In August 2019, Illinois enacted Public Act 101-0221 (commonly referred to as the Workplace
Transparency Act). The Act requires all employers, including community associations, with at
least one employee working in the state of Illinois to conduct annual sexual harassment training.

“Employee” includes:

  • Full time, part time and short term employees
  • An apprentice or applicant for an apprenticeship
  • Interns (paid or unpaid)

This can include anyone from security guards, seasonal lifeguards, door staff to maintenance staff.
The training must be conducted by December 31, 2020 and then on an annual basis thereafter.
Employers may use the model training provided by the Illinois Department of Human Rights
(IDHR) located on their website to conduct the training and be compliant under the Act. In the
alternative, the training may be developed by employers but it must equal or exceed the minimum
standards for sexual harassment prevention training outlined in Section 2-109(B) of the Illinois
Human Rights Act (IHRA). Therefore, it must include:

  • an explanation of sexual harassment consistent with the IHRA,
  • examples of conduct that constitutes unlawful sexual harassment,
  • a summary of relevant federal and state statutory provisions concerning sexual harassment, including remedies available to victims of sexual harassment, and
  • a summary of responsibilities of employers in the prevention, investigation, and corrective measure of sexual harassment.

Employers must keep a record of their compliance which must be made available to the IDHR
upon request.

Records (paper or electronic) can include but are not limited to:

  • Names of employees trained
  • Date of training
  • Sign-in worksheets
  • Signed employee acknowledgments
  • Copes of certificates of participation issued
  • Copy of all written or recorded materials used for the training
  • Name of the training provider, if applicable

If an employer fails to comply with the Act they may be liable for civil penalties ranging from
$500-$5,000 depending on the number of violations and number of employees.

Contact our office today to learn more about this new law, or for help and guidance in developing
specific sexual harassment training specific to your community association.

For more information, the following resources may be helpful:
IDHR information on minimum training standards
IDHR Model Sexual Harassment Prevention Training Program
IDHR FAQ on Sexual Harassment Prevention Training
Section 2-109 and 2-110 of the Illinois Human Rights Act

FAMILIES FIRST CORONAVIRUS RESPONSE ACT BULLETIN

By: Mohit Mehta

The Families First Coronavirus Response Act (FFCRA) was signed into public law on March 18, 2020, as a way to legislate duties, rights and responsibilities in the public and private sector while the nation carries on through the COVID-19 pandemic. As employers are forced to close businesses and employees take medical leaves of absence from work, the FFCRA lays out employer and employee duties and responsibilities in the “Emergency Family and Medical Leave Expansion Act” (EFMLEA) and the “Emergency Paid Sick Leave Act” (EPSLA). The EFMLEA expands the scope of the Family and Medical Leave Act of 1993 (FMLA), where employees may take 12 weeks of leave for medical reasons due to the COVID-19 pandemic without risk of losing their job. The EPSLA grants employees 2 weeks of paid sick leave due to the COVID-19 pandemic, regardless of the length of their employment.

REQUIREMENTS AND DUTIES UNDER THE EFMLEA

Overview of Legislation:

Small businesses and organizations with fewer than 50 employees are exempt from the requirements of the EFMLEA when the imposition of such requirements would jeopardize the viability of the business. Additionally, the provisions in the EFMLEA apply only to employees employed for at least 30 calendar days by the employer from whom leave is requested, and employers with 50 or more employees for each working day during the last 20 workweeks. The EFMLEA expands on the Family and Medical Leave Act of 1993 (FMLA), which lays the groundwork for which employees may take leave from their employment for up to 12 weeks (or 26 weeks in the case of them being a servicemember) if they are need of medical care, or to care for a family member that is in need of medical care, without the risk of the employee losing their job. The EFMLEA expands the FMLA, where employees are able to take 12 (or 26) weeks of leave from employment without the risk of losing their job, if they are required to do so under the new federal, state, and local rules in connection with the COVID-19 pandemic. Accordingly, the employee may take the 12 weeks given under the FMLA to recover or help their child recover from the COVID-19 pandemic (if schools and child-care centers are closed due to the new federal, state, and local rules in connection with the COVID-19 pandemic), without the risk of losing their job, under the new provisions in the EFMLEA. Furthermore, the employee can elect to include accrued vacation days, sick days, and personal days for the first 10 days of leave under the EFMLEA; after the 10 day period, the employer shall provide paid leave for the employee. However the amount of money that employers are to pay employees is not to exceed $200 per day and a $10,000 maximum.

Employer and Employee Duties:

Employees must give notice as is practicable to employers when medical leave is foreseeable. If the employee’s position is taken when the employee comes back to work, the employer must make every reasonable effort to restore the employee to a position equivalent to the position the employee held prior to taking leave. If the restoration fails, the employer must contact the employee if an equivalent position opens up within one year.

REQUIREMENTS AND DUTIES UNDER THE EPSLA

Overview of Legislation:

The EPSLA applies to any employer in the private sector with under 500 employees. Under the provisions of the EPSLA, employers must give their employees paid sick leave under the Act regardless of how long the employee has been employed by the employer. Additionally, employers may not require an employee to use other paid leave provided by the employer to the employee before the employee uses the paid sick time granted in the EPSLA. The EPSLA specifically lists that employers are required to give employees paid sick leave only to the extent that the employee is unable to work (or work remotely) because:

  • The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  • The employee is caring for an individual who is subject to an order as described in numeral (1) or has been advised as described in numeral (2);
  • The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions;
  • The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Accordingly, full time employees are entitled to 80 hours of paid sick leave and part-time employees are entitled to a leave amount equal to the number of hours the employee works over a 2-week period. Once an employee comes back to work, the employee is afforded no more sick leave under the Act. Lastly, employers are required under the FFCRA to post a copy of the language used in the Act at work; “model language” that satisfies this requirement can be found below:

https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave

https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave

https://www.dol.gov/agencies/whd/pandemic/ffcra-questions

Paid Sick Leave Calculation:

The EPSLA lists two payment restrictions for employers based on the reason the employee takes leave. For reasons 1-3 above, paid sick time is not to exceed $511/day and a maximum of $5110 total; for reasons 4-6 above, paid sick time is not to exceed $200/day and a maximum of $2,000 total. Additionally, when employees are taking paid sick leave for reasons 4, 5, and 6, their compensation will be 2/3 of their regular rate of pay. For part-time employees or employees with varying schedules, employers should calculate the employee’s paid sick leave hours to a number equal to the average number of hours that the employee was scheduled per day over the 6-month period ending on the date on which the employee takes the paid sick time, including hours for which the employee took leave of any type. If the employee did not work during the last 6 months, paid sick leave should be based on a reasonable expectation on the number of hours per day the employee typically works.

If you any questions regarding the foregoing please contact our office to discuss.   Remember this portion of the recent federal legislation addresses leave taken due to one of the enumerated reasons and not due to lack of work or closure of a business. 

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No client or any other individual or entity should rely on this article as a basis for any action or actions without confirming the advice.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your entity or business going forward, please contact our office. 

TIME TO TAKE ADVANTAGE OF “USE OF TECHNOLOGY”

While it may seem trite to repeat this statement – our society is facing unprecedented times.    In 2014 when I (as the Co-Chairperson of the Illinois Legislative Action Committee of CAI) was negotiating changes to the Illinois Condominium Property Act and the Common Interest Community Association I could not have anticipated the events we are all are facing today.  However, both acts were modified in 2015, in various ways, including a provision titled “Use of Technology.”  I am recommending all board members and management carefully review the provisions of Section 18.8 of the Illinois Condominium Property Act and Section 1-85 of the Common Interest Community Association Act.    Subsection (b) of both 18.8 and 1-85 provides for the following:

(b)        The association, unit owners, and other persons entitled to occupy a unit may perform any obligation or exercise any right under any condominium instrument or any provision of this Act by use of acceptable technological means

Both acts define “acceptable technological means” to:

Include(s), without limitation, electronic transmission over the Internet or other network, whether by direct connection, intranet, telecopier, electronic mail, and any generally available technology that, by rule of the association, is deemed to provide reasonable security, reliability, identification, and verifiability.

If an association has not implemented any increased use of technology since these changes were adopted, it is time to heavily consider doing so.  Please discuss with counsel and management how to continue the business of the association by more effectively employing technology.    Going forward, this crisis should force each of us to review or procedures and protocols to determine whether we are using all the tools available to us.   The language regarding electronic voting has been in place since 2015 – is your association using it?   The statutes provide for electronic notices.  Have proper procedures been adopted to implement this method of communicating with owners and, more importantly, has the association encouraged such efforts?  Out of crisis grows opportunity.   Please use this situation as an opportunity to explore what can be done to allow the business of the association to continue moving forward, while we devote much of our personal time to the immediacy of our current global situation.  

Stay safe and take care of one another.   

COVID-19 VIRUS LEGAL UPDATE

March 15, 2020

As we proceed through this time of uncertainty the best advice (legal or otherwise) we have to offer is to continue to exercise common sense.    There are no health professionals at our office.  It is important to continue reviewing updates from federal, state and local health departments.  

One of the more prevalent health recommendations from the Center for Disease Control and Illinois Department of Public Health is to practice “social distancing.”  “Social distancing” includes the following:

  • Maintain a distance of approximately 6 feet from other individuals
  • Avoid public gatherings and crowds
  • Do not engage in contact with others such as shaking hands
  • Remain at home as much as possible

The greatest impact the social distancing recommendation will have on our community association clients concerns the use of common areas and attendance at meetings.  Again, we encourage a common-sense approach.   

Common Areas

Association clients should consider limiting or eliminating all unnecessary gatherings.  This may, at the discretion of the board of directors, include temporarily closing public gathering spaces.   Certainly, in the event someone within the community is diagnosed with COVID-19, the community should close public gathering areas such as a clubhouse or meeting rooms.    Common entry ways, stairwells, parking garages, and elevators must remain open to provide access to residents, but it is recommended that cleaning protocols be increased during this period of time.    

Further, residents who have either recently travelled abroad or been in contact with someone who has been diagnosed with COVID-19 should self-quarantine and avoid all common areas.    In the event the association or management becomes aware that someone has contracted the virus, we encourage the association to communicate this information to the other residents in a manner to protect the confidentiality of the resident.    DO NOT communicate unconfirmed or unreliable information.   DO NOT participate in gossip.    Misinformation will not help in getting through this crisis.    Before communicating any information to the residents, please consult with counsel.

Meetings

Consider whether the board meeting or owner meeting is absolutely necessary.   If the meeting is not necessary and can be postponed – PLEASE POSTPONE THE MEETING AND RESCHEDULE.  There is no need to strictly adhere to annual meeting dates.   The board will continue to serve until the meeting can be held.

Understanding both the Illinois Condominium Property Act and Common Interest Community Association Act provide “that every meeting of the board of managers shall be open to any unit owner,” we are encouraging our community association clients to temporarily consider redefining the term “open.”  Typically, we would think of the term “open” as requiring a public gathering.   Rather than encouraging public gatherings we are recommending our clients to make use of technology or phone conferencing to conduct meetings.   Understand that notices will need to be revised, however, this should not stand in the way of practicing safety amongst the members.     Under existing law, board members can already use technology to participate in meetings.    Please review the “Use of Technology” sections in both acts at this time to make the best use of the means already provided.     Again, seek counsel for additional guidance.

Finally, we encourage everyone to be patient with one another, use common sense and be cognizant that everyone is trying the best to navigate this unchartered territory.  The information herein is offered as of its date of publication and it may continue to change as we progress through this time of uncertainty.  

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions without confirming the advice.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office. 

 

Election of Association Board Members and Officers—What’s the Difference?

A common scenario I see with some associations when it comes to elections is the following:  ballots and proxies are distributed to owners for the annual election meeting asking owners to vote for who they want to be the association president, who they want to be the association secretary, who they want to be the association treasurer, etc.  The problem with this scenario, for most associations, is that this does not comply with the associations’ governing documents.

Instead of calling for a direct election by owners of individuals to fill specific officer roles for the association, association governing documents (either in the declaration or bylaws) typically provide for a two-step process.  Step one is the election of a board of directors by the owners, where owners vote for individuals to serve on the board of directors.  Step two then follows where the elected board members, amongst themselves, vote on which of them will serve in which officer position for the association.  Thus, who fills what officer position is a decision of the elected board of directors and not a decision made by the owners.

This two-step process is also consistent with the default provisions provided in the Illinois statutes applicable to many associations.  Both the Condominium Property Act (765 ILCS 605/18(a)(1)) and the Illinois Common Interest Community Association Act (765 ILCS 160/1-25(a)) specify that the board members will be elected from among the owners in the association.  These statutes then provide for an election of a president, treasurer and secretary from among the members of the board of directors (765 ILCS 605/18(c), (d), and (e) and 765 ILCS 160/1-25(f)).

For those associations that are established as not-for-profit corporations, the Illinois General Not For Profit Corporation Act of 1986 (805 ILCS 105/101.01 et. seq.) applies as well.  Section 108.50(a) of that Act provides that, “Officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the board of directors or chosen in such other manner as may be prescribed by the bylaws”.  Therefore, while this Act would permit officers to be elected in some other manner if an association’s bylaws so provide, the default is that officers are chosen by the board of directors.

The key for any association in filling board and officer positions is to follow what the association’s declaration and bylaws provide.  For the majority of associations, this will be the two-step process where owners first elect the board members and then the board members vote for who among them will fill the officer positions for the association.  If your association has questions about the election process and how you should be filling these board and officer positions, please feel free to contact our office and one of our attorneys would be happy to assist you.

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office. 

 

NEW LAW AMENDING THE CONDOMINIUM PROPERTY ACT CLARIFIES A BOARD OF DIRECTORS’ ABILITY TO SECURE LOANS

Public Act 099-0849 was signed into law by Governor Rauner on August 19, 2016.  The new law changes the Condominium Property Act to clarify the inconsistency in within Section 18.4 of the Act.  The amendment to Section 18.4 (m) of the Act permits boards of directors, by majority vote, to execute various bank documents to secure a loan on behalf of an association.  Currently the language of Section 18.4 (m) has a qualifier relating to the “condominium instruments” and there is a concern that some old condominium declarations and by-laws may require up to two-thirds of the owners to vote when either pledging an association’s assets or assigning future income.  This change makes it clear that a board of directors, without owner approval, by majority vote can assign future income of an association and pledge the assets of an association.

This change in the Condominium Property Act takes effect January 1, 2017.

 

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office. 

 

 

Public Act 099-0567 was signed into law by Governor Rauner on July 15, 2016.  This Public Act made a few significant changes to both the Illinois Condominium Property Act (765 ILCS 605/1 et. seq. and herein referred to as the “Condo Act”) and the Illinois Common Interest Community Association Act (765 ILCS 160/1-1 et. seq. and herein referred to as the “CICAA”) related to the closed portion of board meetings, often referred to as the executive session portion of board meetings.  These changes will take effect on January 1, 2017.

Currently, Section 18(a)(9) of the Condo Act provides that those matters which can be discussed by a board of a condominium association within executive session are limited to discussion of litigation, either then pending or that the board finds to be probable or imminent, discussion of the appointment, employment or dismissal of an employee, the violation of the association’s rules and an owner’s unpaid assessments.  Similarly, Section 1-40(b)(5) of the CICAA currently contains these same limits on what can be discussed within executive session by a board of a common interest community association subject to CICAA, with the addition of permitting a board to consider third party contracts within executive session as well.

Beginning January 1, 2017, Section 18(a)(9) of the Condo Act, as amended by Public Act 099-0567, will permit the board of a condominium association to meet in executive session for the following matters:

(1)      Discussion of litigation that is either pending or that the board finds to be probable or imminent;

(2)      Discussion of the appointment, employment, engagement or dismissal of an employee, independent contractor, agent or other provider of goods and services;

(3)      To interview a potential employee, independent contractor, agent or other provider of goods and services;

(4)      Discussion of violations of the association’s rules and regulations;

(5)      Discussion of an owner’s unpaid assessments; and

(6)      To consult with the association’s attorney.

So, for condominium associations, this new language creates the right of a board to discuss within executive session matters related to retaining or dismissing contractors and agents, such as property management companies, landscape contractors, maintenance contractors, etc., and not just employees of the association as the Condo Act currently provides.  This new language also permits the board to interview potential employees, property management companies and other contractors outside of an open meeting.  Additionally, the changes grant a board the specific right to have discussions with the association’s attorney outside of an open meeting.

Furthermore, the changes that will take effect on January 1, 2017 will also permit a board executive session to take place during an open board meeting, which is already permitted, but also separately outside of an open board meeting.  Thus, if a board solely wants to engage in those types of discussions that may take place during executive session, as of January 1, 2017 it will no longer be necessary to call an open board meeting, with all required notice of same provided to owners, and then call the open board meeting to order and then immediately adjourn into executive session, which is what is required now if a board solely wants to hold an executive session.

However, as a reminder, all votes of the board must take place at an open board meeting, notice of which has been provided to the owners.  This requirement is not changed by Public Act 099-0567, so all of the additional matters which may as of January 1, 2017 be discussed within executive session by a board still need to be voted upon by the board at an open board meeting.  Therefore, if a board elects to forego an open board meeting and hold just an executive session without notice to owners, as boards will be permitted to do beginning on January 1, 2017, no votes of the board will be able to be taken at such executive sessions.  If a board wants to vote on a matter that is discussed at an executive session, it will then either need to call a subsequent open board meeting with the required notice, or else continue to hold executive sessions during a portion of open board meetings as is currently required.

Beginning January 1, 2017, Section 1-40(b)(5) of the CICAA will also include all of the items listed above for condominium associations which may then be discussed within executive session, and will also still include the ability of a board of a common interest community association subject to CICAA to discuss third party contracts within executive session.  As with condominium association boards, the board of common interest community associations subject to CICAA will also, beginning on January 1, 2017, be able to meet in executive session that is held separate from an open meeting.  However, all votes by such association boards will still need to be taken at an open board meeting with the required notice provided to owners.

Therefore, as of January 1, 2017, Public Act 099-0567 will give boards of associations subject to either the Condo Act or CICAA several additional topics that they may discuss within an executive board session.  Moreover, these boards will also have the option of meeting for purposes of discussing matters that may be discussed within executive session without the requirement of holding an open board meeting with notice to owners.  This should provide such boards greater flexibility to meet to discuss such items and potentially result in a cost savings for those associations who have previously been holding open meetings, and incurring the costs of providing notice for same, solely for the purpose of then adjourning into executive session.  Additionally, the new changes expressly provide that a board may meet and have discussions with the association’s legal counsel during executive session, which eliminates a potential grey area under the current open meeting language within the Condo Act and CICAA.  However, these new changes do not give boards the right to hold general “workshops” on all matters that the board may want to discuss; rather, the items that may be discussed by the board outside of an open portion of board meetings are limited to only those items that will specifically be included within the Condo Act and CICAA as amended by Public Act 099-0567, as outlined above.  Board discussion of items not specifically included within these statutes, as amended, must continue to be held at open board meetings.

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office. 

July 22, 2016

SECURED OR UNSECURED, NO LONGER A QUESTION: ASSOCIATIONS MUST FILE PROOF OF CLAIM BY THE DEADLINE IN ORDER TO BE INCLUDED IN CHAPTER 13 BANKRUPTCY PLANS

A recent federal court decision highlights the importance of an association’s manager or board contacting the association’s attorney whenever a homeowner files for bankruptcy protection. When an individual files for chapter 13 bankruptcy protection, she is allowed to repay her debts over a period of up to five years through a court-approved payment plan, and her creditors are barred from attempting to collect on those debts unless first granted permission by the bankruptcy court. The plan is administered by the bankruptcy trustee, an official who collects money from the individual in bankruptcy (known as the “debtor”) and pays the creditors. In order to be included in the chapter 13 payment plan, a creditor, such as an association, must file a legal document with the bankruptcy court known as a “proof of claim.” The proof of claim sets forth the amount the debtor owed to the creditor as of the date she filed for bankruptcy protection (the “pre-petition debt”). Unless the debtor successfully objects to the proof of claim (i.e., convinces the court of some legal reason why the money is not owed or should not be paid through the bankruptcy), the creditor should be included in the plan and receive payments toward the pre-petition debt.

Because unpaid assessments are a lien on a homeowner’s unit in favor of the association, an assessment obligation is a “secured” debt (The lien on the unit “secures” the obligation.). The Federal Rules of Bankruptcy Procedure provide a deadline for when a proof of claim must be filed if a creditor wishes to be included in a chapter 13 plan. However, while it is well accepted that “unsecured” debts such as credit card debt will not be paid through the plan unless the creditor files a proof of claim by the deadline, there has been some confusion over whether this deadline applies to creditors, such as associations, holding secured claims.

The federal Seventh Circuit Court of Appeals, whose jurisdiction includes Illinois, settled this confusion in May 2015 with its decision in In re Pajian. For the first time, the Seventh Circuit clarified the proof of claim deadline established by the Rules of Bankruptcy Procedure applies to both unsecured and secured creditors. If a secured creditor does not file its proof of claim by the deadline, it may not be included in the chapter 13 plan and will not receive payments from the bankruptcy trustee.

The upshot of Pajian for associations is managers and board members, in order to ensure the association receives payments to which it is entitled, must notify the association’s attorney immediately upon receiving notice that a homeowner has filed for bankruptcy protection. The notice typically mailed to creditors by the bankruptcy court includes the proof of claim filing deadline. Given the ruling in Pajian, the proof of claim must be filed by this deadline in order for the association to receive payments through the plan. While a secured debt, even if not included in the plan, survives a discharge in a chapter 13 bankruptcy, collecting that debt five years down the road can be a much more cumbersome process when all that could have been required was filing a form with the bankruptcy court. Therefore, when the association’s manager or board becomes aware of a bankruptcy, notify the association’s attorney so she may, if necessary, file a proof of claim.

 THE RETURN OF LEASING AND RESTRICTIONS AT ASOCIATIONS

As Illinois and the rest of the nation recovers from the crash of the residential real estate market, the issue of leasing restrictions has, again, arisen. Many associations having survived the onslaught of foreclosures are awaking to realize that the formerly owner occupied properties are quickly being bought up by groups of investors. Sometimes this has occurred over a number of years, but for some associations it seems like it happened overnight. Associations may quickly see the number of rental properties in their communities go from a comfortable five to ten percent, to a painful or problematic thirty percent.

The increase in rental units can be concerning to community associations for a myriad of reasons. When such concerns arise, boards and the owners have choices when it comes to who may occupy individual living units. The first choice to be made is whether leasing of units should be restricted in any fashion. If the answer to that question is yes, there are several leasing restriction options available for consideration. Whether an association chooses to allow leasing or not, it is important for boards and the owners to know their rights with respect to enacting leasing restrictions.

When an association decides to enact a leasing prohibition, either outright, with a grandfather clause or a cap, the association must determine whether to include such prohibition or restriction as a rule or by an amendment to the declaration containing a restrictive covenant. The difference between a rule and a covenant could determine the enforceability of the prohibition/restriction. In Illinois the seminal case on leasing restrictions is Apple II Condominium Association v. Worth Bank and Trust Co., 277 Ill.App.3d 345 (1st Dist. 1995).

The unit owners in Apple II were investment owners who purchased their property at a time when the association had no leasing restrictions. However, the appellate court stated that “neither the fact that there were no restrictions on the property when the [complaining unit owners] purchased their unit nor the fact that the [complaining unit owners] purchased the property for investment purposes is relevant.” Additionally, the court in Apple II acknowledged that while leasing restrictions put in place by rule are legal, courts will employ a greater level of scrutiny since the rule was adopted solely by a board and not the owners.

Once an association determines that a leasing amendment restriction would be beneficial to their community, a decision must be made as to the nature and extent of such a restriction. Does the association want to completely ban leasing of all units? Does the association want to limit leasing only to those units that are leased as of the time the amendment is passed? Does the association want to allow all current owners the opportunity to lease their units but prevent any subsequent purchasers from being able to enter into leases? Does the association want to impose a percentage cap?   Each of these decisions need to be carefully considered and properly documented in the language of any proposed amendment.

If a board and the owners at an association decide that restricting leasing of units would be beneficial to the association, the board should take several steps. First, the board should consult the association’s governing documents and review what they say about leasing. The next step the board and the owners must determine is the nature and extent of leasing restriction to be enacted. Finally, the best approach is for the board to propose an amendment to the governing documents and then have the proposed amendment voted on by the owners. While there are several options available to the board and the owners, it is up to the board and the owners to decide which leasing restriction best suits their community before it’s too late.

A FEW SIGNIFICANT ISSUES TO FOCUS ON IN CONDOMINIUM, HOA and TOWNHOME ASSOCIATION PROPERTY MANAGEMENT AGREEMENTS

One of the most important individuals involved in keeping many condominium, homeowner and townhome associations going on a day-to-day basis is the property manager. Professional property managers often provide invaluable service to these associations, whose boards of directors are primarily made up of volunteers from all types of backgrounds and professional experiences. In most cases, property managers are not employees of the association they manage but rather the relationship between the property management company and the association is typically created by contract (i.e. the management agreement).

Due to the variety of services a property management company may provide to an association – which can range from having a full time property manager on site that works exclusively for the association to having a property management company serve a very limited role such as solely being responsible for sending notices to owners and collecting assessments – it is essential for an association to review and understand exactly what a management agreement contains before entering into the agreement. Therefore it is a prudent step for any association to have its attorney review a management agreement before the association enters into it as there can be a significant number of items that can be included within a management agreement that could affect the association’s rights. A few of these items that could arise in a management agreement are:

  1. Access to Association Funds:

Management agreements often identify what individuals have access to association funds. This can be as specific as listing within the agreement the individuals, by name, who will be able to write checks or otherwise withdraw checks from the association’s account on behalf of the management company. The association should be aware of who will be able to access its funds under the management agreement.

Additionally, management agreements often will detail where association funds will be deposited. For example, a common provision would provide that the funds will be deposited in a bank with branches in Illinois, will be deposited in a bank of management’s choosing, or will be deposited in a bank of the association board’s choosing.

  1. Insurance/Indemnity Provisions:

Management agreements also often contain language providing that the association will indemnify the management company and property manager in actions related to the property manager’s services performed on behalf of the association. It is crucial for the association to understand what indemnification it will be providing to the management company, and what limitations, if any, there are on that indemnification. It is also important for the association to understand what indemnification the management company may be providing to the association.

  1. Non-Compete Provisions:

Some management agreements will contain a non-compete clause. For example, this type of clause may provide that after the management agreement ends and the management company no longer provides property management services to the association, then for a period of time thereafter (such as twelve (12) months) the association may not have any former employees of the management company provide property management services to the association. It is critical for an association to understand such restrictive covenants as violation of such clauses may impose steep penalties for an association.

  1. Fees:

Management agreements often provide that the association pays a fixed amount to the management company each month in exchange for property management services. However, additional fees can also arise that are not included within that fixed monthly amount. These can be fees related to mailings, attendance at meetings, attendance in court for collections, note taking, etc. Associations should understand all of the potential fees that they could be charged under a management agreement.

  1. Termination:

While many associations enjoy long lasting relationships with their management companies, inevitably there are some associations that desire to terminate the services of their management company while the management agreement is in place. Before an association enters into a management agreement, the association should be aware of how, if at all, it could terminate the management agreement early. For example, is termination possible only for cause, meaning the association would likely have to identify a reason for wanting to terminate early? Or, is early termination available “without cause”, meaning no reason must be given. Further, does the management agreement contain any penalties for early termination?

As an additional note on this topic, some association declarations and/or bylaws contain specific provisions that must be included within any management agreement the association enters into. For example, some governing documents may require that any such management agreement contain a provision permitting the association to terminate the agreement upon sixty (60) days’ notice without cause. Prior to entering into a management agreement, an association should therefore make sure that the management agreement it plans on entering into complies with any such provisions in the association’s governing documents.

Conclusion:

Having a professional property manager can greatly enhance the effectiveness and efficiency of an association. Considering the vital role that professional property managers can play for an association, associations may want to verify that the management agreement is consistent with the role and services the association desires from the property management company it wants to retain. Since management agreements are contracts, a prudent association may also want to have its attorney review any management agreement prior to signing it.

 This article is being provided for informational purposes only. This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys. No association, board member or any other individual or entity should rely on this article as a basis for any action or actions. If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office.