Illinois HOA Reserve Fund Laws: Budgeting, Waivers, and Disclosures

Illinois HOA reserve fund laws work differently depending on what kind of community you live in. Condominium associations operate under Section 9(c) of the Condominium Property Act, which requires every budget adopted since July 1, 1990 to include reasonable reserves for repair and replacement of common elements. Townhomes, planned developments, and other non-condominium common interest communities follow the Common Interest Community Association Act (the CICAA), which leaves the reserve obligation largely to the governing documents but imposes strict transparency rules. Neither statute sets a fixed dollar amount or percentage.

What Condo Boards Must Budget For

Section 9(c)(2) of the Illinois Condominium Property Act (765 ILCS 605/9) requires every condominium budget to include reasonable reserves for capital expenditures and deferred maintenance related to common elements.¹ The statute doesn’t dictate the amount. It directs the board to weigh five factors when deciding what “reasonable” means for that particular property:

The repair and replacement cost, and the estimated useful life, of everything the association is obligated to maintain, repair, or replace.
The current and anticipated return on the association’s invested funds.
Any independent professional reserve study the association has obtained.
The financial impact on unit owners, and on the market value of the units, of any assessment increase needed to fund reserves.
The ability of the association to obtain financing or refinancing.

The board has room to balance these factors, but budgeting for some level of reserves is not optional. A board that simply zeros out the reserve line in the annual budget is violating the statute, unless the association has formally waived the requirement.

When a Condo Association Can Waive Reserves

The Condominium Property Act allows an association to waive the reserve requirement entirely, but only if two conditions are met: the condominium instruments do not independently require reserves, and two-thirds of the total votes in the association approve the waiver.¹ Reserves can be reinstated later by another two-thirds vote.

A waiver comes with disclosure strings. It has to be noted in the association’s financial statements and highlighted in bold print in any resale disclosure package provided to a prospective buyer under Section 22.1. In exchange, board members and the managing agent get statutory liability protection: no cause of action can be brought against them for inadequate reserves when a proper waiver is in place. That shield disappears if the vote was never actually held or wasn’t properly documented.

Non-Condominium Communities Under the CICAA

Townhomes, planned developments, and other common interest communities that aren’t condominiums fall under 765 ILCS 160, the CICAA. The statute takes a different approach. It doesn’t explicitly require budgets to include reserve funding. Instead, it defines reserves as sums separately maintained by the association for purposes specified in the declaration and bylaws, so the reserve obligation flows from the governing documents rather than from the statute itself.²

Where the CICAA does impose structure is transparency. Section 1-45 requires the board to distribute a proposed annual budget to all members at least 30 days before adoption, identifying which portions are earmarked for reserves, capital expenditures, repairs, or real estate taxes. The board must also provide a year-end summary showing the same breakdown of actual expenditures along with the net surplus or deficit including reserves. The board is separately required to provide for the maintenance, repair, and replacement of common areas through the bylaws or operating agreement.³ If the governing documents do require reserve funding, a board’s failure to budget for it becomes a breach of the declaration that members can enforce.

What Owners and Buyers Have a Right to See

Reserve funding is only as accountable as the records behind it, and Illinois law gives both owners and prospective buyers meaningful access.

Records Access for Current Owners

Under Section 19 of the Condominium Property Act, the board must keep detailed records of all receipts and expenditures for the current fiscal year and the ten years immediately preceding it, along with any reserve study the association has obtained. Any member can inspect and copy these records by submitting a written request. The board has 10 business days to produce them, and a failure to produce is treated as a denial, which gives the owner grounds to seek court enforcement.⁴

The CICAA imposes a parallel obligation. The board must maintain records, including any reserve study, and make them available for examination and copying at convenient weekday hours.³

Resale Disclosures for Buyers

Section 22.1 of the Condominium Property Act requires the selling owner to obtain a disclosure package from the board and provide it to any prospective buyer. That package must include the status and amount of any reserve for replacement fund (with any portion earmarked for specific projects called out), a statement of capital expenditures the association anticipates within the current and next two fiscal years, the association’s most recent statement of financial condition, a statement of pending suits or judgments, and a statement of insurance coverage maintained for unit owners. The association may charge up to $375 for compiling this information, adjusted annually for CPI, plus an additional $100 for rush service within 72 hours.⁵ Any reserve waiver has to appear in bold print in these disclosures.

Section 1-35 of the CICAA imposes essentially the same duty on non-condominium associations: the board must make available to a prospective buyer a statement of anticipated capital expenditures for the current and next two fiscal years, along with the status and amount of any reserve or replacement fund.²

What Happens When Reserves Fall Short

When reserves can’t cover a major repair, the board’s usual next step is a special assessment. Under Section 18(a)(8) of the Condominium Property Act, the board can generally adopt a special assessment without owner approval, unless the assessment is for an addition or alteration to common elements, which requires two-thirds approval.⁶

Owners have a limited safety valve. If a special assessment combined with all regular and separate assessments for the current fiscal year would exceed 115% of the prior year’s total assessments, owners holding at least 20% of the total votes can deliver a written petition to the board within 14 days of adoption. The board must then call a meeting within 30 days. Unless a majority of total votes are cast at that meeting to reject the assessment, it stands. The CICAA contains a nearly identical 115% threshold and petition process for non-condominium communities.²

The practical takeaway is that underfunded reserves eventually surface as a lump-sum charge, and the rejection mechanism rarely succeeds because it requires an outright majority of all votes, not just those cast.

Protecting the Reserve Money Itself

Section 12 of the Condominium Property Act requires associations with six or more units to obtain a fidelity bond covering everyone who controls or disburses association funds, including managing agents and their employees. The bond must cover the maximum amount available to protect all funds in custody plus the reserve fund.⁷ Management companies that hold reserve funds must also maintain their own fidelity bonds, and the association has standing to file a claim against that bond if funds go missing.

The CICAA adds another layer of protection: management companies must maintain a separate account for each association’s reserve funds, and those funds cannot be seized by the management company’s creditors.² If a management company fails, reserves held on the association’s behalf should be insulated.

Reserve Studies

A reserve study evaluates the physical condition and remaining useful life of every common element the association maintains, then projects the cost and timing of future repairs and replacements. The Condominium Property Act lists independent professional reserve studies as one of the five factors boards should consider when setting reserve levels, and Section 19 requires the board to keep any reserve study on file. But neither the Condominium Property Act nor the CICAA currently requires an association to conduct one.¹⁴

House Bill 2563, filed in the 2025–2026 legislative session, would require both condominium and CICAA associations to conduct and update a reserve study every five years.⁸ As of March 2026, the bill remained in committee. Even without a mandate, a reserve study is the most defensible basis for a board’s funding decisions, and boards without one are effectively guessing at how much to set aside.

Board Fiduciary Duty and Personal Liability

Section 18.4 of the Condominium Property Act requires the condominium board to exercise the care of a fiduciary toward unit owners.⁹ That duty runs to how the board handles reserves: setting appropriate funding levels, investing prudently, and spending reserves only for their intended purposes.

Board members who follow proper procedures and act in the association’s interest are generally shielded from personal liability, even when owners disagree with a specific decision. The protection breaks down when board members knowingly ignore the law, disregard the governing documents, or act in self-interest. In those situations, individual board members can face personal liability.⁹

For a board looking to stay on solid ground, the checklist is short: budget for reserves using the five statutory factors, document the reasoning, obtain a reserve study when feasible, keep the financial records the statute requires, and produce them when an owner asks. Most reserve-related liability traces back to a board that skipped one of those steps.

1
Illinois General Assembly. Illinois Code 765 ILCS 605/9
2
Illinois Department of Financial and Professional Regulation. Illinois Common Interest Community Association Act
3
Illinois General Assembly. Illinois Code 765 ILCS 160/1-30
4
Illinois General Assembly. Illinois Code 765 ILCS 605/19
5
Illinois General Assembly. Illinois Code 765 ILCS 605/22.1
6
Illinois Department of Financial and Professional Regulation. How Is a Special Assessment Adopted
7
Illinois General Assembly. Illinois Code 765 ILCS 605/12
8
Illinois General Assembly. Illinois General Assembly – Bill Status of HB2563
9
Illinois Department of Financial and Professional Regulation. Rights and Responsibilities of Association Board Members