Ask ten board members how much their association should have in reserves and you'll hear ten different numbers. "Ten percent of the budget." "Three months of expenses." "Whatever we had last year, plus a bit." None of those is what Illinois law actually asks for, and none of them tells you whether your building can replace its roof when the time comes.
Here's what the law says, how to turn it into a real number, how to read a reserve study, where outside rules (like mortgage lender requirements) come into play, and what to do if your association is behind.
What reserves are — and what they aren't
Most associations keep at least two pots of money:
The operating fund pays for recurring, predictable costs: utilities, insurance, management, janitorial, landscaping, snow removal, routine repairs. It's spent and refilled every year.
The reserve fund is savings for large, infrequent expenses: replacing the roof, tuckpointing masonry, rebuilding the parking deck, replacing boilers or elevators, repaving, replacing windows. These projects happen every 10, 20 or 40 years, but they're certain to happen.
Think of reserves as the building paying for its own aging, a little every month, so today's owners pay for the wear they cause rather than leaving it to whoever happens to own when the bill comes due. Without reserves, a $600,000 roof replacement falls on the owners who are there in the year it fails — usually as a special assessment.
Reserves are not a general rainy-day fund for operating shortfalls. Using reserves to cover a snow-removal overrun or a jump in insurance premiums may be convenient, but it quietly shrinks the money set aside for the projects the reserve was built for.
What the Illinois Condominium Property Act requires
The reserve rule lives in Section 9(c) of the Illinois Condominium Property Act (765 ILCS 605/9(c)). It says every budget adopted by the board must provide for "reasonable reserves for capital expenditures and deferred maintenance" for the repair or replacement of the common elements.
The Act doesn't set a percentage. Instead, it tells the board what to weigh when deciding what "reasonable" means:
1. The repair and replacement cost, and estimated useful life, of everything the association must maintain — structure, mechanical systems, building surfaces, common elements, and energy systems.
2. The current and expected return on the association's invested funds.
3. Any independent professional reserve study the association has obtained.
4. The financial impact on owners, and on unit market values, of any assessment increase needed to fund reserves.
5. The association's ability to borrow or refinance.
That list matters. It means a board that picks a number out of the air, without considering these factors, is on thin ice. And a board that considered them and documented its reasoning is in a much stronger position if an owner later asks why reserves were set where they were.
Practical tip: When the board adopts the budget, record in the minutes that it reviewed the reserve study (or component list), current investment returns, the impact on owners, and financing options. That short paragraph shows the board did what Section 9(c) asks.
Can an association waive reserves?
Sometimes. If the association's declaration and bylaws don't themselves require reserves, owners can vote to waive the statutory requirement in whole or in part — but it takes two-thirds of the total votes of the association, not two-thirds of those who show up. The same two-thirds vote can bring the requirement back later.
A waiver has consequences. It must be disclosed in the association's financial statements, and highlighted in bold in the disclosure package given to prospective buyers under Section 22.1. In practice, a waiver can make units harder to sell and harder to finance. It's rarely the right call for a building with aging systems.
Turning "reasonable" into a number: the reserve study
The most reliable way to set reserves is a reserve study. A reserve study has two parts:
Physical analysis. A specialist inspects every major component the association maintains — roof, masonry, windows, elevators, boilers, parking deck, paving, and so on — and estimates its remaining useful life and replacement cost.
Funding plan. Those figures become a year-by-year schedule of expected capital spending, and a contribution plan that keeps the reserve fund from running dry when big projects hit.
Illinois law doesn't require every association to commission a study, but Section 9(c) specifically lists a professional study as something the board should consider, and Section 19 treats any reserve study as an association record owners are entitled to see. A study is the clearest evidence that the board did its homework.
A good rule of thumb: have a full study with a site visit every three to five years, and update the numbers annually in between as bids, inflation and completed projects change the picture.
What a reserve study typically includes
A typical Illinois condo reserve study lists components such as:
Roofing and roof drains
Masonry, tuckpointing, sealants and lintels
Windows, balcony doors and balconies
Parking garage structure, waterproofing and expansion joints
Boilers, chillers, pumps and domestic hot water systems
Elevators
Fire alarm and sprinkler systems
Hallway, lobby and amenity finishes
Asphalt, concrete sidewalks and fencing
Security and access-control systems
Intercoms and building electrical equipment
For each, the study estimates a useful life, remaining life and current replacement cost, then projects those costs forward with inflation.
Understanding "percent funded"
Reserve studies often report a percent funded figure. It compares the money actually in the reserve account to the amount that should be there given how much of each component's life has already been used up.
A simple example: a roof costs $300,000 to replace and lasts 25 years. It's 15 years old, so 60% of its life is used. The "fully funded" balance for the roof is $180,000. If the association has $90,000 set aside for it, the roof is 50% funded.
Rough interpretations many reserve professionals use:
70% or higher: generally strong, with low risk of special assessments.
30% to 70%: fair; the association should have a plan to strengthen its position.
Below 30%: weak, with a high likelihood of special assessments or loans when big projects come due.
These are guidelines, not legal thresholds, but they help boards and owners understand where the building stands.
Common funding approaches
A reserve study will usually recommend one of these strategies:
Full funding: aims to bring the reserve to 100% funded over time. Highest contributions, lowest risk.
Threshold funding: keeps the balance above a set percentage or dollar floor. A middle ground many boards choose.
Baseline funding: keeps the balance just above zero every year. Lowest contributions, but little cushion if a component fails early or costs more than expected.
Whichever approach the board chooses, it should be a deliberate choice, recorded in the minutes, rather than whatever number was in last year's budget.
What about lender requirements?
Separate from Illinois law, secondary-market lenders look at reserves when deciding whether to finance units in your building. Fannie Mae's condo project review guidelines, for example, generally look for the association's budget to set aside a meaningful share of assessment income — commonly cited as at least 10% — for reserves, unless a current reserve study supports a different amount. Fannie Mae and Freddie Mac also scrutinize buildings with significant deferred maintenance or unfunded critical repairs.
If a building fails those reviews, buyers may be unable to get conventional mortgages, which can drag down every owner's sale price. Lender guidelines change, so check the current rules with your manager or a lender before relying on a specific percentage.
This is one reason reserves aren't just a board issue. Every owner who ever wants to sell or refinance has a stake in the building passing lender review.
Where and how to hold reserve funds
Reserve money should be safe first and earn a return second. Common practices include:
Keep reserves in accounts separate from operating funds, so the balance is clear on every financial statement.
Stay within deposit insurance limits. Large reserve balances are often spread across multiple insured institutions or placed in programs designed to extend coverage.
Match investments to the project schedule. Money needed for a project in two years shouldn't be locked in a long-term instrument. Certificates of deposit and Treasury securities laddered to the study's timeline are common.
Require board authorization for reserve transfers and withdrawals, and review reserve balances at every board meeting.
The Act lists "the current and expected returns on invested funds" as a reserve factor, so investment decisions are part of the reserve conversation, not separate from it.
Signs your reserves are too low
The reserve fund balance is less than the cost of the next major project due within five years.
The board keeps paying for replacements out of the operating budget.
Special assessments have become a regular event rather than a rare one.
Your reserve study is more than five years old, or you've never had one.
Loan officers or buyers' attorneys are asking pointed questions about the budget.
Contractors are recommending repairs the board keeps postponing for lack of funds.
The percent funded figure in your study is below 30%.
Handling a shortfall without shocking owners
Few boards can close a large gap in one year, and the Act asks them to weigh the impact on owners. A practical approach:
1. Get current numbers. Update or commission a reserve study so the size of the gap is real, not guessed.
2. Build a multi-year plan. Step up contributions gradually, and show owners the schedule.
3. Sequence projects. Defer what can safely wait; don't defer what protects the structure or life safety.
4. Consider financing for true emergencies, weighing interest cost against the burden of a large one-time assessment.
5. Communicate early. Owners take increases better when they see the reserve study, the project list and the math.
An example
Suppose a 40-unit building has $250,000 in reserves, and its study projects $1.2 million in masonry and roof work over the next eight years. Contributing $60,000 a year won't keep up.
Rather than a single large special assessment, the board might raise the annual reserve contribution in steps over three years, schedule the roof first and the masonry in phases, and plan a modest loan for the final phase. Owners see a predictable path rather than a surprise bill — and the board can show the Section 9(c) factors it weighed.
What owners should look for
If you own or are buying a unit, ask for:
The most recent reserve study and any annual updates.
The current reserve balance and the planned contribution in this year's budget.
The percent funded figure, if the study reports one.
A list of major projects expected in the next five years.
Whether the association has waived reserves or has any outstanding loans.
Owners are entitled to many of these records under Section 19, and much of this information also appears in the Section 22.1 resale disclosure package.
Frequently asked questions
Is there a minimum reserve percentage in Illinois?
No. The Act requires "reasonable reserves" based on specific factors. Lender guidelines often reference a percentage, but that's a separate issue.
Is a reserve study required in Illinois?
Not for every association under the Act, but it's listed as a factor boards should consider, and it's the best way to show reserves are reasonable.
Can the board spend reserves on anything it wants?
Reserves are meant for capital expenditures and deferred maintenance of the common elements. Using them for routine operating costs undermines the purpose and should be avoided. Check your declaration and bylaws for any additional restrictions.
How often should the reserve study be updated?
A full study with a site visit every three to five years, with annual updates to reflect completed projects, new bids and inflation, is a common practice.
The bottom line
Illinois doesn't hand boards a reserve percentage. It hands them a duty to think carefully, and a list of factors to think about. A current reserve study, a documented funding plan, sensible investment of reserve funds and clear communication with owners are how a board shows it met that duty — and how it avoids the emergency special assessment nobody wants.
Related reading:
Adopting Your Condo Budget in Illinois: A Step-by-Step Guide for Boards
Special Assessments in Illinois Condos: What the Board Can Do on Its Own, and When Owners Get a Vote
How to Read Your Condo Association's Financial Statements (Without a Finance Background)
How to Tell Owners Their Condo Assessments Are Going Up
Pimmit Run Management helps Illinois condominium boards build reserve plans from real component data, with live reporting owners can understand. Contact us to talk about your building.
This article is general information, not legal advice. Your declaration and bylaws may impose additional requirements; consult your association's attorney about your specific situation.
This article is general information, not legal advice. Consult your association's attorney about your specific situation.