dumpster fees, etc.
Light at the End of Tunnel? Tierney is optimistic, at least regarding the future of associations that have been around for a while. “I believe that the older established associations will weather the storm and are much better (off) than new developments,” she said. However, those in which new units are still being marketed during this crisis will find conditions more difficult to overcome- strategies such as lowering sales prices and/or increasing assess-
ments prior to turnover of properties for unit owner control may be necessary but will find objection from owners who had purchased their units before such steps are taken. Federal intervention may help. “Hopefully the President’s stimulus package (e.g. the tax credit for first time home buyers) will help make some kind of difference.” Lutz observed that, “there may be light at the end of the tunnel but it is probably a light shining on the well run associations,” with, “boards that do not waiver in meeting their fiduciary responsibilities.” As far as a possible resurgence in lending is concerned and the overall availability of credit to associations from a wider band of institutions, Zimner senses some positive changes by the end of 2009. “I would imagine that towards the end of the year we will see some leveling off of the economy and maybe even some signs of recovery,” he said. “Once this happens, banks that were out of the lending business will want to jump back in.” Rosemarie Wert doesn’t know what to expect or how long the unstable financial situation will last and although the associations
K2 N.C OM P. C .
American Contracting and Management Services, Inc. EXTERIOR
■ ■ ■ ■ ■ ■
Roof Replacement Tuck Pointing Concrete Replacement Painting and Caulking Siding & Wood Replacement Window Replacement
■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Drywall & Plaster Repairs Painting Carpet & Tile Replacement Electrical Plumbing HVAC Maintenance (both high rise and residential) HVAC Replacements Boilers and Chillers Domestic Hot Water Installations Construction / Unit-Rehab Energy Control programs for both HVAC & Lighting
WE ALSO OFFER HVAC ENGINEERING DUE DILIGENCE AND PROJECT MANAGEMENT SERVICES. OVER 20 YEARS OF PROPERTY MANAGEMENT AND CONSTRUCTION INDUSTRY EXPERIENCE.
B Y D AV I D M A C K
Managing an Asso A
t the recent South Suburban Expo hosted by ACTHA, property management executive Tom Skweres of Legum & Norman, Mid-West and Frank Coleman of Community Advantage of Barrington Bank co-chaired a session on “Managing an Association’s Finances.
Plans & Policies Skweres said that in general boards should, “take a global look at finances,” and understand all aspects of the financial operations of their organizations. And they need to develop comprehensive money management plans for their guidance as well as that of future board members. “I think it’s very important for board members to get together and come up with a strategic plan for handling their association’s finances to ensure their associations will be financially sound both in the short and long term. People that follow your financial plans need to know that good ground work has been set for them.” Hopefully they will follow through on a plan put into place unless conditions change and modifications become necessary. “A board needs to bring a team together to develop that strategic plan,” a group dedicated to service to the association, including banker, auditor, attorney, reserve specialist and board members. Coleman emphasized a financial plan or policy as something his bank recommends to associations and wants to review as part of any request for funds. “We like to see your financial and investment policies if you come to us for a loan,” he said. Also,” we want the investments to be safe, liquid and at the highest return you can get.”
ACMS, INC. 934 Hedgewood Drive, Palatine. IL 60074
847.971.4126 Joe Orlando, President firstname.lastname@example.org
Coleman went into detail about the handling of finances, particularly the collection of assessments, which can be processed in several ways. the traditional way is for the management agent (or board where self managed) to collect the money and drive to the bank to deposit it. Alternatively, Remote Deposit Capture eliminates the need to go to the bank with the funds by providing for deposits via a teller machine installed at
the office of the manager or the association. Another method is through the use of a lock box to which unit owners mail payments that are picked up by the financial institution. Or checking accounts of owners can be debited by the bank to cover assessments. Finally, payment can be made by credit card. Coleman knows of unit owners who also have condos out of town and forget to make local payments at their primary residences when away. they use their credit cards from a distance. But, he warned,” there’s a convenience fee attached to this charged to unit owners of from $7 to $20.”
Paying Bills Associations can pay bills by the customary check issuance procedure, by on-line payment much as an individual’s personal debts, by the creditor debiting the association’s account through special arrangement and through the use of debit cards. “More and more associations are going to debit cards,” said Coleman. they are used to pay expenses while shopping, usually as an alternative to petty cash. Most associations will have three types of bank accounts- the operating account for the deposit of assessments and paying day to day operating expenses, usually but not necessarily non-interest bearing; a money market account for holding contingency funds and those for non-routine maintenance and capital improvements expenses. It should earn a market rate of interest. Finally an association should have reserve funds not immediately needed to pay for capital improvements in certificates of deposit at the best available rates of return. Associations should always be mindful that to ensure FDIC protection no funds on deposit at any one institution should exceed $250,000 until 12/31/09 or $100,000 thereafter unless Congress extends the higher amount.
Operating & Reserve Accounts Skweres drew a distinction between the operating and reserve accounts as related to management’s involvement with them. the operating accounts should be under the control of the management company with oversight by the board
M O N E Y M AT T E R S
ociation’s Finances and especially the treasurer in reviewing monthly financial reports and co-signing disbursement checks. the board should direct the use of the reserve in all situations. ”I don’t want the ability to withdraw funds from the reserve,” he said. “I want the board to authorize this. I’ll put money in it (from assessments) but will not take it out without authorization.” Coleman added that the money market account should also be under the control of the board or treasurer.
and an annual budget as well as being permitted to review under Section 19 of the Illinois Condominium Act certain financial records by submitting a written request with a proper purpose. the other control comes through an independent auditor who would prepare the annual statement or even conduct a full scale audit of association records. “We look for a third party auditor,” said Coleman, whose bank requires such documentation, as well as would other lenders, as part of any application for a loan.
Annuity for Reserve Funds Coleman discussed the potential of an annuity for reserve funds, indicating that such investments usually require a long-term commitment of five to six years. Annuities are ok, Coleman said, but an association must be sure that any reserve funds locked up in one won’t be needed for that long of a term. He knows of one association that had to break an annuity before maturity and lost a lot of interest. An association can buy CDs directly from a bank or through a broker. But in the latter arrangement,” make sure they are (FDIC) insured,” Coleman said, which isn’t always the case. Underscoring the legal obligation of board members to act prudently with association funds, Skweres said, “you have a fiduciary responsibility to make good, sound financial decisions,” and, “to make sure your finances are in sound, protected investments.” He added that boards should have written investment policies as part of their strategic financial plans.
Running a Business to emphasize that some associations are, in fact, big businesses and their finances should be carefully scrutinized and controlled by boards and especially their treasurers, Coleman hypothesized a 100 unit association with an average unit value of $250,000. “the treasurer is running a $25,000,000 corporation,” he said. Checks and balances on a board’s prudent disposition of association funds come from two primary sources. Homeowners are entitled to receive an annual statement of receipts and expenditures
Maximizing Revenue Flow the duo offered a number of additional comments in connection with maximizing revenue flows in an association. “I subscribe to the idea that you have to raise your assessments at least three to five percent every year. I know it can be painful but look at the big picture.” Again he emphasized to board members that they have to fulfill their fiduciary responsibilities. Added Coleman, “small increases each year are better than getting walloped with a huge increase once.” Collecting assessments is even more important in this poor economic climate due to the growing number of foreclosures and delinquencies. “you need to tighten your collection policy,” Skweres said. “If you don’t have one, write one, run it by your attorney and get it into effect as soon as possible.” Implementing a strict collection policy is being fair to those unit owners who do pay their assessments in a timely manner. Cutting costs wherever possible should also be a goal of associations. “you’ve got to look at what comes in and spend wisely on what goes out,” said Skweres. It’s important,“to manage your money wisely.” Y
MCD Golf Invitational July 17, 2009 @ Eaglewood Resort Itasca, Illinois
Better Ball Scramble Bocce Games
630-932-5551 for more information.
B Y D AV I D M A C K
Manager Selection and Contracts ntil the sub-prime mortgage crisis stopped new development just about everywhere last year, the community association market had been growing at an exceptionally fast pace in Chicago’s southern suburbs. Despite the building slowdown, there are many new associations in that part of the Metro area. A lot of residents, both those living in but new to associations and those who may be fortunate enough to be able to secure financing to buy into one, very likely need to know more about that particular kind of residential setting and how it differs from other arrangements into which people settle. To meet that need for information, the Association for Condominium, Townhouse and Homeowner Associations, ACTHA, hosted a new event on its calendar of educational activities- a South Suburban Expo. It was held Saturday March 7, 2009 at the Palos Country Club in Orland Park. The conference was especially beneficial to association residents who are leaders in their communities. “The Expo provided an excellent opportunity for board members to get the education they are seeking and the opportunity to meet industry professionals who can help them with many of their needs and questions,” said Beth Lloyd, President of ACTHA. The Expo had four major parts, including a trade show, “Coffee with the Mayors” (of surrounding municipalities), a food drive and four educational programs. Representing Condo Lifestyles, this writer had the opportunity to cover two of those programs.
Selecting a Property Manager Attorney Dawn Moody of Keough &Moody, P.C., and Keith Conrad of MC Property Management Corp. presented information on “Selecting a Property Manager.” The first step an association must take in seeking a management agent is to determine if the board wants to manage the property itself and whether the directors have the will and capacity to do so. Self management is usually
only a wise decision if an association is too small to interest a management company and the directors are prepared to put in a lot of working hours beyond what a board would normally have to do when just performing the board functions of setting policy, making decisions and giving direction to a manager in handling the day to day operating matters. Assuming a board chooses not to take on that rather difficult burden itself, it should assess its management needs and what it is looking for in a management company. The board should establish a timetable for the whole selection exercise. “The procedure should be about two to three months in length,” said Conrad, to allow sufficient time for identifying potential candidates, preparing and sending out a request for proposals, a period of response by management prospects, interviewing candidates and finally making a choice. Prior to that final selection, the association’s attorney should be brought into the process to review any proposed contract. (This selection procedure applies to both choosing a management company for the first time or as a replacement for an existing one.)
Where to look for management candidates? There are a variety of resources such as non-profit associations, publications and websites that offer listings or advertisements for community association management companies. Other potential sources for leads on prospects are professionals such as attorneys or accountants in the business of serving associations, vendors the board can trust and homeowners in other associations who can offer recommendations.
Request for Proposals Next the board should prepare the formal request for proposals, providing information about the association and its management needs and setting a final date for submission. It should be sent to all companies identified as potential managers. Some
prospects may want to visit the property before returning a bid. “I can’t provide a quote until I see the building and meet the board,” said Keith Conrad. “I may not want to manage your building.” About three to four weeks should be allowed for a response to the invitation to bid. Any formal submission should include a marketing package from bidders and a range of prices on a fee per unit basis. “There’s a wide spectrum on pricing from management companies.” As an aside, Conrad noted that most management companies have a minimum per unit price, which could be very expensive for a small association. “It can be very difficult for a large management company to manage a small association,” he said, because it would be financially unfeasible to gear down their operation to a level of service and a price that the association could afford. Small associations will, “probably have to look for a company that specializes in that area.” Conrad added another caveat when associations in the market for a new agent have an existing one in place. “In the very beginning of the process you shouldn’t tell your current manager you’re looking for another manager,” he warned. Don’t advise the agent on the job until near the very end when selection of the successor is about to be made so that management continues smoothly and cooperatively until the changeover takes place. (Of course word gets around in any industry so maintaining secrecy may be difficult.)
Schedule Interviews After reviewing proposals, for which two weeks should be set aside, the board should schedule interviews with those applicants who seem most qualified and suited for the property. At least three to five companies should be invited for a verbal presentation and a question & answer session with the board. (It should be noted that a board can also arrange for a committee to handle the whole selection process including the interviews and make a final recommendation to the board but there should be at least one or two directors serving on that committee). The board can try to interview all candidates at one sitting or do it over one to two nights, allowing each prospective manager forty five minutes to an hour to make a presentation and take questions from the board. “I think an hour is more than enough,” said Conrad.
Two Way Process The board should keep in mind that the interview is a two way process- the management company is also interviewing the board so the directors should present an accurate picture of the association in response to the queries of the candidates. Among other things, the board should ask prospects for details about the fee structure and any certifications or professional designations the management company and staff have achieved. The board should also ask about how much time would be devoted to its property by the
assigned property manager and how large a portfolio of properties your manager and/or customer service representative from the company is responsible for. “It’s also important to find out who the property manager will be,” said Conrad. Boards, “should always meet the property manager or at least get references,” and check those references for both the manager and the company.
Key Factors to Consider The key factors, Conrad noted, in the determination as to which company to go with are the qualifications of the manager and company, cost per unit per month, the ala carte charges for services outside the primary fee, whether the proposed contract includes language that allows cancellation of the contract without cause, and the overall reputation (from references provided and independent sources) of the management company. The proximity of the company’s office relative to the property should also be considered or at least get assurances about the company’s personnel and/or their vendors response time for emergencies.
Contract Issues Moody went over contract issues. “The first thing to look at when you have an existing management company is can you get out of the contract,” she said, if the association desires to terminate the agreement before the full term has run. Also, if a contract will
Providing Pest Management Services in the Chicagoland Area since 1888 pest management services Your Partner for a Healthy Environment 1-800-336-3500 No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2009©.
be expiring at the time of signing on a new manager, does the expiring document have an automatic renewal provision, which provides that if the board does not notify the agent within a certain required time period that it is choosing to not renew the existing agreement, it is involuntarily extended for another term. It is these types of uncertainties that necessitate an attorney review of any contract before it’s accepted by a board. “It’s the most important contract you’re going to sign.” Boards have also to be wary about the length of a proposed contract. “In a two page contract a lot is missing,” said Moody. “A normal contract is about ten to fifteen pages.” The attorney will look at whether the association is set up as a non-profit corporation. ”You want to be incorporated to sign the contract, otherwise board members are signing personally,” Moody explained, adding that the contract will also be compared to the association’s declaration to ensure there are no conflicts.
Expectations of Management The attorney will also make sure that all of the expectations of the management company in terms of duties are explicitly statedincluding, but not limited to, having common area maintenance done and contracting with service providers to do it; maintaining books of account; collecting assessments; preparing the annual budget; policing adherence to rules and regulations by unit owners; preparing monthly financial reports; establishing an agenda for board meetings and being present thereat; collecting other fees and payments; obtaining capital improvement bids, and any other specific expectation.
Indemnification Clauses Indemnification clauses in the contract are given a careful legal evaluation. “Most management contracts state that if management gets sued, the association will pay its legal fees and costs,” said Moody. In some situations indemnification of management by the association is acceptable- for example when it has no direct involvement in a lawsuit to which the
association is a party but in a case where management does something grossly wrong an association does not want to have to defend the agent or pay its legal costs. A board may also want an indemnification clause in favor of the association as protection from the management agent’s liabilities. In sum, “indemnification language is very important.” It is also essential to determine that the company has adequate insurance of all necessary kind.
Termination Language The termination language is another critical area. “If things go south with the management company, you want to be able to get out of the contract without cause,” said Moody, echoing what Conrad had said. In the event of a contract dispute between the association and manager, the agreement should provide that the prevailing party is entitled to attorney’s fees. When it comes to changeover from an existing management company to the new entity, “do not overlap the service,” warned Conrad. The new company should not be
this cooperation, the board should be sure asked or required to provide any services until that the departing agent has been paid all fees after it has taken over and its predecessor has due under the contract. exited the scene. If there isn’t a dispute or other Sometimes a transition A board should proruns into trouble. “There vide a timely, written cancomplication between the have been cases where cellation notice to the we’ve had to sue outprior agent as well as a going management comletter to unit owners noti- parties, the transition should be panies to get the records,” fying them of the change seamless and handled without said Moody, most comand other matters such as monly when the agents where to send payments generating any ill will between haven’t been fully comand who to call for pensated for their servservice. the association and previous ices. “It’s very important Seamless Transition? when you change managent. This is important so agement companies not If there isn’t a disto burn bridges. It’s pute or other complicarecords and finances are important to leave on a tion between the parties, good note,” to ensure a the transition should be transferred without dispute continued harmonious seamless and handled relationship in the event without generating any ill or delay. a need arises in the will between the associafuture for assistance tion and previous agent. from a past agent. Keep in mind there may be This is important so records and finances are many nuances that are specific to your proptransferred without dispute or delay. To assure
erty that become known to a management company or manager through their experience with a given property. This type of personal knowledge and experience are rarely transferred between managing agents. Management companies, for the most part, understand that occasionally losing contracts is part of the process of doing business with associations and if cancellations are handled smoothly and fairly should not hold grudges against prior employers. Of course, their reputations for cooperation are at stake too. They will precede them when they seek new business.
Legal Review of Contract Moody closed her presentation by emphasizing the prudence of having the full legal review of a contract before it is executed by a board. “It’s a lot cheaper for us to look at a contract at the beginning than to get you out of a contract,” she said, especially when the terms may not be fully protective of an association’s interests. Y
111 E. Wacker Drive • Suite 1412 Chicago, Illinois 60601-4501
B Y H O WA R D S . D A K O F F, E S Q. , L E V E N F E L D P E A R L S T E I N , L L C A N D M I M I Y. K I M , E S Q. , L E V E N F E L D P E A R L S T E I N , L L C
Seven Financial Issues in a Distressed Economy We are living in desperate economic times and no person, business or condominium association is immune from the effects of our distressed economy. In fact, condominium associations have seen an explosion of economic related issues in recent months adversely affecting the operation of their association. From unit owners failing to pay monthly assessments and increased unit foreclosure filings, budgetary issues are a topic at virtually every board meeting. However, with sound decisions and policies, condominium boards can mitigate the effects of the seven primary financial issues in a distressed economy.
1. FAILURE TO PROMPTLY COLLECT
ther, the board may be setting up precedent for other unit owners to make late assessment payments routinely without the fear of legal action.
During difficult financial times, boards often provide unit owners extra time to pay their assessments. this is a common mistake. Sometimes, the unit owners are allowed to become three to six months behind.
Tip: Boards should enact a collection policy for delinquent assessments where legal action commences 60 days after assessments are past due.
While the board’s intention is to assist unit owners in a financial crisis, the board is actually jeopardizing the cash flow of the association, which is necessary to timely pay its financial obligations. Fur-
While boards usually empathize with unit owners in financial distress, building disrepair does not choose the timing of its damages. Failing to promptly make building repairs exposes the association to emergency expenses and increased repair costs. the board has a fiduciary obligation to all unit owners to maintain, repair and, if necessary, replace the common elements of the building and must fulfill that obligation regardless of the condition of the economy. Tip: If the common elements requires repair, take appropriate action.
2. FAILURE TO MAKE BUILDING REPAIRS Boards have been known to delay approving necessary expenditures for preventive building maintenance and/or necessary building repairs due to
ASSOCIATION INSURANCE with Personal Service
the financial hardship it will impose upon unit owners in financial distress.
3. FORECLOSURES Sometimes a unit owner fails to pay his or her mortgage (in addition to not paying assessments) and the mortgagee will file a foreclosure action against the unit in response. In those situations, foreclosures may take nine to twelve months
Structural Concrete Restoration & Waterproofing Parking Garage Plaza
• Comprehensive, Cost-Effective Coverage for Condominium, Townhome & Homeowner Associations
• Expertise on the Illinois Condominium Property Act • Risk Management Services 1634 S. Ardmore Avenue, Villa Park, IL 60181
740 Waukegan Road • Deerfield, IL 60015-0700 Phone: 847.940.4300 • Fax: 847.940.4315 www.rosenthalbros.com 14
630-495-0404 TEL 630-495-0451 FAX
M O N E Y M AT T E R S
before the foreclosure action is complete and the lender is required to pay assessments. the board should promptly direct its attorney to file an Appearance in the foreclosure litigation and Answer or Counterclaim in the event the unit’s assessments are not current to protect the association’s interests. Additionally, condominium boards must take action to collect delinquent assessments per section 9(g) of the Illinois Condominium Property Act (“Act”) to trigger the requirement that subsequent purchasers of a foreclosed unit pay six months of assessments. the association, however, is not likely to recover more than six months worth of past due assessments unless the unit is sold for more than the debt of the first mortgage holder.
Tip: the board should be vigilant about reviewing the association’s monthly financial statements.
7. THEFT OF UNIT OWNER OR
the theft of property the board must give the unit owner notice and an opportunity to be heard to levy a reasonable fine. Tip: the board should promptly prosecute any unit owners, or their guests, who are caught stealing unit owner or association property.
During difficult financial times, boards may see an increase in theft of personal property from storage lockers or the common elements. Boards must be vigilant about protecting the property of the unit owners and the association. If proof of a theft exists, besides reporting the theft to the proper legal authorities, under Section 18.4(l) of the Act, a board may fine a unit owner, or his/her guest, for
Tip: the board should promptly assert its rights in the foreclosure litigation as well as initiate collection of delinquent assessments to protect the association’s interests.
4. FAILURE TO MAINTAIN
A common mistake boards make during difficult financial times is to freeze contributions to the reserve fund. Due to empathizing with the unit owners in financial distress, boards do not raise assessments or adopt special assessments in order to maintain reasonable reserves. Under Section 9(c)(2) of the Act, the board is required to maintain reasonable reserves for the association. Tip: Budgets should always contain a line item for reasonable contributions to a reserve fund.
5. THE FAILURE TO ADOPT NECESSARY SPECIAL ASSESSMENTS
Boards are typically reluctant to adopt special assessments during difficult financial times. the mistake that boards make is to delay approving special assessments for necessary building maintenance and/or repairs due to the financial burden it will impose on its unit owners. If the association’s reserves are low or non-existent, and the need for a large capital repair project exists, the board should adopt a special assessment when necessary despite the financial times. Under Section 18(a)(8) and 18.4(a) of the Act, the board has the authority to repair, replace or restore the common elements and to adopt special assessments, if needed. Tip: Do not delay special assessments if necessary for building maintenance and/or repairs.
6. FAILURE TO REVIEW ASSOCIATION FINANCIAL STATEMENTS
Boards often fail to review monthly financial statements to ensure that management is properly handling its funds and that the association is fiscally sound. Responsibility for the economic welfare of the association rests with the board.
March 13, 2009
MCD Pool Party featuring Condolympics M A J OR S P ONS ORS
Balanced Environments Kinsella Landscape Landscape Concepts Management Hard Surface Solutions P OOL TA BLE & G AM E S PON SORS
Alan Horticultural Enterprises American Contracting & Management Services (ACMS) Brouwer Bros. Steamatic B.T. Lakeside Roofing CSR Roofing Forum Group ILT Vignocchi Kramer Tree Specialists Painter's Touch Services PTS Construction
2009 Condolympics Winners BOXING CHALLENGE 1st Place- Dan Grosse & Carole Grudzian 2nd Place - Jonathan Ryan & Erin Canterbury 3rd Place - Karen Flintz & Matt Kielbasinski BEST DRESSED TEAM 1st Place - DuBois Paving 2nd Place - AAA Painting Contractors 3rd Place (tie) - Lakeside Roofing, HSS/ Balanced Environments/ Baum Property Services
PING PONG 1st Place - David Singler 2nd Place - Colin Cagan 3rd Place - Matt Kielbasinski POOL TOURNAMENT 1st Place - Jonathan Ryan & Erin Canterbury 2nd Place - Mary Ahart & Michael Collins 3rd Place - Aleka Ernst & Ken Cook DARTS TOURNAMENT 1st Place - Dan Grosse & Jennifer Payne 2nd Place - Cathy Ryan & Marty McDonough 3rd Place - Janet Dean & Tracy Hill
BEAN BAGS 1st Place - Colin Cagan & Ken Cook 2nd Place - Karen Flintz & Keith Weber 3rd Place - Evelyn Herzog & Michelle Courtney
SPECIAL OLYMPICS DONATIONS 1st Place - Property Specialists, Inc. 2nd Place - DuBois Paving 3rd Place - Alan Horticultural
PIN GAME 1st Place - Karen Flintz 2nd Place Mary Ahart 3rd Place -John Angel 04.09
B Y D AV I D M A C K
Dysfunctional Condo Board Can Happen O
n several occasions we have been contacted by board members who ask what would happen if their associations had no functioning boards or boards that operated with less than their full complement of directors as authorized by the by-laws? Let’s look at the latter condition first since it is more common. For example, there are times when a five member board will only have 2 or 3 directors or a 3 person board only 1. Neither of these circumstances is that unusual. “It is my experience that it is quite common for association boards to occasionally operate at less than full strength due to, for instance, board members selling their units, resignations or apathy amongst the unit owners,” said Scott Rosenlund, a partner in the law firm of Fosco Fullett Rosenlund P.C.
Legally Binding Decisions? Can such boards make decisions that are legally binding and which can withstand legal challenge on the basis that they were not voted upon by boards at full strength? “While such a situation is not preferable, particularly where vacancies result in an even number of board members leading to possible voting deadlocks, it is my opinion that a board’s actions under such circumstances are not invalidated because of the vacancies,” said Rosenlund. Howard Dakoff of the law firm of Levenfeld Pearlstein, LLC agreed that even when there is only one sitting director that person did have the authority to take action. “If no other unit owner will serve, the one board member could make decisions,” he said. “There is nothing presently in the Condo Act requiring a full board.” But any decision by a board must be made in the presence of a quorum of elected or duly appointed (to fill unexpired terms) members to be legally binding. This would hold true for both a board with a full comple-
ment of directors or one that is short handed. According to Section 18(a) (14) of the Illinois Condominium Act, a condominium association’s by-laws establish what a quorum of directors shall be for the organization.
Illinois Not for Profit Corporations For associations that are also incorporated- as most are-Section 108.15 of the Illinois Not for Profit Corporation Act is more explicit. It states that, “unless otherwise provided in the articles of incorporation or the by-laws, a majority of the directors then in office shall constitute a quorum.” This Section also adds that, “in no event shall a quorum consist of less than 1/3 of the directors in office.” Note the usage of the term, “then in office”, which means those directors actually serving through election or appointment, not the maximum number called for in the by-laws.
Example Situations Let’s look at a couple of scenarios, as provided by Rosenlund, with respect to a fivemember board, assuming that the by-laws provide that a simple majority of those in office constitute the quorum. If there were only three sitting directors out of the five authorized, then two directors would consti-
tute a quorum, that being the majority. If there are only two sitting members, however, both would have to be present, since one member would not form a majority. Furthermore, said Rosenlund, “if there currently is one board member, that board member can unilaterally make decisions at a board meeting.” Again Dakoff concurred, especially noting the legal soundness of decisions by one person where there were no other sitting members on a board regardless of its authorized size. His/her decisions would be, “valid as the one member would meet the quorum (requirements),” he said.
Not Good for Long Term Governance While he pointed out the circumstances under which an understaffed board could still make binding decisions right down to the extreme of only one sitting member being able to individually take actions in lieu of a total of five, Rosenlund counseled strongly against allowing such a situation to persist at an association. These, “scenarios (above) do not represent good governance practices and efforts should be made to fill vacancies and keep boards at full strength,” he said. Generally, the more minds that can be brought to bear on any specific issue, within the framework of a board’s authorized size, the more
Dickler, Kahn, Slowikowski & Zavell, Ltd.
~ concentrating in ~
Condo & HOA Representation Corporate • Real Estate • Litigation • Wills Personal Injury 85 W. Algonquin Rd., Ste #420, Arlington Heights, IL 60005
Lacking corporate status can increase the personal responsibility of board members for their actions on behalf of their associations. While, “there is no legal requirement to incorporate an association, it provides an additional layer of liability protection for the board,” said Dakoff. So incorporation would be a prudent step for any association.
A more perilous situation for an association to find itself in is not a functioning
No Directors Even More Perilous
board- where there are no directors at all to make decisions because no unit owner wants the job.
effective the decision making process will be. However, he is realistic and understands that sometimes efforts to fill out boards simply won’t bear fruit, especially due to owner indifference. “Some smaller associations have no choice but to function with a limited (less than mandated) number of board members,” he said. There is another problem with board size
in associations that are incorporated. “Section 108.10 of the Not for Profit Act requires three or more directors.” said Rosenlund. “If there are fewer than three, the association cannot file (its) annual report with the Illinois Secretary of State and the association’s corporate status eventually will be dissolved if the association cannot find at least three persons to sit on the board.”
A more perilous situation for an association to find itself in is not having a functioning board- where there are no directors at all to make decisions because no unit owner wants the job. What ultimately could happen under that scenario is that a court would appoint a receiver to conduct the business of the association. Fortunately, while possible, the chance of that happening to an association that has been under the control of the unit owners for some time after turnover is very small. “In an extreme case an association could be placed into receivership,” said Rosenlund, but the potential for that is almost exclusively limited to associations in which the developer has filed for bankruptcy or had his blanket mortgage foreclosed upon before selling the required 75% of the units and handing off the complex to the unit owners to run. (Perhaps that will happen more frequently now in view of overbuilding in some areas and the tightening of credit to prospective purchasers due to the sub-prime mortgage crisis, which is having a decidedly negative impact on the sale of all forms of housing.) “Appointment of a receiver subsequent to the transition of control of the association from the developer to the unit owners would be an extraordinary event. It is my experience that the vast majority of mature associations have at least some semblance of a functioning board to handle the most fundamental operations.” So it would be a rare occurrence and, in fact, has apparently never happened in Illinois yet. “We have not seen this issue at Levenfeld Pearlstein,” said Dakoff. But I am aware of at least one small association with an authorized three member board whose president- he has been in that position since turnover approximately a decade ago- fears that the worst case scenario may soon overtake his condominium- that it will cease to have a functioning, or will at best have a dysfunctional, board incapable of
taking care of business. He intends to step down in the very near future because the job has worn him down and while he has been able to recruit others to run for the board to assist him periodically, for all practical purposes the place has remained a one-man operation. The others have been little more than warm bodies at board meetings, contributing nothing to the operational effort other than forming the required quorum for decisionmaking. Those now on the board have told him if he departs so will they. At this writing, the situation remained problematical. Who would be the likely party to take steps seeking a court appointed receiver for a mature association that has run aground and is taking water fast? “Unit owners would be the primary parties to intervene but if unit owners were to file a court action, they would probably serve on the board first, rendering the issue moot,” said Dakoff. “A mortgagee could seek a court appointed receiver but it is unlikely to spend the money to do so.” If an association had legal counsel, that attorney could do so if he/she found there was no other alternative.
Falling Apart & Receivership What is likely to be the result in the absence of a functioning board? “The association will eventually fall apart for lack of proper maintenance to the common elements, rules enforcement, collection of assessments, etc.,” said Dakoff, underscoring the likelihood that the association insurance would not be paid, which means that, “unit owners could have liability exposure if there is an injury on the property. The association will eventually find itself in financial disarray.” And just as the not for profit corporate status will be nullified if there is not a minimum of three board members, it will expire if there is no board to file the annual report to the Illinois Secretary of State. It is inevitable, too, that property values will diminish. And it will be difficult, if not nearly impossible to sell units in a dysfunctional association to anyone with the slightest bit of knowledge about how such organizations should be run even if more consumer friendly lending conditions return to the mortgage market. Although an effective receiver will likely
be able to eventually get a wayward association back on track and continue to move forward positively until the unit owners finally come to their senses and decide to take back control through an election and the formation of a board, the residents will be faced with higher expenses during that period. That would include, among other costs, the receiver’s salary and expenses and the necessity to pay for deferred maintenance. Assessments will have to be increased, probably significantly. Rosenlund, however, believes that before conditions deteriorate to a state where a receiver has to be appointed, someone among the unit owners will realize the association is in the grip of a crisis and look for help. “It typically is at this point that association legal counsel is contacted to help establish a proper board structure,” he said. “In most cases, a proper board can be put in place without litigation.” “Someone always steps up in the end,” Dakoff added. Y
How do you increase your property values while saving money? CODER TAYLOR ASSOCIATES. INC. LICENSED ARCHITECTS & ENGINEERS CODER TAYLOR ASSOCIATES, INC.
337 W. MAIN ST. BARRINGTON ILIINOIS 60010
Helps you prepare for future maintenance expenses by preparing a reserve study that lets you know when repairs will be needed. Saves you money by designing proper specifications. Through research and engineering, we assist you in hiring qualified contractors & ensuring that their performance is up to the associations’ expectations. Helps you take a proactive approach in protecting the value of your property from your pavement to your roof tops.
E D I t O R ’ S M E S S A G E
his past winter proved to be less severe than last but we still had plenty of significant snows and bitter cold. What this year and last
also have in common is that both tried to hang on well past the cal-
endar date for spring. Although temperatures have begun to moderate, the chilling effects of the current economic crisis has many people numb to the
▲ Mike Davids
weather outside. ®
With spring now well underway, efforts to secure various types of service & supply companies for exterior projects become an even higher priority. Some associations are scaling back on their special projects this year while others seize the opportunity and are taking ad-
APRIL 2009 | VOLUME 13 | NUMBER 1
vantage of beneficial pricing currently being offered by contractors and others. Having good vendors and professional management for special projects is always important but achieving value for capital
Editor & Publisher Michael C. Davids Vice President Sherri Iandolo Art Director Rick Dykhuis Special Events Coordinator Mary Knoll Contributing Writers Pamela Dittmer McKuen, Jim Fizzell, David Mack, and Cathy Walker Circulation Arlene Wold
projects has taken on even greater importance in today’s market. Our cover story “Economic Calamity & Challenges” outlines many of the financial concerns that are facing community associations in Chicago as a result of the economic crisis. In this article, several of our advisory board members shared their views and perspective on the current struggles of some community associations they are involved with. Additional coverage of the economy’s impact on community associations include an article on “Managing an Association’s Finances” as well as “Seven Financial Issues in a Distressed Economy.” Both provide some important advice and knowledge about dealing with the finances of your community association. One of the keys to success in any type of organization is the ability to manage money and people. Community associations are faced with many of the same problems that Government and Businesses
Administration Cindy Jacob and Carol Iandolo
are challenged by. this is especially true for newer community associations who are currently dealing
Condo Lifestyles Magazine is published quarterly by MCD Media, a wholly owned subsidiary MCD Marketing Associates, Inc. For editorial, advertising and subscription information contact: 935 Curtiss Street, Suite 5, Downers Grove, IL 60515. 630/663-0333.
date on the activities of the Illinois Condominium Advisory Council outlines a summary of the group’s
Circulation: Condo Lifestyles is available for a single issue price of $8.95 or at a $30.00 annual subscription. Distribution is direct mailing and delivery direct through authorized distributors to over 5,000 officers and directors of Common Interest Communities, 500 property managers, 400 realtors, 400 developers and 400 public officials. Total Circulation is 7,000. Condo Lifestyles attempts to provide its readership with a wide range of information on community associations, and when appropriate, differing opinions on community association issues. All material herein is copyrighted 2009©. No part of the publication may be reproduced whatsoever without written consent from the publisher. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is issued with the understanding that the publisher is not engaged in rendering legal or accounting services. If legal advice is required, services should be sought.
with financial challenges. We continue our coverage of various legislative issues affecting community associations. An uprecommendations for proposed changes and revisions to the Illinois Condominium Act. We have provided significant coverage in the past on the Life Safety and Fire Protection Ordinance that affects Chicago high-rise buildings. Inside this issue an update on voice communication systems is provided. “Manager Selection and Contracts” and “Dysfunctional Condo Boards Can Happen” are offered in our Board Basics column this issue. Also inside this issue you will find our regular Industry Happenings column along with highlights from a variety of special events. A special thank you to everyone who attended our Condo Lifestyles’ Condolympics event on March 13th. the donations we raised benefit Special Olympics Illinois. Upcoming MCD special events include our annual golf outing, which will be held on July 17 at Eaglewood Resort in Itasca and a luncheon in the Million Room at Arlington International Racecourse in September. If your association(s) has a special need or challenge, there will be a variety of experts specializing in community association issues including many members of the Condo Lifestyles advisory board who attend these events. MCD special events provide a terrific forum for association leaders to get questions answered, meet new vendors, share a story idea, or socialize with other volunteers and professionals. thanks to the many new subscribers that have found our publication useful and informative. Special thanks to the organizations and associations that are Authorized Distributors of Condo Lifestyles. We encourage you to make the opportunity to help your association and your community be the best it can be. If you have an idea to share that would benefit other community associations, a story to
Advertisers assume liability for all content of advertisements printed, and also assume personal liability for any claims arising therefrom against the publisher relating to advertising content. The publisher and editors reserve the right to reject advertising or editorial deemed inappropriate for the publication.
tell, or some advice on how to meet a problem or challenge, please call our office at 630-663-0333 or 630-932-5551. you can also send an e-mail (email@example.com). Y Michael C. Davids Editor and publisher
S E RVICE DI R E CTORY
MICHAEL J. COCHRANE, CPA (847) 301-0377
ENVIRON INTERNATIONAL CORPORATION V: 312.288.3836
Specializing in Accounting Services for Homeowner Associations.
ATTORNEYS FOSCO, FULLETT & ROSENLUND, P.C. (847) 259-5100
F: 312.288.3801 www.environcorp.com 333 West Wacker | Suite 2700 Chicago, Illinois 60606
KEOUGH & MOODY, P.C. (630) 369-2700
A Division of Schneider, Cupuro & Associates, LTD.
630-832-2222 EXT 113 CONTACT BRAD SCHNEIDER Brad@CondoCPA.com
KELLERMEYER GODFRYT & HART, P.C. (847) 318-0033
CERTIFIED PUBLIC ACCOUNTANTS
Accounting Solutions for Management Companies & Self-Managed Associations Audit & Accounting Services Income tax Reduction & Planning
SELDEN FOX, LTD. CERTIFIED PUBLIC ACCOUNTANTS
KOVITZ SHIFRIN & NESBIT (847) 537-0500
Investigations and Repair Documents for: Exterior Walls, Windows, Roofs, and Parking Garages Condition Surveys and Reserve Studies www.kghpc.com
www.ksnlaw.com Covenant Drafting & Enforcement Advising & Consulting with Boards Construction Defect Litigation Collecting Delinquent Assessments
LM CONSULTANTS, INC. (847) 573-1717
ORUM & ROTH, LTD. (312) 922-6262
Contact: Michael C. Majewski, CPA
Architects • Research • Engineering Specifications • Reserve Studies
K2N CREST P.C. (630) 990-9595 Architectural & Interior Design Investigation & Condition Surveys Repair Design & Specification Construction Administration Reserve Studies Ordinance & Code Compliance Reports
WALDMAN ENGINEERING CONSULTANTS (630) 922-3000
ASBESTOS/LEAD ABATEMENT IFD INC. ASSOCIATED ENVIRONMENTAL LLC 847-364-6800
FULL CIRCLE ARCHITECTS, LLC (847) 564-0884 (847) 564-3880 FAX Daniel Baigelman, AIA firstname.lastname@example.org Capital Improvements • Reserve Studies Engineering Reports
Intellectual Property Law trademarks • Patents Condominium Law General Litigation Contact Mark D. Roth
Reserve Analysis Studies Property Evaluations Maintenance Procedure Review ADA & Code Compliance Studies
CODER TAYLOR ASSOCIATES
BANKING AMERICAN CHARTERED BANK (847) 540-5210 BLOOMInGDALE • DOWnERS GROVE PALAtInE • LAkE zURICH • MUnDELEIn nORtHBROOk • tInLEy PARk SCHAUMBURG • Mt. PROSPECt • CHICAGO ELk GROVE VILLAGE • BARtLEtt • SOUtH BARRInGtOn VERnOn HILLS • WARREnVILLE
Innovative Financing and Cash Management for Associations John Mangan, Group Senior VP
Asbestos Abatement • Lead Paint Mitigation www.ifd-associated.com
COMMUNITY ADVANTAGE OF BARRINGTON BANK & TRUST (847) 304-5940 Loans, Reserve Investments & Lock Box Services www.communityadvantage.com
www.fullcirclearchitects.com 85 REVERE DRIVE, SUItE B, nORtHBROOk, IL 60062
ITASCA BANK & TRUST (630) 773-0350
HOLTON BROTHERS, INC.
THE LORUSSO COMPANIES (630) 231-9009
Contact Mark Stelter www.itascabank.com
Masonry Reapir Services, tuckpointing, Caulking and Concrete Restoration
888-3HOLTON (888) 346-5866 www.holton brothers.com
COnCREtE & ASPHALt Install New • Remove Old • Repair • Footings Foundations • Sidewalk • Parking Lots • Driveways www.lorussocompanies.com
NEW CENTURY BANK Contact Len Mayersky at
THE PRIVATE BANK (847) 482-8118 Contact Marty Klauber email@example.com
NATIONAL RESTORATION SYSTEMS, INC. (847) 483-7700
SUNDEK OF ILLINOIS (847) 392-3939
General Contractors Masonry & Concrete Restoration, Facade Repairs, terra Cotta, Stone, Sealants, Sealers, Protective Coatings, Expansion Joints, Balconies, Plazas www.nrsys.com
We resurface Concrete We remove & pour Concrete Waterproof Membranes “Ask about our wall coatings” Pool Decks • Balconies • Rooftops Shower & Locker Rooms “The Only 1 Stop Service since 1967”
BUILDING RESTORATIONS ABEL BUILDING & RESTORATION (847) 543-9800
DOORS QUALITY RESTORATIONS (630) 595-0990
FRAMA BUILDING PRODUCTS Doors/Frames/Hardware/Installation
See our ad on page 4 www.abelrestoration.com
CENTRAL BUILDING & PRESERVATION L.P. (312) 666-4040 Since 1924 tuckpointing Masonry Repairs & Reconstruction Concrete Restoration Facade Inspections Sealant & Caulking Application
630-543-8493 RIGGIO/BORON, LTD. (847) 531-5700 A total Exterior Facade Restoration Company www.RiggioBoron.net
L E A K R E PA I R S MASOnRy, COnCREtE, tUCkPOIntInG, CAULkInG See our ad on page 33, for more details or visit our website at: www.ForumGroupInc.com
Install new Concrete Remove Old Concrete Stamped & Colored Concrete Repair Concrete • Seal Concrete Walks • Pool Decks • Balconies Professional Service Since 1970 www.concretebysennstrom.com
OTIS ELEVATOR CO. (312) 575-1629
HARD SURFACE SOLUTIONS (847) 228-7230 / (630) 674-4520 www.hsshardsurfacesolutions.com Concrete Flatwork Specialists Asphalt Paving Curbs & Driveways | Sidewalks Footings & Foundations Colored Concrete Stamped Concrete Aggregate Finish Concrete
(847) 438-5161 www.McGintyBros.com
CONCRETE BY SENNSTROM (630) 406-1200
Contact Rob Busam: firstname.lastname@example.org
MCGINTY BROTHERS PROFESSIOnAL LAWn & tREE CARE
DESIGN INSTALLATION SYSTEMS (847) 470-8100
FORUM GROUP, INC. (773) 732-3051
SMART ELEVATORS CO. (630) 544-6829
For Display or Professional Services Directory Advertising Info, Call (630) 663-0333
S E RVICE DI R E CTORY
FIRE SAFETY & PROTECTION NORTHERN ILLINOIS FIRE SPRINKLER ADVISORY BOARD (NIFSAB) 866-2NIFSAB (866-264-3722)
WEBER FURNITURE SERVICE 773-275-9061
ROSENTHAL BROS. INC. INSURANCE
On-site Wood Maintenance Furniture Repair, Restoration, Reupholstery Fabric Available Insurance Claims Pick Up and Delivery email@example.com
FIRE/FLOOD RESTORATION BROUWER BROS. STEAMATIC (800) CLEAN54 All types of environmental cleaning. (708) 396-1477
TEAM FIRE PROTECTION
(708) 560-1248 INTERIOR PROJECT DESIGNER/ MANAGER
REFIND INTERIORS LLC 773.348.7796
GARBAGE CHUTE CLEANING BROUWER BROS. STEAMATIC (800) CLEAN54
An Emcor Company
(847) 537-1616 www.TMI.com
GENESIS CONSTRUCTION 847-895-4422
karyl Dicker Foray www.rosenthalbros.com
(708) 396-1477 www.bbsteamatic.com
NU-TREND SERVICES, INC. (847) 534-2548
www.nu-trendservices.com Commercial Painting & Cleaning Steam Cleaning • Power Washing
KINSELLA LANDSCAPE, INC. (708) 371-0830 www.kinsellalandscape.com
TOWER BUILDING SERVICES 312-404-3943 www.towerservices.net Cost efficient Janitorial & Maintenance services for homeowners associations. Carpet cleaning, pressure washing, snow removal, etc.
THE RESTORATION GROUP, LLC (630) 580-5584
HAYES MECHANICAL (773) 784-0000
2007 IREM Vendor of the year www.hayesmechanical.com
FORECLOSURE & EVICTION RELATED SERVICES
BROUWER BROS. STEAMATIC (800) CLEAN54
Photo Inventory, Moving, Storage or Disposal www.bbsteamatic.com
ACRES GROUP (888) 237-1800 / (847) 526-4554 Professional Landscaping and Snow Removal www.acresgroup.com
MESIROW FINANCIAL www.condorisk.com
E.L. JOHNSON INVESTIGATIONS, INC. (312) 583-1167 (312) 583-1169 FAX
HOLLINGER SERVICES, INC. (847) 437-2184
State Licensed Private Detectives All types of Investigations Specialization in Foreclosure Process Service and Eviction notices on Foreclosed Property firstname.lastname@example.org
Property Casualty • Employee Benefits Workers Compensation www.HollingerInsurance.com
ALAN HORTICULTURAL ENTERPRISES, INC. (630) 739-0205 www.alanhorticultural.com
BALANCED ENVIRONMENTS, INC. (847) 395-7120 www.BalancedEnvironmentsInc.com
ROCKWOOD COMPANY Myrna Ordower
(312) 621-2320 No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2009©.
ILT VIGNOCCHI (847) 487-5200
MAILBOX WORKS (630) 355-9989 (773) 528-3111
AAA PAINTING CONTRACTORS, INC. (630) 231-8350
Large Variety of Commercial and Residential Mailboxes Intercoms and tele-Entry Address Signage & Engraved nameplates Installation Services
KINSELLA LANDSCAPE, INC. (708) 371-0830
LANDSCAPE CONCEPTS MANAGEMENT, INC. (847) 223-3800
MECHANICAL EQUIPMENT & SERVICE TEAM MECHANICAL An Emcor Company
ABBOTT PAINTING, INC. 773-725-9800 John Aykroid, Director of Sales 312-203-9414 Quality Painting & Decorating Since 1973 Our Mission: Guaranteed Commitment to Quality now Offering Parking Lot Painting
(847) 537-1616 www.tmi.com
SEBERT LANDSCAPING, INC. 630-497-1000
COMPLEX PAINTING & CARPETING 847-895-4422
THORNAPPLE LANDSCAPES, INC. 630-232 2076 / 800-464-3443 Quality Landscaping Since 1947 www.thornapplelandscapes.com
CLEAN AIR SCIENCE (847) 344-0607
PAINTERS TOUCH SERVICES/ PTS CONSTRUCTION, INC. (630) 372-8400
Mold & Water Damage Experts RESIDENTIAL-COMMERCIAL-INDUSTRIAL Asisstance with Insuance Claims Post Remediation Assessments & Occupancy Studies
LAWN CARE MCGINTY BROTHERS
DUBOIS PAVING (847) 634-6089 (800) 884-4728
Professional Lawn & tree Care
(847) 438-5161 www.McGintyBros.com
SPRING-GREEN LAWN CARE (800) 830-5914
BROUWER BROS. STEAMATIC (800) CLEAN54 “All types of Environmental Cleaning” www.bbsteamatic.com
IFD, INC. ASSOCIATED ENVIRONMENTAL LLC
(847) 364-6800 Environmental Remediation www.ifd-associated.com
HARD SURFACE SOLUTIONS (630) 674-4520
THE LORUSSO COMPANIES (630) 231-9009 COnCREtE & ASPHALt Install New • Remove Old • Repair • Footings Foundations • Sidewalk • Parking Lots • Driveways www.lorussocompanies.com
For Display or Professional Services Directory Advertising Info, Call (630) 663-0333 24
S E RVICE DI R E CTORY
MAUL ASPHALT & SEALCOATING (630) 420-8765
HEIL, HEIL, SMART & GOLEE (847) 866-7400
TAIRRE MANAGEMENT SERVICES (847) 299-5740
Sealcoating / Crack-sealing / Striping Asphalt Installation www.maulasphalt.com
HILLCREST MANAGEMENT (630) 627-3303 / (312) 379-0692 www.hillcrestmgmt.com
SMITHEREEN PEST MANAGEMENT SERVICES (847) 647-0010 / (800)-336-3500
REAL ESTATE TAX ATTORNEY
JONES & JONES, INC. (630) 963-9000
ELLIOTT & ASSOCIATES (847) 298-8300
POOLS SPMS 630-629-1500 Heaters Pumps • Repairs • Chemicals Pool Maintenance • Complete Water Analysis Pool Guards, Inc. email@example.com
KENARD MANAGEMENT (312) 669-0900 www.kenardchicago.com
LEGUM & NORMAN MIDWEST (312) 944-2611
AEGIS PROPERTIES CORPORATION (773) 667-8900 www.aegisproperties.com
MCGILL MANAGEMENT, INC. (847) 259-1331 www.mcgillmanagement.com
BAUM PROPERTY SERVICES, LTD., AAMC (630) 897-0500 www.BaumProp.com
CARUSO MANAGEMENT GROUP, INC. RESIDEntIAL & COMMERCIAL
(630) 717-7188 www.carusomg.com
WOLIN-LEVIN INC. (312) 335-5666
REMODELING CONTRACTORS ABC DECO INC. 773-701-1143 Painting & Wall Repairs Hardwood Floors/ tile Installation kitchen cabinetry sale & installation "Serving Community Association's for over 10 Years" Contact: Mike Chinte firstname.lastname@example.org
NIMROD REALTY GROUP (847) 724-7850
ACTIVE ROOFING CO., INC. (773) 238-0338 (708) 430-8080 Established 1965 Maintenance & Repairs Roofing/Sheet Metal/tuckpointing www.activeroofing.com
PROPERTY SPECIALISTS INC. (847) 806-6121 www.psimanagement.net
THE HABITAT COMPANY (312) 527-5400 www.Habitat.com
VANGUARD COMMUNITY MANAGEMENT www.vanguardcommunity.com
B.T. LAKESIDE ROOFING (630) 628-0093 See our ad on page 40. www.lakeroof.com
SIDING / RENOVATIONS
CSR ROOFING CONTRACTORS (708) 848-9119
B.T. LAKESIDE ROOFING (630) 628-0093
www.csr-roofing.com See our ad on page 5.
www.lakeroof.com See our ad on page 40.
50,000 roofs installed TEAR OFFS • SHINGLES • FLAT ROOFS Our experience & technical know-how gets the job done right the first time! Serving the area since 1963
COMCAST (866) 594-1234
ONSHORE NETWORKS 312-850-5200 Ext. 131
ESKENAZI, FARRELL & FODOR, P.C. (312) 939-1664
Bulk or Retail, Internet & Satellite tV www.onshore.com
PRO★TOP ROOFING (847) 559-9119
S&D ROOFING SERVICE (630) 279-6600
TV-BULK CABLE & SATELLITE
Investigation & Condition Surveys Repair Design & Specification Construction Administration Reserve Studies Ordinance & Code Compliance Reports
LAKESHORE WASTE SERVICES (773) 685-8811
DOWNES POOL COMPANY (800) 939-9309
ASSOCIATED ENVIRONMENTAL LLC
Build, Service, Open/Close, Renovations www.downespool.com
A&R SECURITY (630) 366-4103
TREE CARE AUTUMN TREE CARE EXPERTS, INC. (847) 729-1963
ADMIRAL SECURITY DOOR STAFF SOLUTIONS (847) 588-0888 www.admiralsecuritychicago.com
SEAL-TIGHT PROTECTIVE SERVICES, INC. (847) 640-2210
KRAMER TREE SPECIALISTS, INC. 630-293-5444 tree Pruning, tree Removal, Cable Bracing, Plant Health Care, tree Planting & transplanting E-mail: KramerTree@aol.com
MCGINTY BROTHERS PROFESSIOnAL LAWn & tREE CARE
HARD SURFACE SOLUTIONS (630) 674-4520
(847) 364-6800 www.ifd-associated.com Renovation • new Construction Window Systems • noise Abatement Curtain Wall Systems Aluminum Windows: Wausau,Winstrom, Fulton, Alumitech Wood Windows: Andersen, kolbe& kolbe Steel Windows: Crittall, Steelite
WOODLAND WINDOWS & DOORS 630-529-DOOR (3667) www.woodlandwindows.com
RENEWAL BY ANDERSEN WINDOW REPLACEMENT (708) 574-5661 www.renewalbyandersen.com Kim LaPaglia Kimberly.email@example.com Community Association Specialist
For Display or Professional Services Directory Advertising Info, Call (630) 663-0333 26
WINDOW RESTORATION WINDOW WALL SERVICES, INC. THE CAULKING COMPANY (708) 361-9333 www.windowwallservices.com All Types of Window Restoration Weather Stripping / Hinges Handles and Adjustments Curtain Wall Repair Specialists
Vanguard Community Management
Chicago Dumpster Tax Update ASCO and ABOMA (Apartment Building Owners and Managers Association) have been working collaboratively with Chicago’s multi-unit property owners and managers to get rid of Chicago’s Refuse Container Fee. the City levied the tax in an attempt to meet a huge budget shortfall. However there has been some confusion about the specifics on how the tax would impact condo buildings. Alderman Mary Ann Smith (48) co-chair with Ald. tom tunney (44) of the ad hoc dumpster tax task force and other aldermen including Joe Moore have been working directly with a representative of the Intergovernmental department of the City because so many city departments are involved. those against the tax feel it is unfair and have been frustrated with the response they initially received. “Every city department we called gave us a different answer or said that they didn’t know,” said Sheli Lulkin of ASCO. She continued, “Alderman tunney pointed out that no one in City Hall knew how many dumpsters there were in Chicago. therefore, how do you estimate income?” tunney even went out and counted dumpsters in his ward.
Vanguard Community Management recently held their annual Proposal-Pa-Looza event on February 22 at the Meridien in Rolling Meadows, IL. Shown above are (L to R) Joey Carona (at podium), Associa Vice President, Jessica towles, Marketing Director, Daneen Reinke, Vice President, Julie Cihlar, Executive Vice President, Jeanette Catellier, Assistant Vice President and Liz Foley, Director of Management Services.
Lulikin adds, “When the uproar started, we contacted other associations throughout the city and Aldermen started looking for another solution.” this solution was hoped to include rental buildings and businesses who were also affected. Some offered a compromise to charge a fee on those dumpsters that are on the public
way including alleys. Under this compromise, buildings that have their dumpsters on their own property would be exempt because they are not using public property. Recycling dumpsters would be exempt. In a recent letter to Shoreline towers residents alderman Moore stated, “While we were unable to eliminate the tax, I am pleased to report that we have negotiated with the Daley administration a 36% reduction in the tax amount.” Lulkin concludes, “We are pleased that some progress has been made to reduce the burden on condo residents but still feel the tax is unfair as we pay single family tax rates and should be treated accordingly.” Lulkin plans to continue to monitor the situation and said the compromise may be voted on in the April city council meeting.
PSI Boot Camp for Board Members For over 35 years, Property Specialists, Inc., an accredited association management company, has focused exclusively on managing residential communities. they currently manage over 45,000 homes in over 225 communities. their continued focus on excellence in personal service led PSI to develop a series of two free
association board training classes – called “Boot Camp for Board Members.” Cathy Ryan, CMCA and Chief Operating Officer for PSI, says “these comprehensive sessions were designed to save board members valuable time, and cover everything our client board members need to know to effectively navigate the world of property management.” Session I guides the members through the key aspects of the roles of the board as well as the role of the management team, and also outlines the proper way to conduct a one-hour board meeting. Session II focuses on the importance of a reserve study, budgeting, and how to read a financial statement. Each session is approximately 1 1/2 hours long and both have been very well received. Comments in follow-up surveys include “this course should be required for all new board members” and “thanks for taking the time to share your knowledge and experience with us… this will prevent many unnecessary calls in the future…”
BY JORDAN SHIFRIN, KOVITZ SHIFRIN NESBIT
Recommendations and Proposed Revisions to The Illinois
n 1963, the Illinois Condominium Property Act (765 ILCS 605 et seq.) was adopted by the Illinois State Legislature to create a new form of property ownership. First appearing in the middle 1960s, condominiums began to grow arithmetically and in some instances geometrically. Initially as affordable housing for some and as a maintenance-free lifestyle for others, it is estimated there are over 44,000 condominium communities in Illinois currently, plus another 44,000 or so, homeowners and townhome associations (which are not condominiums) and another 12, 000 cooperatives. the Illinois Legislature created the Condominium Advisory Council of Illinois (CACI) to make
recommendations for a user-friendly ordinance that addresses the common issues of condominium life. the following persons were appointed to serve on the Council: • Senator Pamela Althoff
SPECIFIC REVISIONS TO THE ILLINOIS CONDOMINIUM PROPERTY ACT
deleted. this creates a “hole” since the “Common Interest Community” definition remains in the Code of Civil Procedure as a remedy for collection of delinquent assessments for non-condominium associations; i.e. Forcible Entry & Detainer. this would make it consistent.
A. Term Limits for Directors and Procedures for Removal of Directors Recommendation: Section 18(a)(11) of the Condominium Act be amended by adding the following language: “Any director may be removed from the Board of Directors at a special meeting of owners, called for said purpose by a 2/3 majority of those present or voting by absentee ballot. All procedures governing secret ballot elections shall hereby apply. A director, after notice and an opportunity for a hearing, may be suspended or removed for cause by a 2/3 majority by the Directors.” Explanation: Because of a significant amount of input regarding directors who have served for decades, it has been proposed that perhaps directors should be limited to two terms. Considering that the majority of directors who serve more than two terms actually do a good job and really care about the property, and some associations have difficulty recruiting directors, we are opposed to term limits. B. Common Interest Community Defined Recommendation: that the definition “Common Interest Community” be reinserted into the Act. “Common Interest Community”– “real property other than a condominium or cooperative in which any person by virtue of his or her ownership of a partial interest or unit therein, is obligated to pay for maintenance, improvement, insurance premiums, and/or real estate taxes or other real estate or common areas maintained for use by the owners, or any other expenses lawfully agreed upon, and are described in recorded covenants which is administered by an association”. (Section 735 ILCS 5/9-102(c)(1) should be reworded to substitute this definition. Explanation: this definition was previously included in the Act and for some reason it was
• Senator Mattie Hunter • Representative Harry Osterman • Representative Angelo “Skip” Saviano • Sheli Lulkin, ASCO (Assn. of Sheridan Road Condo/Co-op Owners) • George Panagakis, ACtHA (Assn. of Condominium & townhome Assns.)
the Council was proactive. the charge of the Council was disseminated to Illinois Condominiums through organizations and industry publications along with a request for broad participation. Homeowners were asked to provide the Council with information and suggestions. Six public hearings were held and hundreds participated. Issues were debated and recommendations made. A draft copy of the report was circulated to unit owners, industry professionals and service personnel for further input. Attached are the recommendations of the CACI. they are not all inclusive.
• Attorney Jordan I. Shifrin, Chairman
C. Special Assessments Recommendation: the Act shall be amended to reflect that all special assessments of any kind for all types of associations may be adopted in accordance with existing 18(a)(8) procedures and the differing or contradictory language contained in 18.4 and 18(a)(8)(v) be stricken to alleviate any further confusion. Explanation: the requirements to adopt a special assessment which are addressed in separate Sections (18(a)(8), and 18.4(a) and have different requirements, creating confusion, with no real apparent rationale for the differences.
included in the Declaration in order for buyers to get loans. When a mortgage is currently foreclosed, it wipes out the association’s lien for unpaid assessments. the mortgage lien always has priority. this can be financially devastating to an association. Under the current law, the foreclosing lender has only to pay the assessment from the first day of the month following the Sheriff’s sale. Furthermore, lenders who do take title to properties in associations rarely pay the monthly assessments until the property is sold. this also creates a cash crunch for associations unless the property sells quickly. In 2007, §9 of the Act was amended to provide for the collection of an additional 6 months of back assessments from the purchaser of the unit from the foreclosing lender (Section 9(g)(5). that language is ambiguous and confusing. E. Real Estate Taxes
Recommendation: the current statute provides for the lender to begin paying assessments from the first day of the month following the Sheriff’s sale. A better approach without eliminating or diluting a bank’s lien priorities would be to legislate that the lender, upon completing the foreclosure and obtaining title, will owe assessments from the first day of the month after filing the foreclosure. It also imposes a corresponding obligation on Associations to be diligent in the collection of their assessments and if a bank intentionally holds off foreclosing, an Association with an order of possession will be able to collect rent to offset the delinquency for a longer period of time.
1. A condominium by virtue of a vote of the owners or a 2/3 majority of the board has the authority to seek relief from real estate taxes (§18.4(p)) on the dwelling Units. the relief described in this section in particular should also be available to Common Interest Communities, who currently have to get owner approval and in some instances it must be unanimous.
Explanation: (Current Section 9.) the lien of a first mortgage has a superior position to the assessment lien. the rationale for this priority was that in the 60s and 70s, the condominium was a new form of property ownership which presented some risk and in order to guarantee the availability of mortgage money to finance purchases. this had to be
2. If the association incurs attorneys’ fees in seeking relief from real estate taxes, it may be charged back to each owner in the same manner as a Special Assessment by percentage of ownership in condominiums and shall be a lien on any unit where their share of the fees remains unpaid. F. Redefining Meeting Requirements Recommendation: the Council recommends a wholesale revision of §18 modifying requirements as follows: 1. At a closed session where no minutes are taken, the board shall include in the minutes at the next board meeting the topic(s) that were dis-
L E G A L U P DAT E
of ownership shall be merged and re-calculated based upon square footage. Explanation Sometimes two or more separate associations which were created by a developer for marketing purposes consider it would be in the best interests of the owners to preserve resources and reduce expenses by merging two or more associations. there is confusion over how to address the percentages of ownership. Section 18(b)(13)(i).
s Condominium Property Act cussed at the closed session. 2. the Act shall be amended to provide for codifying the “open session” or “homeowners’ forum”, to wit: “At all open meetings of the Board of Directors, a reasonable period of time shall be set aside prior to or after the conclusion, for owners in attendance to address particular issues to the Board. Such sessions are not considered a part of the official meeting and are always subject to the rules established by the Board for decorum and procedure.” “the Board of Directors shall not use work sessions, email conferences or other informal gatherings of the Board of Directors to circumvent the open meetings requirements of this Section.” Explanation: notices, time frames and open meetings are an area of major controversy because of the passage of numerous amendments throughout the years without effectively integrating the new language with some of the old and impractical requirements. G. Email Recommendation: 1. to be added to the Act, subject to signing a waiver, any owner can opt to receive all notices and official association communications via email. It is the responsibility of the unit owner to notify the association of any changes in address. 2. the board of directors is permitted to communicate “one on one” via email without being accused of holding “secret meetings” so long as open meetings, board notes and other meeting formalities continue to be preserved. 3. Any owner can opt to receive written notice, including revoking previous waivers. Explaination: Email and internet usage are now a fact of life and needs to be codified as to parameters of usage for Association business. H. Purchase or Sale of Property Recommendation: An association by a vote of 2/3 of all the owners, at a special meeting called for this purpose, shall be permitted to buy or sell, obtain or transfer clear title to a portion of the common elements or common areas when the revenues derived shall be used exclusively for the benefit of the association.
J. Developer Turnover Recommendation: Section 18.2(b) shall be clarified and revised so that the three (3) year time frame commence for turning over an association from developer to owner control, be mandatory from the recording of the “initial” declaration, not any subsequent amendments. Explanation: Section 18.2(b) provides that the developer turnover control of an association when the sooner of 75% of the units are sold or within 3 years of the recording of the declaration. Some developers abuse this process by adding on units and claiming the 3 year time then extends from the addition of units. K. Borrowing Money Recommendation: Section 18.4(m) should be rewritten to state that “An association may commit to borrow money for association purposes by a vote of a 2/3 majority of the board of directors.” Explanation: Section 18.4(m) is particularly confusing because it talks about “pledging assets” and what it is really saying is “borrow money”. L. Financial Disclosure Recommendation: Section 18(a) be deleted and revised as follows: (7) that the board of managers shall annually make available to all unit owners (a) a balance sheet and income statement of the common expenses for the preceding year actually incurred or paid, (b) an indication of which portions were for reserves, capital expenditures or repairs or payment of real estate taxes (c) a tabulation of the amounts collected pursuant to the budget or assessment, and (d) showing the net excess or deficit of income over expenditures plus reserves. Explanation: Each year all unit owners are supposed to receive a copy of a year-end financial review prepared by the board. However, under Section 18(a) it is unspecified as to what is currently required under the Act.
Explanation: Sometimes an association owns a part of the property, i.e. a vacant lot, a janitor’s unit, parking space, which are deemed part of the common elements. Current procedures are confusing or in some instances contain 100% approval requirements which are nearly impossible to obtain.
M. Specific Revisions to the Act
I. Merger and Consolidation
“Member” – An Owner of a unit, lot, home or other property in an Association subject to a Declaration.
Recommendation: the Act shall be amended so when two or more condominium associations merge or consolidate, the respective percentages
Recommendation: 1. that the Definitions section be supplemented with the following: “Common Areas” – Real property owned by the Association for the use or benefit of the Owners.
(j) Delete “Registrar of titles” (obsolete).
(l) Add “Rules and Regulations” and “Governing Documents”. (n) Delete “Condominium Instruments” and substitute with “Governing Documents”. 2. Additional Definitions – “Board of Directors” – synonymous with “Board of Managers”. 3. Section 4 – Add “the defined maintenance responsibilities of the Owner and the Association”. 4. Section 4.1 - Delete (a) in its entirety and substitute “In all instances, this Act shall govern and supersede:” (a) – Delete (1). (b) Delete (2) “or of any specified units”. (Insert after “perimeter walls”, “where structural in nature”.) (c) Delete (b) in its entirety and substitute: “to the extent of a conflict between the provisions of the Declaration, By-Laws or other governing documents, the Declaration shall prevail, except to the extent the Declaration is inconsistent with this Act.” 5. Section 8 – Add “Common Areas” to definition. 6. Section 9(a) – “First conveyance” shall include the first conveyance of each phase in an add-on Condominium. Section 9(b) – Substitute “Governing Documents” for “Condominium Instruments”. Paragraph (3) – Substitute “Governing Documents” for “Condominium Instruments”. Paragraph (4)(g)(i) – Delete “shall” and substitute with “must”. Paragraph (4)(g)(2) – Delete in its entirety. Paragraph (e) – Should be relocated to Section 4.1. Paragraph (g)(4) and (5) – Delete “Condominium” throughout. Paragraph (h) – A lien may be recorded against any Unit or Units or any property still owned by the developer for any unpaid assessments or Common Expenses. this lien may be recorded by any Owner prior to turnover of the Association to owner control. thereafter, only the duly elected Board of Directors may do so. 7. Section 10(a) – Delete “Master” and substitute with “Community”. Add Section (d): “In the event a developer refuses or fails to convey title to the Common Areas to the Association within sixty (60) days after the election of the first Unit Owner Board of Directors, after sending written demand to the developer to his last known address, the Association can apply to the Circuit Court in the County in which the property is located at any time, to either order the developer, or in the alternative, execute a judicial deed conveying said property to the Association. Should the Association be required to apply to the Circuit Court for this relief after a thirty day written demand to the developer, the Association may seek recovery of all of its attorneys’ fees and costs incurred from the developer.” Add Section (e): “In the event real property owned and used for residential purposes by an Association has not been assessed at $1.00 per year by the County Assessor, the Association may make an application for a reduction to $1.00 per year and said reduction shall be retroactive to the date of recording of the Declaration for any Association
CONDO LIFESTYLES owned parcels.” 8. Section 14.2 – Delete “Condominium Instruments” and substitute with “Governing Documents”. Add “Common Areas” after “Common Elements”. Delete “Condominium”. 9. Section 14.3 – Substitute “Governing Documents” for “Condominium Instruments”. Add – “or installation of a master antenna or dish”. 9. Section 17(b) – Substitute “Governing Documents” for “Condominium Instruments”. 10. Section 18(a)(3) – Delete in its entirety and substitute with: “Members of the Board shall not be compensated”. Section 18(a)(4) – Delete in its entirety and substitute with: “Members of the Board may be removed after notice of a special meeting is sent to all Owners, and a majority of more than two-thirds (2/3) of all Owners voting in person or by mail-in ballot, vote to remove said Director(s). A director may be removed or suspended FOR CAUSE, after notice and an opportunity for hearing by a 2/3 majority of the Board.” For Cause shall be defined as any illegal act including the commission of a crime, financial improprieties or any action(s) which is detrimental to the health, safety and welfare of the property and/or its residents. Section 18(a)(6) – Delete “at least 30 days prior to the adoption thereof by the Board of Managers” and substitute with “that each Owner shall receive, with the notice of the meeting of Owners,”.
with the exception of ownership of a unit. the payment or collection of a procurement or referral fee, commission or gratuity by a director, officer or agent is expressly prohibited and shall constitute a criminal act. Such conduct shall constitute a Class A misdemeanor and/or may be subject to civil penalties including disgorgement of all monies received and the payment of the Association’s attorneys’ fees.” (a)(18) – Delete in its entirety and substitute with: “Proxies are hereby abolished effective immediately. Association elections or referendums may be conducted by mail-in or email ballot, subject to rules adopted by the Board, as well as in person.” (b)(1)(7) – Delete in its entirety and substitute with: “All voting shall be on the basis of one vote per unit for any election or removal of directors. For properties that have both residential and parking units, only the residential units shall have a vote.” (b)(2) – Delete in its entirety and substitute with: “the Association shall have only one class of membership and there shall be no distinction between resident and non-resident Owners.” (b)(9) – Delete in its entirety (b)(9)(B) – Delete “120 days” and substitute with “60 days”. Add – “A Board can adopt rules to eliminate nominations from the floor at an election meeting, unless there are an insufficient number of candidates to fill all vacancies or the Board has failed to establish procedures for nomination prior to the meeting.”
11. Paragraph (a)(8)(i), subparagraph (v) – Delete
(b)(10) – Delete “issuing a proxy”.
Subsection (ii) delete in its entirety everything following “except”. Insert after “employee”, “or contractors”.
Add Paragraph (14) – “Cumulative voting is hereby abolished.”
Add (iv) “or where Board business is being conducted.” (a)(11) – Delete in its entirety and substitute with” “Members of the Board shall be elected for a two (2) year term and Board members may succeed themselves.” (a)(14) – Delete in its entirety and substitute with: “A majority of the Board shall constitute a quorum.” (a)(16) – Add – “Violation of this section shall constitute a conflict of interest. It shall also be a conflict of interest for any member of the Board to vote on any matter wherein they have a direct economic interest or derive a direct economic benefit,
(g) Add – “All management companies must maintain their own General Liability, fiduciary bond and Errors and Omissions insurance, and annually, provide the Association proof upon request.” Also add – “All records of the Association are the property of the Association and any third party in possession of books or records belonging to the Association shall deliver same to the Board of Directors upon ten (10) days written notice. Failure to do so may result in said third party paying all costs and expenses, including legal fees incurred either for the recovery or re-creation of said records.” (i) – Delete in its entirety and substitute with: “that upon ten (10) days notice to the manager or Board
of Directors and payment of a reasonable fee, not to exceed 25% of the monthly assessment, any Unit Owner or his attorney shall be furnished a statement of his account setting forth the amount of any lien or unpaid assessments or other charges due, a waiver of the right of first refusal, if applicable, and any and all documents, records or disclosures required under Section 22.1 herein. the Association may also add any out of pocket costs such as copying and postage, separately.” Add to Section 18 – “no Owner may vote or run for or serve on the Board of Directors if they are currently delinquent in the payment of any regular or special assessments for more than 60 days.” (q) – Delete “Condominium Instruments” and substitute with “Governing Documents”. 12. Section 18.2(a) – Add: “A developer, or his representative(s), acting as the Board of Directors, shall have a fiduciary duty to all members of the Association.” (b) – Delete everything after the word “earlier”. (i) – Insert “email address of candidate” after “address”. (iii) – Delete “by filing a petition for such meeting with the developer.” (c) – Delete in its entirety. 13. Section 18.3 – Delete “Condominium Instruments” and substitute with “Governing Documents”. 14. Section 18.4(m) – “Unless expressly provided for in the Declaration or By-Laws, the Board of Directors can, by a 2/3 majority vote, incur indebtedness on behalf of the Association without the consent of the members.” 15. the last three paragraphs of Section 18.4 should be identified as Paragraphs (s), (t) and (u). 16. Section 18.4, third paragraph, add: “or debt collectors as defined by the Fair Debt Collection Practice Act.” 17. Section 19(b) – Delete “the right to inspect, examine and make copies”, and substitute with “shall the right to obtain copies”. Delete – “in person or by agent at any reasonable time or times at the Association's principal office”. (e) – Delete in its entirety. (f) – Add: “Failure to pay any costs incurred shall constitute a lien on the requesting Owner’s Unit until paid.” “Condominium Instruments” shall be substituted with “Governing Documents”. 18. Section 22 – Add: “(6) In the event developer collects any additional funds at closing, other than current or pro-rated assessments and/or prepaid insurance premiums, if applicable, said sums shall be deposited in a separate interest-bearing account designated for funding the Association's reserves, and may not be used by the developercontrolled Board to subsidize any shortfall in the Operating Account or for capital expenditures. the developer shall be liable for any shortfall or difference.” 19. Section 27(a)(ii) - “Condominium Instruments” shall be substituted with “Governing Documents”. Paragraph (a)(ii) – Delete “or with respect to property whose Declaration is recorded on or after July 1, 1984.” (b)(i) – Add
L E G A L U P DAT E (1)(a) – “the aforestated shall also be applicable to any amendment which updates, modifies or amends a Declaration or By-Laws in order to bring into conformity or compliance with changes in the law.” (b)(2) – Add: “the aforestated shall also apply in the event the developer fails to develop all proposed Units or designated specific Units for common purposes, and the Board of Directors is desirous of adding said property and submit same to the Act. the reallocation of percentages of ownership shall be in accordance with calculating the square footage of the Units to be added in, relative to all existing Units.” (b)(6) – Add: “or to correct a material error or omission.” 20. Section 32 – Add: “(d) the Board of Directors shall have no obligation to mediate or arbitrate disputes between Owners where the Association is not a party.” N. Commentary on Pending Legislation Recommendation: the right to amend a declaration to eliminate or restrict rentals should remain unimpaired and within the exclusive purview of an association according to its governing documents. However, a board of directors of a condominium association shall be empowered to grant an exception, in their discretion, for a qualified 501C(3) organization intending to purchase property in an association to lease to low or moderate income persons. Approval will not be unreasonably withheld. All other existing leasing restrictions should be grandfathered enforceable. Explanation: the reason for these changes include realistic amendments to specific sections that have become irrelevant and may no longer be practical.
I. NEW LEGISLATION A. Developer Abuses Recommendation: During the new development process or the conversion of existing real property, all developers of more than 20 units be required to post a “warranty bond” equal to 1% of the gross sales in escrow with a nationally recognized title insurance company located in the city or town where the property is located, which shall accrue interest and shall be released only upon the mutual agreement of the parties. All developers of 19 or less units shall be required to post a warranty bond of two percent (2%) of gross sales. If the sum shall remain in escrow for a period of 180 days from last closing and if no agreement is reached, then the dispute shall be submitted for Alternative Dispute Resolution, and any agreement or findings shall be final. In the event no resolution is reached, judicial action may be taken. the loser shall be required to pay attorneys’ fees. Also, no transaction shall close without a certificate of occupancy, and no municipality shall issue one without a complete inspection of the premises. Any developer failing or willfully refusing to make a “good faith” effort to repair warranty defects shall pay the attorneys fees if they lose when they get sued. Violation of this section may be deemed to constitute consumer fraud and may be subject to civil and/or criminal sanctions enforceable by the office of the Attorney General. Explanation: During the real estate boom of the
last decade a number of multifamily residential properties were converted to condominiums (some as small as 2-flats). In a smaller building, if one or more units remained unsold, or if even one owner defaulted on their mortgage, this created an extreme economic hardship for the remaining owner(s). Many developers were undercapitalized and cut corners during construction and there was no accountability and no recourse for poor construction standards other than hiring an attorney and filing suit. Once local government performs an inspection and issues a permit for each major area of construction under local ordinance, there is no other recourse if the developer fails to stand behind their product. Municipalities, under Illinois state law, are immune from liability for permitting faulty construction to be sold. Litigation is extremely costly and beyond the means of many associations because they would also have to pay expert and legal fees, still make essential repairs and have no guarantee of ever recovering their out-of-pocket costs. Developers can be judgment proof or file bankruptcy. Municipalities require developers to post cash bonds or irrevocable letters of credit to guarantee the completion of public improvements only so they do not become a burden for the taxpayers, if the developer becomes insolvent. Buyers and future Owners should have statutory protection “with teeth”, either through criminal sanctions, prosecutorial actions of the Attorney General alá Consumer Fraud or through the office of the newly created Ombudsman/ Administrator’s Office. First, buyers need to be protected from developers. As previously stated, current disclosure laws do not go far enough on fully informing buyers of what they are getting into. Just like insect infestation, Radon, lead paint and other pamphlets, the condominium and homeowners Association disclosures should be mandatory, as well. Developers, as a condition of closing, must present current financial information, i.e. money on deposit, bills owed, subcontractors owed, liens of record or about to be filed, estimated real estate taxes per dwelling and a number of other issues the buyers get stuck with and only have recourse through hiring legal counsel and filing suit. Currently, buyers of used cars need only go to a website to get the complete history of the car (Carfax), yet buyers of homes do not have this opportunity. By adding an attorneys’ fees provision to the disclosure section (22) and expanding the required disclosures, consumers can be better protected. Likewise, owners need better protections from abusive or over-reaching Board members. Prohibitions should be added regarding sanctioning Boards for retaliatory litigation against owners who file administrative proceedings or lawsuits. Likewise, sanctions should also be imposed on property managers that fail to abide by the law regarding turnover or disclosing records, charging abusive fees, etc. these are the biggest complaints owners seem to have against developers, Boards and managers. B. Common Area Tax Liability Recommendation: 1. If the developer fails or neglects to convey all common area parcels within 18 months of turnover, the association after serving written
notice and demand on the developer at his last known address, may apply to the Circuit Court for issuance of a Judicial Deed conveying said parcels to the Association. the Circuit Court shall be empowered to enter a judgment against the developer for all the association’s attorneys’ fees, unpaid costs and fees. notice can be posted and/or published in the same manner as a foreclosure. 2. If at any point in time an Association applies for real estate tax exemption ($1.00 per parcel) currently provided by law, said exemption (a) shall be permanent until or unless the material nature and/or use of the property shall change, (b) and the granting of any exemption shall be retroactive to the day that the developer turned over control of the Association to the unit owners, and (c) the County Assessor shall have the burden of proof to demonstrate the exempt nature of the property has abated or is no longer applicable. Explanation: Homeowners associations, and multiple association planned communities with a master association (and sometimes condominiums) generally own parcels of land known as “common areas” (see new definition). Section 10 of the Act, and Section 10-35 of the Property tax Code provide that these parcels shall be taxed at $1.00 per year. However, the burden is on a new association to apply for the “Exemption of $1.00” since the developer cannot under current statutory language. Many new boards overlook this detail when control of the association is turned over to the unit owners. Further, in Cook County, even after the property has been granted the statutory exemption, the association will frequently find that the property several years later has been returned to the assessable tax rolls after a triennial re14 assessment. this procedure is cumbersome, costly and patently unfair. It puts the burden solely on the owners who take over a board, sometimes after sizeable penalties and interest have accrued. Further, if a property that should have been exempted is overlooked, it can accrue unpaid taxes, penalties and interest for years until it may come to the association board’s attention. now, the association has incurred a massive tax liability and even if the board files a Certificate of Error with the Assessor, they will only roll back a year or two of the tax liability. Sometimes someone may buy the taxes, and even though the property is unbuildable it usually has to be repurchased by the association at great bother and expense. Lastly, associations frequently learn about “unconveyed” common areas years after turnover. A defunct developer neglected to deed the property to the association and it was held in trust. the trustee sends all the notices to an invalid address. now, not only do you have a large tax liability, you do not even have ownership. C. Property Manager Registration1: Recommendation: 1. In order for a company or individual to manage property or work for a management company as a property manager in the State of Illinois, all individuals and companies shall register with the Department of Professional Regulation. A fee will be paid for said registration and a Certificate shall be issued verifying registration. (Registered Property Manager (RPM)). 2. Every 3 years the Certificate must be renewed
CONDO LIFESTYLES and as a condition of renewal, applicant must show proof of having completed no less than 20 hours of course work or seminar attendance or made presentations to managers for a recognized local, state or national organization or community college and proof of fidelity insurance. 3. the funds collected from registration renewals confirming education shall fund the office of an Administrator and staff and establish a Fund to help compensate associations who are victims of theft, fraud or embezzlement not covered by insurance. 4. Failure to register and continuing to do business as a multifamily residential property manager shall constitute a Class A misdemeanor. 5. Persons found guilty of a Class A misdemeanor shall not be eligible to obtain an RPM registration for one year. 6. Managers and management companies shall be responsible for all fees and tuition costs involved with becoming a registered property manager and shall not pass them on to the Associations. 7. the Department of Professional Registration shall maintain a realtime list of registered property managers, companies and their principles on its website. 1 Note – There is a division on this issue.
Explanation: 1. On the one hand, property managers and companies who manage hundreds of millions of dollars in real estate assets currently have no requirements for a license, certification, bonding or even minimal education. In 2007, the legislature adopted some very general standards with no enforcement mechanism or mandatory provisions or guidelines. 2. In the past few years, there have also been cases of financial impropriety by managers and the associations who have lost tens or even hundreds of thousands of dollars with little recourse. Even when claims are made under their own directors and officers’ insurance policies, claims are sometimes arbitrarily denied, extensive demands for documentation are imposed and frequently coverage is inadequate. those who support licensing of property managers advocate state regulation, mandatory education, continuing education, and state control over the custody of funds. the counter-argument has been made that you cannot legislate honesty and integrity. Licensing will only create another level of bureaucracy and diligent boards should be involved in their own financial management. Although both arguments have merit, one gives pause to the fact that this is the only profession that is unregulated and only accountable to their own clients with no governmental regulation. Many condo owners feel that this is an additional cost which will be passed on to them. D. Dissolving Condominiums Recommendation: In the event an association’s ownership reflects that 2/3 or more of the units are owned by less than 1/3 of the owners for a period of no less than 36 months, the property will be decertified as a condominium and revert to multiple ownership. Each former unit owner of a decertified property shall become a partial owner of
the newly established multifamily property. their former percentage of ownership of the common elements shall be converted to a corresponding percentage of ownership of the entire property as tenants in common with all other owners; however, none of the provisions of the Condominium Act shall apply.
and expense for associations than probably any single provision of the Act. It allows the documents to take precedence over the Act. Section 4.1 which outlines maintenance responsibility and Section 12 which governs insurance coverage should be brought into sync in clear unambiguous language that ends this controversy once and for all.
Explanation: Sometimes developers, even with all the best intentions are unable to sell all their units, or else sell a large number to investors. Hypothetical question – When is a condominium no longer an association? When an inordinate number of units are owned by a single owner or small group of investor owners, it defeats the purpose of a condominium association and likewise other owners may be subject to the ill effects of self-serving economic decisions and conflict of interests by a select few. Condominium ownership should reflect a diversity of ownership or revert to a non-condominium; i.e. an apartment building.
Recommendation: It shall be mandatory that all associations are incorporated as Illinois General not for Profit Corporations and remain in good standing by complying with State law including the filing of an annual report. All fees of incorporation, annual reports, etc. shall be increased and the new revenue shall be earmarked for use by a new Office of Association Governance (or ombudsman/administrator, etc.), as the regulator of all associations in the State of Illinois.
E. Clarify Maintenance Responsibility Recommendation: Section 4.1 and Section 12 of the Act should be consolidated to include additional provisions: 1. the association is responsible for administering and maintaining the common elements. 2. the unit owner is responsible for the interior and contents of their unit, regardless of cause. 3. Repair and maintenance of the limited common elements shall be the responsibility of the unit owner, unless otherwise stated by the board. 4. Insurance coverage, clauses and exclusions for damage to unit, common elements and limited common elements shall be written consistent with these principles. 5. All unit owners shall purchase unit owners insurance for the interior and contents of their unit (HO-6) and all additions and improvements. Failure to obtain unit owners insurance shall constitute a waiver of any and all claims against the association for damages or loss to interior or contents. 6. All insurance companies offering unit owners insurance shall not be able to defer any claims to the association’s carrier for the unit interior, personal property, contents or improvements unless there is a showing of gross negligence or indifference on the part of the association. 7. Cabinets, appliances, duct, conduits and wiring are the responsibility of the unit owners and their carriers. 8. Owner paid repairs can be tax deductible by reducing the unit cost basis for tax purposes. 9. All damages to the property including units and common elements caused by a unit owner, unit occupant or guest shall be charged back to the unit to the extent it is not covered by the unit owner’s insurance. Explanation: Section 12 of the Act governing insurance was revised significantly in 2003 and instead of clarifying, the law made it more confusing. there should be statutory guidelines as to “who pays for what” and they should supersede all documents. Section 4.1(a) of the Act should be repealed as it applies to maintenance and insurance coverage. It states “Except to the extent otherwise provided by the declaration or other condominium instruments: . . . .” this phrase alone causes more inconsistency
F. Corporate Status and Service of Process
Explanation: All claims, notices, summons and subpoenas served on any Illinois Association must be served on their registered agent. More notices are lost, unable to be served, or defaulted due to erroneous information or the fact that an association is not incorporated or a Board member or manager was the registered agent and are long gone. G. Financial Records Recommendation: 1. Every association must have an independent financial review or audit no less than every two years. Failure of a Board to do so may be subject to a fine or civil penalty. 2. the aforestated shall also be added to Section 22, 22.1 and Section 19 regarding disclosure of records. Explanation: the provisions dealing with financial disclosure and recordkeeping are ambiguous and confusing. In an age of computers, the old ways of doing business should be obsolete. In addition, regardless of the outcome of manager licensing or registration, there must be independent scrutiny of association financial records on an ongoing basis. H. Commercial Space in Mixed Use Properties Recommendation: All commercial, business or office space contained within a building occupied by a residential condominium association shall pay a proportionate share of all common expenses for shared facilities calculated on the basis of square footage. In the event a business condominium cooccupies the property, their proportionate share of the common elements shall be calculated on the basis of square footage only. Any unpaid portion of the common expense shall be a lien on the interest of the property owner. Explanation: twenty-first century urban development includes a large percentage of buildings with residential space sharing facilities and amenities with commercial. the residential association must be protected with respect to a fair contribution toward the association’s obligations to maintain the property. the developer has the discretion whether to make the commercial property condominiums, however, in all instances whether commercial space is part of the condominium or cohabitates with the association, there must be a fair allocation of common expenses. Many developers put “self-serving” provisions for the business or commercial users. I. Office of the Condominium Ombudsman (Administrator, Governance, etc.)
L E G A L U P DAT E Recommendation: the creation of the Office of the Community Association Administrator. 1. the Administrator will not be required to investigate every claim made regarding: maintenance of the property, alterations of common elements or facilities, or violations of rules or covenants. this will be subject to the Office’s discretion 2. the Administrator may review within his discretion complaints dealing with criminal or discrimination matters and may refer them to the appropriate Federal, State or local agencies. Matters pertaining to managers shall be referred to the Department of Professional Regulation. 3. the Office of the Administrator shall create a mediation panel. Attorneys, accountants and other licensed or trained professionals may sign up and be registered to serve on the panel. Any two or more aggrieved parties may file a petition requesting mediation. A member of the panel shall be assigned to mediate the dispute by which the parties agree to be bound (binding mediation). the mediator shall be paid a fee for each hour, or flat fee per session, to be apportioned equally by the aggrieved parties. the Administrator shall establish a schedule of fees. 4. the Administrator shall certify all education programs for the Department of Professional Regulation as appropriate for certification and continuing education of property managers and other professionals and make them known on a website. 5. the Administrator shall be consulted by the Legislature on all new proposed legislation materi-
ally impacting associations or their members. 6. the Administrator shall operate the office similar to other agencies regulating professionals where all matters requesting attention shall be discretionary or a “right to sue” letter will be issued. (EEOC, ARDC, etc.) 7. the Office of the Administrator shall disseminate statewide educational materials for buyers and owners of condominiums. Explanation: 1. this organization would be empowered to act as a liaison between owners, boards, managers, developers, etc. It is intended to act as an arbiter of condominium disputes whether it is for an election, rules violations or misconduct. 2. In the State of Florida, what began as a project with good intentions (the Ombudsman) became embroiled in controversy and subject to pointed criticism due to the perception that it had become strictly an advocate for owners’ interests. 3. In order for an Ombudsman or association Administrator to be effective, it must (1) be totally independent to be objective and even-handed towards all interests, and (2) it is virtually impossible to intercede in all disputes without having a massive staff and huge budget. to create a State Administrator’s Office, the State of Illinois must begin with modest goals. Funded and staffed in the beginning through the contributions of associations, managers and developers, it should begin as an investigatory body,
with limited police powers. J. Mandatory Mortgage Notification for Amendments Recommendation: the Act (Section2) shall be amended to provide that provisions contained within declarations requiring notification to mortgagees of routine amendments shall be null and void. Explanation: Most declarations are written to require written notification, and in most instances the approval of first mortgagees for any and all amendments. this is expensive and over burdensome for most associations that wish to merely change the size of the board or eliminate dogs, etc. Mortgagee and/or village approval should only be required where the interests of the Village or the mortgagee are materially affected. Otherwise, such requirements are null and void. K. Occupancy Limits Recommendation: the Association shall be permitted to amend its declaration to limit the number of occupants per unit on the basis of bedroom count or square footage when there is a good faith showing that it is to prohibit a material negative impact on sewer, water, traffic, refuse and parking. L. Smoking Recommendation: Smoking should be prohibited in all common areas and associations may amend their documents to eliminate smoking from inside dwelling units. In such an event, notices that “this is a smoke free building” shall be prominently displayed throughout the property.
Explanation: Smoking in public and even private areas is becoming less and less commonplace. However, there are some community associations that have been remiss or even refuse to prohibit smoking in public areas. the State of Illinois, as in many other jurisdictions, have stepped up in this area. this should be made applicable to associations due to close proximity of residential units. M. First Right of Refusal (the Association has the right to purchase a unit on the identical terms of any buyer.) Recommendation: A board of directors by the vote of 2/3 majority may exercise the right of first refusal. Explanation: A carryover from the days when one of the only known types of community Associations was a cooperative (Co-Op). the pre-emptive right of an Association is based upon an Illinois Appellate Court case that is followed nationally on enforcement of this restriction (Gale vs. york Centre, et al.). Although over the years it has been diluted due to abuses, particularly in the area of discrimination, for condominium Associations in particular, it is more of a burden than a benefit. Lastly, it can be used for discriminatory purposes. O. Reverse Mortgages and Other Methods of Creative Financing Recommendation: no Board of Directors should be permitted to impair or restrict the rights of an Owner to secure a reverse mortgage or other similar financing, so long as on its face it does not adversely affect the rights of an Association to col-
lect assessments. Further, no fees may be levied by the Association to process the paperwork necessary to close on a “reverse mortgage” transaction.
6. Any Amendments to the Declaration or By-Laws shall be passed by a 2/3 vote of all of the Members.
Explanation: Some older persons have assets that are in the equity of their home, and some seniors may chose to obtain a reverse mortgage or execute other equity transfer instruments.
7. the Members of the Association can, by a 2/3 vote, opt out of electing a Board and may hire a property manager, management company or other licensed professional and designate them as an “Association trustee”. the trustee will have the same decision making authority as a Board, shall have a fiduciary duty to the Members, must obtain directors and officers insurance individually, and may be terminated by a simple majority vote of the Members. the trustee will be required to meet with the Owners quarterly.
P. Small Associations Recommendation: the Council recommends the adoption of a new section of the Act, which relieves Associations of 20 units or less of the following requirements: 1. All Boards can be three Directors or more who will be elected annually. three Directors must be present for any Board meeting to constitute a quorum. 2. All owners voting shall be on the basis of one vote per unit format.2 3. the budget, rules and regulations and any special assessment shall be passed by a simple majority of owners. 4. notices of Board and Owners meetings in single building Associations may be posted without individual notices being required except for offsite owners.
8. All bank accounts shall require 2 signatures. 9. All of the other provisions of the Condominium Act would be applicable. Explanation: In the State of Wisconsin, for example, Associations under 20 units or less are relieved of some of the mandatory Association formalities imposed on larger properties. Ultimately, this would keep a lot of smaller Associations out of Court and even promote more harmonious relationships. Y Respectfully submitted, Condominium Advisory Council of Illinois
5. Any litigation, except the collection of delinquent assessments, must be approved by the majority of the Owners. 2 Note – This is actually a consideration for all Associations. Voting by percentage of Ownership is really illogical and would certainly simplify all elections.
S P E C I A L F E AT U R E
B Y M A R K S U S K I , S . E . T, S C H I R M E R E N G I N E E R I N G C O R P O R AT I O N
UPDATE ON THE CHICAGO HIGH-RISE LIFE SAFETY ORDINANCE
VOICE COMMUNICATION SYSTEMS H
igh-rise residential condominium owners and managers within the City of Chicago should know by now that the deadline for installation of a one-way and two-way voice communication system is drawing near. For those new to the residential high-rise community, and to try and put to rest some of the rumors that have been circulating since the adoption of the ordinance, this article provides the following information; 1) a brief overview of how voice communication systems work and why they are needed, 2) a discussion of the basic requirements for such systems, and 3) a summary of issues related to the design and installation of these systems, which building owners and operators must address.
Overview An occupant notification system is one of the most critical components of the various fire and life safety features provided in occupied buildings. the notification system is what alerts the occupants that a fire has occurred and directs them to what emergency action should be taken. Studies done in human behavior during fire  reveals that panic, which supposes irrational behavior for a situation, is not typical behavior in a fire. On the contrary, people appear to apply rational decision making given their understanding of the situation at the time of the fire. Without information or instructions provided to building occupants via an occupant notification system, occupants cannot make informed decisions on what steps to take to
save their lives and their families’ lives during a fire emergency. there are two primary types of notification systems, a general evacuation system and a selective evacuation system. the general evacuation system functions exactly as the name implies, it evacuates the entire building simultaneously. If a manual fire alarm pull station or smoke detector connected to the fire alarm system is activated, all the notification appliances (typically horns and strobes) within the building sound the alarm and all occupants evacuate immediately. General evacuation systems that employ horns, bells, or other sounding devices, other than speakers, can really only provide the occupants of the building one instruction, and that is to evacuate the building now! For small or medium size buildings this may be the only
Total Cleaning and Restoration Professionals • Garbage Chute Cleaning • Carpet, Upholstery & Drapery Cleaning • Photo inventory, moving disposal or storage related to evictions
• Fire & Flood Restoration • Mold Remediation • Infrared Camera Inspections • Air & Exhaust Duct Cleaning
1-800-CLEAN54 www.bbsteamatic.com No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2009©.
message necessary, but for large or tall buildings the ability to provide occupants different messages can be critical.
Selective Evacuation System the other type of notification system is a selective evacuation system, which notifies specific zones or floors independently and only a portion of the building is alerted. these systems typically rely on the use of speakers and strobes so that one or more different voice instructions can be given to one or more areas of the building. Selective evacuation systems are commonly used in large assembly spaces and high-rise buildings where activating a general evacuation signal may create additional problems for the occupants or the emergency responders. When directing large groups of people in an emergency situation it may be necessary for the emergency responders to provide specific instructions to avoid evacuation delays or disruptions. For example, high-rises have multiple exits for each floor but if a particular stairwell was filled with smoke or blocked, the emergency responders could direct the people towards a safe exit utilizing the selective evacuation system. Also, these systems allow communication with occupants in non-fire areas to provide direc-
tion on evacuation or to instruct them to stay in their designated area allowing emergency responders to concentrate their efforts on evacuating the occupants in the hazard area. A selective evacuation system typically uses speakers that can transmit a prerecorded voice message or allows emergency responders to pro▲ Voice Communication Panel vide live spoken instructions via a centrally located microphone. If emergency responders believe it is necessary to evacuate the entire building, the “all call” function allows verbal instructions to be given to the entire building simultaneously.
For all highrise building owners, the Chicago Building Code (CBC) requires the installation of a voice communication system by January 1, 2012. the required voice communication systems have three basic components; the control panel, occupant notification appliances (speakers and strobe lights) and two-way emergency telephones. the following will help to explain the CBC requirements and clarify any confusion of what is required.
Voice Communication Panel the voice communication panel (VCP) is the
S P E C I A L F E AT U R E
brains of the system and is located in the main lobby typically within eye site of the main entrance. this location is not popular with many high-rise building owners because the lobbies may be decorative and ornate and installing a VCP in the main lobby in full view of the public is not aesthetically pleasing. the final location for the VCP is not entirely up to the voice communication system designer and requires approval by the Fire Prevention Bureau. the Fire Prevention Bureau requires the panel in plain sight because, in the event of an emergency, the responders do not want to waste valuable time searching for it. the VCP normally contains a master paging microphone, one-way voice control buttons (one per floor), and an emergency telephone handset. the master paging microphone and control buttons allows emergency responders to give spoken instructions to selected individual floors, or to the entire building simultaneously. the telephone handset allows two-way communications between emergency responders at the VCP and emergency personnel in the stairwells.
Selective One-Way Voice Requirements the selective one-way voice communication system consists of speakers installed throughout
various portions of the building. this includes new buildings as well as existing buildings. the CBC requires speakers in all of the following locations of a residential high-rise building: • Lobbies and common use areas of the building • Corridors and hallways spaced at a distance not greater than 75 feet apart • End of corridors • Elevator lobbies and elevator cabs • In each stairwell located on every fifth floor • near each stairwell exit doorway the CBC does not require speakers to be provided in each dwelling unit of existing or new high-rise residential buildings. Consequentially, providing sufficient sound levels in the dwelling units can be difficult with speakers located only in corridors and elevator lobbies. the City chose not to require speakers in each dwelling unit as part of the high-rise Life Safety Ordinance because this is not required in the CBC for new construction, and a desire to limit the financial impact on building owners. Schirmer Engineering suggests building owners consider providing at least one additional speaker in each dwelling unit located near the door to the corridor. this will provide greater audibility within the dwelling unit for a small cost. the additional cost for this can be priced out as an
option during the bid phase of the voice communication system project. In an informal capacity, Schirmer Engineering was asked by a property manager of a residential high-rise to perform testing to determine if there was sufficient sound levels inside the units with speakers located only in corridors and elevator lobbies. the test was informal and the parameters were simple. We went into the dwelling unit bedroom with a decibel meter and activated the voice communication system. the sound level did not register on the decibel meter and the voice instructions were barely audible. the test was conducted again with the bedroom door closed and under those conditions the voice message could not be heard. In the event of an emergency, the occupants of these units would not be able to hear the emergency responder’s instruction. For a greater level of life safety, it is suggested that at least one speaker should be installed in each dwelling unit. the issue of speakers in each dwelling unit should not be dismissed simply because of the cost. In the event of an emergency, there could be serious ramifications if the notification system cannot be heard, resulting in a failure to awaken occupants and/or to properly instruct occupants during an emergency situation. Because the high-rise ordinance does not require
speakers in the dwelling units, building owners can choose to provide these additional speakers as a secondary project, which can occur after the January 1, 2012 deadline. For buildings that have an existing occupant notification system (public address system) there is an option that would allow these systems to be used in lieu of the required one-way voice communication system. this exception, however, requires that the existing occupant notification system must meet all of the following criteria: • Must be electronically supervised or used continuously and tested on a monthly basis; • Must be available for fire department use from a central command location; • Meet audibility levels specified in the CBC; • Have the ability to transmit voice instructions;
cation appliances (strobes) to notify persons with hearing impairments of an emergency. Some property managers, and even some fire alarm contractors, will insist that strobes are not required because the CBC does not specifically mention strobe placement. Even though the CBC does not specifically require strobes, they are required. the State of Illinois adopted the Illinois Accessibility Code, which became affective April 24, 1997 and is based on the Americans with Disability Act Accessibility Guidelines. the IAC requires strobes in all restrooms, corridors, meeting rooms and any other area that is considered common use within the building. the bottom line is that not installing strobes would be a violation of the IAC (State Law) and expose the owner to a potential law suit whether or not an emergency were to ever occur.
• Must be available for fire department use; and
Two-Way Voice Requirements
• Is subject to field testing. Many of the buildings have intercom or public address systems, and even though the exception is in the CBC, the typical intercom system does not meet the CBC requirements.
Visual Notification Requirements Another area of confusion we are often asked to address is the requirement to install visual notifi-
the two-way voice communication portion of the system consists of a telephone handset at the VCP and two-way stations (handsets) in each required exit stairwell at not less than every 5th floor, i.e. on levels 5, 10, 15, etc. the two-way system is used by emergency responders to communicate between command personnel at the VCP and emergency responders on other floors. It
McGill Management, Inc. A Property Management Firm
Everyone We Serve
Is Someone Special
should be noted that use of wireless communications devices have proven to be unreliable in highrise buildings because of the typical steel and concrete construction. the CBC does allow an exception to the requirement for installing a two-way voice system in condominium and apartment buildings that are 15 stories or less in height and contains 60 or fewer dwelling units.
The Process Despite the rumors, there is currently no indication that the City will delay the January 1, 2012 deadline for installation of required voice communication systems. nor is there any indication that the City will rescind the ordinance, so it would behoove all owners and managers to start the installation process. Below are the typical steps involved in this process; table 1 provides estimated time frames for each phase of the process. Contract with a design professional, someone with knowledge of the CBC requirements, to create design drawings and an installation specification for fire alarm contractors to bid. the drawings and specification provides the fire alarm contractors guidance on how to install the system and also ensures all bids received are based on a single set of bid documents. this will save the owner money as the bids will be sent to multiple contractors and all bids will be competitive. the bids are then reviewed for accuracy and an installing fire alarm contractor is ultimately chosen. the fire alarm contractor prepares a set of construction drawings that will be submitted to the design firm to be reviewed for specification compliance. After the design firm approves the drawings the fire alarm contractor submits the drawings to the Department of Buildings (DOB) for review and issuance of the construction permits. After the permit is obtained, the contractor commences with system installation which is monitored periodically by the design professional. When the installation is completed, acceptance testing is conducted with the owner’s representative, the design professional, and/or the Fire Prevention Bureau (FPB). After all the testing is satisfactorily completed, the system can be put into service. table 1 indicates that approximately 44 weeks are needed to complete the project. the designated time for each phase is an estimate based upon typical projects and can change for various reasons. Below are a few of the most common reasons the time table could be modified. Condominium Association Board members have to approve the funding necessary for the installation. typically boards meet once a month and if a board member is not present or has a
question, the process could be extended into a second month, adding another 4 weeks to the time table. An item that is often overlooked is the contract period. this is the time designated for the Owner’s attorneys to finalize the contract. Depending upon the complexity of the contract, this could take 2-4 weeks. the installation phase is estimated at 26 weeks; however, larger buildings may take significantly longer. the time estimated for the DOB review is an average. the DOB has limited resources to review drawings and if there are numerous projects submitted to the City this phase may take 2-3 weeks longer. If Owners wait until the eleventh hour to submit construction drawings to the DOB, there could be significant backlog which could potentially add weeks to this phase. the initial time table allotted a total of 44 weeks (approximately 10 or 11 months) from the drawing and specification phase to completion. As outlined above, the time frame could easily be extended for various reasons to 56 weeks or more.
Time frame (Weeks)
Design Drawings and Specification Bid Package Submittal Contractor’s Bid Review Contractor’s Construction Drawings Preparation DOB Review Installation Acceptance testing Total
4 2 2 4 4 26 2 44
Conclusion: the CBC requires all high-rise buildings (including residential) within the Chicago City limits to install a voice communication system. the deadline specified in the Code is January 1, 2012, which means the systems, must be designed, installed, approved, and fully functional by January 1, 2012. there are good reasons not to wait and get this work completed now. First, the economy slow down has affected the construction industry and there are a number of electrical contractors looking for work, which means the bids will be more competitive, thus saving owners money. Secondly, there are approximately 1,700 high-rise buildings within the City of Chicago with approximately 1,100 of those being residential high-rises. As the deadline draws near, condominium associations and apartment building owners will be in a hurry to install the required system and contractors will be able to demand top dollar for the work, which means added cost to the owners. Many owners seem to have a wait and see attitude hoping the City will either postpone the deadline or change the requirements. As of now, there is no indication that the City will do either, so there is no better time than the present to complete the required work. Y References: Ref  SFPE Engineering Guide to Human Behavior in Fire, 2003, Society of Fire Protection Engineers
April 2009 PDF Version of CondoLifestyles