Directors have protections against owner lawsuits

Q. I am on a condo board. We follow and consistently enforce all rules of the building and make no decisions until we thoroughly research our rules or the Condominium Act. We have a good management company. However, we have been threatened with a lawsuit for doing our job and have experienced false accusations that resulted in attorneys' fees.

When board members are doing the right thing, what is their protection? The Condominium Act outlines what each position is required to perform, which is a lot of responsibility for a position with no pay. There needs to be some oversight or a state body for board members. Why would anyone volunteer for this job?

A. Though I understand your frustration, you should realize that litigation against directors is generally unsuccessful. The law gives board members substantial protection and complaining unit owners are not likely to recover attorneys' fees.


Directors have a fiduciary obligation, which means they must follow the condo declaration and Condominium Act. Consistent with court rulings on corporate directors, condo board members are not liable for good-faith decisions even if they result in mistakes.

Every declaration contains an indemnification provision that essentially states that directors are not liable unless they act in a manner that is fraudulent or engage in intentional misconduct or gross negligence.

A litigant may recover attorneys' fees only if they are authorized by statute or a contract. The Illinois Condominium Property Act states that directors may recover attorneys' fees against owners to enforce the declaration and rules. There is no provision in the statute for owners to recover attorneys' fees for suits against directors.

The condo declaration is a contract, and most do not provide for unit owners to recover fees in suits against a board.



Q. As an owner in a large condo association with high assessments, a healthy budget and a reserve fund of almost $300,000, are there any laws or regulations that require board members or the property management firm to be bonded. If so, in what amount? Do board members have to advise the association members regarding this bond?

A. Section 12 of the Illinois Condominium Property Act requires the association to maintain a fidelity bond to protect against theft of funds. The bond covers those who handle association funds. The bond should equal the amount of funds in the operating and reserve accounts. The management company should produce the bond before beginning a new contract with the association.



Q. I am an officer of a new homeowners association. We are a small subdivision with homes and a few unsold lots. Our developer turned over control of the association to the owners last May. While he did register the association as a non-profit corporation, he did almost nothing else to conduct business for the benefit of the members. Other than the turnover election, the developer never held any open meetings, no minutes or agendas were published and no money was set aside in a reserve fund. Thus, we are starting off with no funds or bylaws. The covenants were written in such a way that vacant lot owners, meaning the developer, have a vote but do not pay assessments.

Didn't the developer have a duty to act like an owner board when he was in charge?

A. Developer representatives are the first board members. Developer board members have the same fiduciary obligation as owner board members. They must hold open meetings, distribute a budget to the owners and prepare and distribute an annual accounting of income and expenses.

Because your association is not a condominium, the developer may have been exempt from certain requirements, such as the payment of assessments and maintaining reserves.

If the developer incorporated the association as a non-profit corporation, it was an error not to prepare bylaws.



Q. If our condominium declaration allows dogs, can the board grandfather existing dogs and prohibit new dogs? Do they have to amend the bylaws or can they just make a decision? If they have to amend the bylaws, is owner approval required?

A. If the declaration and bylaws of your association permits pets, the board cannot prohibit dogs without amending the document by a vote of the unit owners.

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source: chicagotribune.com