Condo boards should invest reserve money conservatively!

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As we know boards of directors can and should invest association reserve funds. Investment of reserves is generally contemplated by the General Not For Profit Corporation Act at Section 103.10 (i); by the Illinois Condominium Property Act at Section 18.4 (c) and then specifically at Section 9(c).  The act states that in determining a reasonable reserve for the association, the board of directors should consider the return on investment of association reserve funds. We always remember the basic tenet of board members as being fiduciaries of the owners, which means they have a special duty to protect the property entrusted by the owners to preserve and maintain. Investment standards for fiduciaries are governed by the Illinois Trust and Trustees Act. This statute states that in considering the investment of funds, fiduciaries must consider “both the reasonable production of income and safety of capital.”

As applied to condominiums, board members must consider in their investment decisions the safety of investment, the short and long term needs for the funds, and of lesser importance, the rate of return. For this reason, the most common investment for association reserves is certificates of deposit with staggered maturity dates.  I recommend this conservative investment approach for obvious reasons.  Association directors are not however, technically, barred from investing reserve funds in securities or other unsecured/uninsured investment vehicles.

I include links to the three acts cited above for reference.

NFP Act

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2280&ChapterID=65

 

Condo Act

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2200&ChapterID=62

 

Trust and Trustee Act

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2117&ChapterID=61

 

Should you have any further questions, please do not hesitate to contact my office at info@girardlawgroup.com or by calling (773) 598-4201.