Ratification of a Condominium Association’s Annual Budget by Unit Owners

At this time of year, many boards and management companies are putting together annual budgets for their associations. However, recent changes to the law may affect how some condominium associations adopt their annual budget.

In 2008, the Arizona state legislature passed a law making the Arizona Condominium Act applicable to all condominiums within the state effective January 1, 2009. This means that some condominium associations may find themselves being required to follow a new set of rules in 2009. One of those new rules relates to how a condominium association adopts its annual budget.

According to A.R.S. § 33-1243 (D), except as provided in the declaration, a condominium association must distribute a summary of a proposed budget to all of its members within thirty days after the board of directors adopts the budget. Unless the condominium association’s declaration allows the board to adopt and amend budgets on its own, the board must call a meeting of the unit owners to consider ratification of the proposed budget. This meeting must be held not fewer than fourteen nor more than thirty days after the summary is mailed. At the meeting, unless a majority of all unit owners vote to reject the budget, the budget will be considered ratified, whether or not a quorum is present. If the budget is rejected, the previous year’s budget must be continued until the unit owners ratify a subsequent budget proposed by the board. This is not overly burdensome, but it can be a change from the way an association board has operated.

While it is likely that many newer condominium declarations contain language allowing the board to adopt the annual budget on its own, some older condominium declarations (and perhaps a few newer ones as well) may not contain this specific language. When adopting your annual budget for 2010, please be sure to check the assessment provisions of your declaration to see whether or not they allow the Board to adopt the annual budget on its own. If your declaration does not contain this language, or unless it contains other more specific language about owner approval, please be sure to have the proposed budget ratified by the unit owners as set forth in the statute before you put your proposed budget into place. This may require more time prior to imposing assessments than in the past.