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  • Michael Shifrin

Assessments: The Lifeblood of Every Association

Serving on a board of managers of a condominium or community association brings with it numerous challenges. One such challenge is running the association like a business. Chief executive officers and business leaders understand the importance of protecting the financial health of the companies in which they lead. They regularly monitor the assets and debt of their company along with revenue and cash flow to ensure the company’s survival. Condominium and community association boards must do the same.

Although condominium and community associations are legally created as not-for-profit corporations, they still must operate like businesses. Board members have a fiduciary responsibility to the owners to preserve and protect the association. For most people, their home is their largest asset. In an association setting, this means elected board members are responsible for overseeing the largest asset of tens if not hundreds of people.

The primary source of income for any condominium or community association is assessments. Each member of an association is responsible for paying his or her proportionate share of assessments by operation of law. For condominium associations, a unit owner’s share of assessments is based upon the unit owner’s percentage ownership interest in the common elements. This obligation is set forth in the Illinois Condominium Property Act and the association declaration. An association’s annual budget for its fiscal year serves as the basis from which assessments are calculated. It is common for condominium association unit owners to pay different monthly assessments.

For non-condominium association members, each owner’s assessment responsibility is based upon the community declaration and the annual budget adopted by the board. More often than not, community association members pay equal assessments.

Being the primary - and sometimes only - source of income for any association, it is of utmost importance that board members actively monitor each owner’s assessment payments. Many associations require members to make monthly assessment payments, although others require quarterly or annual assessment payments. Regardless of the frequency or manner in which assessments are paid, boards should not hesitate to adopt and strictly enforce collection policies.

For example, if a condominium association has a rule that requires the imposition of a $25 late fee for any assessment not paid within ten days after its due date, the Board should strictly enforce this policy. Enforcement must be consistent, uniform and without regard for the individual behind in his or her assessment payment.

This is easier said than done. Often times it is a board member’s friend or neighbor that fails to pay his or her assessment on time. The personal connection between the two may create a greater sense of compassion and understanding for the owner’s delinquency. Even worse, the board member may be intimately aware of the personal struggles of the friend or neighbor that gave rise to the delinquency. The temptation to look the other way or give the delinquent member additional time before levying a fine can be strong. While understandable, a board member must avoid succumbing to this temptation. He or she must remember the importance of collecting assessments in a timely manner from all owners to preserve the overall financial health and well-being of the entire association.

One practice boards utilize to avoid this temptation is to establish a clear collection policy. Once adopted, the board expressly empowers the association property manager to enforce the policy with the aid of legal counsel. Empowering the property manager to strictly enforce an established collection policy, with minimal input from the board, ensures rigorous enforcement of the association’s collection policy. It also sends a message to association members that the board understands the importance of collecting monthly assessments and will strictly enforce its policies. The likelihood of missed or late assessment payments usually diminish once owners understand there are no exceptions to the policy.

Board members that view their role on the board as that of an executive leading a business often make productive and impactful board members. They understand the importance of collecting assessments from the owners to ensure the association’s financial health and well-being. This, in turn, solidifies the association’s financial standing for years to come, which allows it to better navigate unexpected future capital expenses, catastrophes, or events that could jeopardize association well-being.

It is always advisable to be a proactive and overprepared board than a reactive and underprepared board. After all, problems are much easier to prevent than to solve. If you do not have an association collection policy or have not had your association collection policy reviewed by legal counsel within the past few years, now is as good a time as any to do so.

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