Reserve funds cannot be used for daily working cash

One of the resources available to our Board of Managers and to unit owners is Mark Pearlstein's "Condo Adviser" column in the Sunday Chicago Tribune. This is usually in the "Money & Real Estate" section of the newspaper.

Mr. Pearlstein answers questions posed by boards and unit owners of HOA's regarding the business of running and living in an HOA.

On Sunday, February 7, Mr. Pearlstein addressed a question regarding the use of reserves for working cash needs. The article title is repeated as the title of this post. The reader who had a question stated that "Over the last few years, our expenses have gone over budget. The board has used our reserve funds to cover these excess expenses.........Should our capital reserve only be used as an emergency rather than as a revolving door for working cash?"

Mr. Pearlstein's reply, in part was this:

"No. As Section 9(c) of the Illinois Condominium and Property Act directs, the purpose of an association reserve fund is for capital expenditures to repair and replace major portions of the common elements." Mr. Pearlstein goes on to define what those "major portions of common elements" to which reserve funds are applicable, might be. He then goes on to say that "While directors do have authority to use reserve funds for temporary emergency expenses, the board must maintain the reserve fund. Directors have to structure assessments to replace any reserve funds used for these emergency purposes."

Mr. Pearlstein also suggests that "The better practice... is to adopt an operating reserve fund. This fund is a separate account, not mandated by statute." He uses the example of the use of this operating fund as the means to pay for an unexpected increase in "seasonal" utility costs. I can see this would also be a means to cover an overage in something like our snowplowing budget. It's my understanding that our plowing includes a certain number of "pushes". If we were to have a winter with unusual number of snowfalls we can exceed that contracted number and also exceed the budget.

The Chicago Tribune website, which includes the Condo Advisor article referred to in this post, as well as other, recent articles, is here:
Condo Adviser February 7, 2010

Click for Chicago Tribune Condo Adviser Articles



Additional Information:
Who is Mark D. Pearlstein? He is a partner in the Chicago law firm Levenfeld Pearlstein, LLC. According to the biographical information of that firm:

"Mark is a partner in the Community Associations Service Group where he specializes in representing community associations and developers, particularly in relation to mixed use developments. Mark is the current Chairman of the Illinois Legislative Action Committee of the Community Associations Institute (CAI), and he is a member of the Charter Class of the CAI College of Community Association Lawyers. He is the former Chairman of the Chicago Bar Association Condominium Subcommittee and a former member of the CAI Illinois Chapter Board of Directors.

Since 1988, Mark has written a weekly column on condominium and homeowner association law for the now entitled “Condo Advisor”. He is the co-author with Partner Howard Dakoff of the current chapter on “Condominium Management” for the Condominium Law textbook published by the Illinois Institute for Continuing Legal Education; and the author of a recent article on “Legal Defenses and Other Practice Issues in Architectural Covenant Enforcement” for the Journal of Community Association law. Mark has lectured extensively at State and national seminars on homeowner association law, including the subjects of association contracts, condominium insurance, covenant enforcement and mixed use developments. He has been actively involved in drafting provisions of the Illinois Condominium Property Act. He was the principal draftsman of legislation pertaining to condominium insurance, manager conduct and post foreclosure assessment recovery for associations. He is the current leader of the Chapter initiative to enact community association manager licensing.

He is a member of the Leading Lawyers Network and a member of the City of Chicago Condominium Task Force. In 2008, he was the recipient of the Premier Leadership Award by the Illinois Chapter of the Institute of Real Estate Management."

Click here for Levenfeld Pearlstein, LLC Link