Q. I am on the board of a midsize condominium association. We are considering renting a portion of the common area to unit owners to park motorcycles. How much income can a condominium association earn from renting a portion of the common area without jeopardizing our not-for-profit tax status?
A. Not-for-profit status does not depend on how much a condo association might earn by renting out common areas. But one thing to consider is whether revenue would exceed expenses, which could lead the condo association to have an income tax liability.
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Many associations earn extra revenue by renting amenity spaces, roof antenna leases and the like. The board of directors is best served to work with its accountant to determine whether there is any income tax liability. There are common strategies to manage income tax liability based on expenses equalizing income, transferring excess income to the reserve fund (if allowed under the governing documents) or even giving the extra income to the unit owners.
Q. I am an owner in a condominium association and the payment of assessments and special assessments is based on the percentage of ownership assigned to units per the condominium declaration, which means owners of larger units pay more than owners of smaller units. Some owners cry foul and say that all unit owners should pay the same amount for assessments, citing friends who live in other states where assessments are evenly divided among all unit owners. Is there Illinois law on this topic?
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A. In a condominium form of ownership, assessments and special assessments are calculated based on unit percentages. Section 4(e) of the Condominium Act governs how unit percentages are calculated in Illinois.
Section 4(e) states that unit percentages are computed based on the value of the units (i.e. by the developer taking as a basis the value of each unit in relation to the value of the property as a whole). Since larger units are often more valuable than smaller units (i.e. with higher initial purchase prices), it is expected that larger units will have a higher unit percentage, and thus, pay higher assessments compared with less valuable smaller units. Unless the value of all condominium units was identical in the building when it was originally developed, unit percentages would not be the same for all units in a condominium.
Q. Have there been any legislative updates that affect community associations?
A. On May 27, 2022, Gov. J.B. Pritzker signed two pieces of legislation that amend the Condominium Act and Common Interest Community Association Act (CICAA).
House Bill No. 4158 adds “any reserve study” to the list of documents that must be made available to unit owners for inspection under Section 19 of the Condominium Act or Section 1-30(l) of CICAA. As such, beginning on Jan. 1, 2023, Illinois condominium associations and community associations that are subject to CICAA must make a copy of the reserve study available to any unit ownerswho ask for it.
In addition, HB 4158 extends the requirement for associations to comply with the Condominium and Common Interest Community Ombudsperson Act to Jan. 1, 2024.
House Bill No. 5246 reduces the timeframe for condominium associations to provide certain disclosures under Section 22.1 of the Condominium Act (unit resales) from 30 days to 10 business days. HB 5246 also caps the fees for the production of documents under Section 22.1 of the Condominium Act at $375 (with annual adjustments based on the Consumer Price Index) and allows for an additional $100 charge “for rush service completed within 72 hours.” This change to the Condominium Act takes effect as of Jan. 1, 2023.
Got a question for the Condo Adviser? Email ctc-realestate@chicagotribune.com.
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