Q: I am the acting treasurer of a small condominium association in Chicago. We were recently advised by a Realtor that the new Illinois condominium law requires that we maintain two separate accounts, one for daily expenses and a second for major expenditures.
Does this requirement really apply to small associations? If so, what percentage of our condominium assessments should be set aside every month for major expenses?
A: Associations must have operating funds and reserve funds. The purpose of a reserve fund is to require associations to save monies for future capital expenditures and deferred maintenance. All associations have been required to include reserve fundings in their budgets since 1990, so this is not new.
Regardless of size, a reserve fund in place for a major expenditure will help to defer or minimize a special assessment for a major expenditure. There is no mathematical formula for reserve funds in Illinois. To determine reasonable reserves, directors should review the factors in Section 9(c) of the Condominium Act, particularly the repair and replacement costs of major components and building surfaces.
The Federal Housing Administration requires associations to allocate at least 10 percent of their operating funds to a reserve account each year. Depending on the size and age of your association, that 10 percent requirement may not be sufficient.