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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. 

 

 

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.

 

As any person who has served on their association’s board of directors can tell you, it is a thankless job. While you are required to undertake the business of a not-for-profit corporation and assume fiduciary responsibilities to the other unit owners, you receive no form of compensation or special treatment. Furthermore, what you do get is panoply of responsibilities, phone calls and headaches. Unfortunately, most of the education is on the job training. With this in mind, what happens when the members of the association, beyond the typical complaints and disagreements, decides to “remove” you from the board of directors. Some would say, “If you want the job it’s yours.” However, others might not so readily turn the business of the association over to those with opposing viewpoints.

Section 18(a) (4) of the Illinois Condominium Property Act requires that the bylaws of an association must provide for a method of removal from office of the members of the board of managers. (765 ILCS 605/18(a) (4)). Each association should examine their respective bylaws to determine the “method” applicable to their board. Additional concerns associated with removal are notice provisions, voting and proxy requirements, quorum and reelection procedures.

Typically, the board does not “call” a meeting, on its own initiative, for the removal of the Board. The first hurdle in removing a board or board member it scheduling and calling the meeting. Section 18(b) (5) provides that “special meetings of the members (usually where a board member would be removed) can be called by the president, board of managers or by 20% of unit owners.” The unit owners seeking the removal of a board member or the entire board would then petition the president of the board, with signatures representing 20% of the ownership, to call a special meeting for the purposes of removal. The “Notice” of the special meeting must be mailed or delivered to all the unit owners no more than 30 and at least 10 days prior to the meeting. (Sec. 18 (b) (6)).

The second hurdle to overcome is obtaining sufficient attendance at the meeting, either by person or proxy, to constitute a quorum. If a quorum is not present, the meeting will not and cannot proceed. When a quorum is established, the bylaws should be followed to vote on the removal. An obvious method of gaining a sufficient number of votes is through the use of proxies. As any unit owner who regularly attends meetings is aware, most of your neighbors do not attend in person. Proxies can be used to secure the necessary votes either in favor or against the removal. It is important that the proxies are properly prepared in order to be considered valid. The proxy must name a proxy holder who will be present at the meeting. Additionally, the proxy should acknowledge whether the proxy holder is instructed to vote a certain way or whether the proxy holder can use the vote however he or she sees fit. Further, the proxies should be dated and contain the unit owner’s name and address for proper balloting.

A final concern is after the vote is taken; there must be a method to replace the removed members on the board. Section 18(a) (13) of the Act requires that bylaws provide for a method of filling vacancies on the board which must include authority for remaining board members to fill the vacant positions by two-thirds vote. The member elected to fill the vacant position will hold that position until the next annual meeting, unless the unit owners again petition the board to call a special meeting to fill the vacancy for the remaining term. This petition must be delivered to the board within 30 days of the vacancy and must be signed by at least 20% of the ownership. The meeting to fill the vacancy then must be called within 30 days.

An interesting concern is where the entire board is removed. In such a situation there are no remaining board members to fill the vacancy. Therefore, members must be ready to nominate other members to serve on the board. Members also should be prepared with the necessary proxies to cast votes for new board members. The bylaws should be carefully reviewed to examine both the nominating procedures and voting procedures for strict compliance.

Overall, the process of removing members from the board of managers is sophisticated and technical. Failure to follow any of the steps can result in the invalidity of either the removal or the subsequent election. A thorough understanding of the bylaws and the procedures required is imperative in protecting both the validity of the removal and preserving the rights of all the members of the Association.