State of Illinois

The state of Illinois has not adopted any specific statutes related to reserve studies.

The State of Illinois does state that “all budgets adopted by a board of managers shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements”.  The considerations to determine the appropriate amount of reserves are clearly stated in Chapter 765 ILCS 605 Section 2.

Common industry practice is that homeowners associations should perform periodic reserve studies as a prudent business practice.  Directors of associations are generally held to a “prudent businessman” rule in determining whether or not they have met the fiduciary duty of their position for the association.  A prudent businessman would establish a capital replacement budget (reserve study) to make sure he is generating enough revenues (reserve assessments) to provide for major repairs and replacements.

There is little discussion about whether an association should perform a reserve study.  The only significant areas of discussion revolve around how frequently a reserve study should be performed, and if there should be any minimum funding requirements.  Most states that have reserve study statutes require physical site inspections on 3 or 5 year cycles.  We believe that 5 years is too long.  3 years may be too long if significant reserve expenditures are being made during the subject time period.  However, the association should perform an update without site inspection every year as part of the annual budget process.

 

Additional State Reserve Study Laws