Condominium seller is not off the hook for unpaid assessments

Q: An owner in our condominium, with about a $15,000 unpaid assessment balance, sold his unit at a discount to a buyer for cash. The parties did not request an assessment status letter, and the board only found out about the sale when the buyer was moving in. The association then filed a breach of contract action against the former owner to collect the unpaid sums. The former owner presented a copy of the sales contract between him and the buyer that purports to delegate responsibility for the seller's unpaid assessments to the buyer. Can the seller do this?

A: Initially, the association has a lien against the unit for the seller's unpaid assessments, and the association can foreclose that lien against the unit and the new owner. However, let's address the issue at hand.

The purported delegation of the seller's obligation for unpaid assessment to the buyer of the unit was void and ineffective. This is governed by Section 18 of the Illinois Condominium Property Act. That section provides that "a unit owner may not assign, delegate, transfer, surrender or avoid the duties, responsibilities and liabilities of a unit owner under this Act, the condominium instruments or the rules and regulations of the association; and that such an attempted assignment, delegation, transfer, surrender or avoidance shall be deemed void."

Q: Our condominium association has some cash flow issues. Can the reserve fund for our condominium be used to pay operating expenses?

A: The Palm Illinois appellate court decision held that an association's reserve fund and operating account are not fungible, and that the reserve fund can't be used to fund operating expenses. That said, an association can borrow from the reserve fund, and move those borrowed funds from the reserve fund to the operating fund. However, that transaction needs to be approved by the board at a board meeting, and documented with a promissory note with borrowed funds repaid with a market rate of interest.

Further, if a legitimate expense (e.g., roof replacement) is being funded with reserve funds, those funds could be transferred to the operating account so this expense can be paid (as many reserve accounts don't have check writing ability).

Q: The declaration for our condominium association provides that board terms are one year, and that all seats on the entire board are up for election every year. This has resulted in huge turnover and a lack of continuity on the board. Isn't there a law that says that no more than one-third of the board terms are to expire annually?

A: That is the opposite of what the law states regarding the expiration of board terms. Section 18(a)(1) of the Illinois Condominium Property Act provides "that the terms of at least one-third of the members of the board shall expire annually." This requirement is met if the terms of all board members expire annually.

Having the terms of all board members expire annually can create very significant continuity issues. The association should consider amending the declaration to create staggered board terms. Such an amendment would increase board terms to two years and, provide, in a five-member board for example, that the terms of three board members expire in one year and the terms of two board members expire in the next year. This pattern would continue in alternating years.

Q: I understand the board of our condominium is not permitted to forebear the collection of assessments. Does this prevent the association from entering into a payment plan with a delinquent owner?

A: Section 18 of the Illinois Condominium Property Act provides that "(t)he association shall have no authority to forbear the payment of assessments by any unit owner." This has no affect on an association's ability to enter a payment plan with a delinquent owner.

• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.