Is our Board Adhering to the Requirements of the Illinois Condominium Act?

Section 18.4 (h) of the Act which pertains to the “Powers and Duties of Board of Managers” states that the powers of the Board of Managers include:

“To adopt and amend rules and regulations covering the details of the operation and use of the property, after a meeting of the unit owners called for the specific purpose of discussing the proposed rules and regulations."

The Act goes on to state that:

"Notice of the meeting shall contain the full text of the proposed rules and regulations, and the meeting shall conform to the requirements of Section 18(b) of this Act, except that no quorum is required at the meeting of the unit owners unless the declaration, bylaws or other condominium instrument expressly provides to the contrary."

This section of the Act has certain guidance regarding such rule changes:

"However, no rule or regulation may impair any rights guaranteed by the First Amendment to the Constitution of the United States or Section 4 of Article I of the Illinois Constitution including, but not limited to, the free exercise of religion, nor may any rules or regulations conflict with the provisions of this Act or the condominium instruments. No rule or regulation shall prohibit any reasonable accommodation for religious practices, including the attachment of religiously mandated objects to the front-door area of a condominium unit."

In other words, no rule changes can be discussed or voted, unless previously posted or mailed to all of the unit owners. The Act has specific guidelines for the method and proper allowance of time for unit owner notification.

Members of the Board of Managers are required, as part of their fiduciary duties, to be aware of the Act. Asking other members of the board to check on the accuracy of board action is not in accordance with the duties and obligations. Each board member needs to be informed and aware, and follow the rules. Just as we unit owners are to follow the rules.

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References, Comments, Errors and Omissions:

1. Highlights above are mine. 

Stress Relief and Alleviating Boardom

I returned from a business trip on Saturday and passed the south entrance at about 11:45pm to find fire trucks and the police. Apparently another utility room vent fan failure. (Hint: turn the darn things off and open the utility room door). Then I discover that the "board" has proposed and passed a By-Law change illegally, our R&R Director is politely telling unit owners where to go "It isn't in my job description", and I haven't yet caught up with February's association meeting. Wow, go away for a couple of weeks and shazam! It seems there is always something exciting in our sleepy little community! With the onset of Spring, I can hardly imagine what will happen next!

So how to lighten up? Too bad the movie "KickAss" isn't out yet (release April 22); it's about ordinary people who pretend to be "super heroes", but in reality have no "super powers" of any kind. In the trailer the teen-aged hero quips that the only power he has is to be "invisible to women." Now that's a fantasy plot. Do the good guys win? With a movie name like that, it makes one wonder who is kicking whom. If it's a commercial success, perhaps they'll make a sequel. My title recommendation: "Break a Leg".

As for my taste in movies, the last movie I saw was "The Blind Side" and I enjoyed it. TMI!

OK, so I decided to lighten up "a bit". When my children were young, they enjoyed a game called "Whack-A-Mole" in which a number of holes were occupied by furry critters. In a random sequence, a critter would jump out of the hole and the object of the game was to "whack" the critter with a plastic mallet. If successful, the player rang a bell. Supposedly good for developing eye-hand coordination and upper body strength; it took two hands to swing the mallet. Also great entertainment for young children, just like "Jurrasic Park 3" (2). Click on the word "PLAY" to start the game. Use your mouse and click to "Whack Em"

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References, Comments, Errors and Omissions:

1. Whack-A-Boss flash game, based on Whack A Mole. Designed and animated by Don Mangan and Artie Romero at ARG! Cartoon Animation Studio in Colorado. http://artie.com/

(2) Some years ago, I went to a movie theater for "Jurassic Park 3" and sat directly behind a family. Prior to the "lights out"  a small boy of about 4 asked the adult male he was with "Will I be scared, Daddy?"  The man replied "No, it's not a scary movie." Apparently unconvinced, the boy looked around at the adults in his vicinity, set his eyes on me and asked "Will I be scared?" I replied "Only when the dinosaurs eat people." Which drew the anger of the adult accompanying the boy. During the movie, during those scenes when the velociraptors began tearing people apart and eating them, the child let out a series of shrieks. Of course, there are those who would say that, as is the case here at BLMH, the reason that child was frightened was because of my comment. Certainly nothing on that screen, which is to say the "reality" of people screaming and being eaten had anything to do with the boy's fear. Of course not! Here's a trailer for what some people "believe" is a movie suitable for small children. They "know" this is a "good thing" and can simply ignore the MPAA PG-13 rating "for intense sci-fi terror and violence", because they "know".

It's Not in My Job Description

That was the response of our "Rules and Regulations" Director to a Unit Owner request to inspect an alleged violation to the rules. This is a direct quote from our Association meeting of March 11.

Sounds like "open season" for rules. Oh, but our CD and the R&R Directors are so concerned about making our "renters" welcome here at BLMH! To put it bluntly, they seem to have a problem with determining what they are supposed to be doing, as members of the "Board of Managers".  Or perhaps we should rename this the "Board of Social Directors"? For example, let's make the renters and our friends feel warm and fuzzy while vandals run loose in the streets, water sprouts destroy our trees and the streets disintegrate. But we have funds for "coffee and donuts" for our friends to come visit us at the IHOP!! Gee, just like the city of  Wheaton. Makes one feel simply wonderful, like the Mayor, doesn't it? Well, this will continue for as long as each unit owner sends that check each month for $300. That will fund a lot of "discretionary items" even if they aren't in the budget, and even if the reserves are underfunded. But these are "good things", or so they believe, and so they tell us, and so it will be. And that is the only critiria. What they "believe" is reality.

I have a few questions for our most illustrious and beneficent board. Do our renters send that money to the lock box each month? No, they don't. Do our renters have perhaps $190,000 invested here? No, they don't. And when our renters are behind in their payments, who "eats" this? And who is held accountable for payment of that association fee and the real estate taxes? Certainly not the renter or "occupant". It is the Unit Owner, who is a Member of the Association, who pays his or her association fees, the taxes and the mortgage. That's who. So why the emphasis of our CD for our "poor" renters? It seems that to be a renter at BLMH  is to be "the flavor of the month". Perhaps our CD, R&R Director and others on the board are merely fully committed to flushing the money of the unit owners, and at the unit owners expense. Who knows? Her official position is that this is "a good thing". Really? and for whom? And why should I or anyone else who has a vested interest at BLMH ever believe this individual?

Frankly, where in anyone's job description does it say anything about this kind of behavior?  Oh, I forgot, here at BLMH our board members are allowed to create their job titles, and to pick and choose their job responsibilities and duties. So the person who makes the Newsletter becomes our "Communications Director", our R&R Director states to unit owners that inspections or rule enforcements "Isn't in my job description", etc. One member of the board doesn't have even have any specific duties. Obviously, even without a "Landscaping Director" we have more than enough people on the board to carry out all of the ephemeral duties of the board.

Apparently, if the member of the board doesn't want or like a task or if there are tasks that we consider as "unpalatable", or difficult, those duties are simply "dropped out" or pushed over to the board president or some other responsible member of the board to do. As members of the Board of Managers, we'll pick our jobs and do that which works "for me". Part of what works "for me" is making the people I choose to champion feel welcome here; by shirking our duties, ignoring our responsibilities and just as the little children we are, by not doing the things we don't like to do, simply because "I'm not going to and you can't make me - so there."

So the person who decided to be "responsible" for the newsletter selected the title "Communications Director." Based on her actions and my observations, I really do think that "Social Director" would be far more appropriate. Too bad this isn't a retirement home. However, with the latest change in direction, perhaps "Director of Rentals" would be more appropriate. It probably doesn't matter, as long as the title is "Director" of something. How about "Grand Poobah"; yes, that sounds simply "grand".

It truly is amazing how capable some of our directors are, why, they can do anything! Anything that is, that has absolutely nothing to do with "fiduciary duties" or any of the other aspects of running this business. Administrators simply "administer", they hire and fire and let the minions or lesser members of the board "do the work" and "do the heavy lifting". Isn't that wonderful!

Returning to the subject of this post, I can understand that people take on responsibilities they aren't equipped to fulfill, particularly if they are sold a bill of goods by their "friend" on the board.  When the going gets tough, or uncomfortable, or I simply don't feel like it, all one has to do is turn to the unit owners and say "It's not in my job description".

Meeting Highlights - Illegal Vote for Renter Attendance at Meetings

During the most recent association unit owner meeting held March 11, 2010 our "Communications Director" proposed that the unit owner meetings be expanded to include renters. Her argument in favor of this was "I have read many places that this is a good thing". During the ensuing discussion, it was asked if our legal counsel had been approached for a ruling on this particular maneuver, specifically as per our By-Laws. The answer was "no" and apparently such counsel is not needed or required by our board.   The proposal was discussed, seconded and then passed.

In 2009 shortly after the election of the CD we had a handyman attend a meeting and this led to a discussion among the board who reaffirmed that such attendance was not consistent with the By-Laws and it was stated that meetings are only open to unit owners. However, it seems our new board is attempting to skirt the bylaws, effectively changing them, using a method inconsistent with our By-Laws. The method employed to pass this measure is a clear example of a breach of Fiduciary Duty. This action is not an accident, is not simply an error or an omission.

Our By-Laws, which is to say our By-Laws contained in our "Declarations of Easements, Covenants and Restrictions for Briarcliffe Lakes Condominium Manor Homes" has specific language regarding unit owner meetings. It also has specific language pertaining to membership in the association.

Article Three, section 3.4 states in part that "Each Unit Owner shall be a member of the Homeowners' Association....." it then continues "Each Owner agrees to be bound by and observe the terms and provisions of the Association's Charter, its By-Laws and the rules and regulations.....". Obviously, this also pertains to the members of our Board of Directors. Some apparently do not agree to be so bound.

Article Three, section 3.6 states "Meetings. The rules and regulations governing the calling and conduct of the Homeowners' Association meetings shall be set forth in the Association's By-Laws."

Exhibit "C", "By-Laws of the Briarcliffe Lakes Homeowners Association" stated in Article II "Members (Unit Owners)" Section 3 pertaining to meetings: "Meetings of the voting members shall be held at the Property or at such other place in the county wherein the Property is situated, as may be designated in any notice of a meeting." The Section 3(a) goes on to state "...any action may be taken at any meeting upon the affirmative vote of the voting members having a majority of the total votes present at such meeting." The by-laws pertaining to meetings go on to define the time and circumstances of annual meetings "shall be held on the first Tuesday of September......at 7:30pm." Section 3(b) states "Special meetings shall be called by written notice, authorized by a majority of the Board, or by the voting members having one-fourth (1/4) of the total votes....." and Section 3(c) states "Notice of meetings required to be given herein....to the Unit Owner with respect to which such voting right appertains...".

The documents pertaining to Briarcliffe Lakes Manor Homes make a clear distinction between voting members or Unit Owners, and "Occupants". Our by-laws do not state that "Occupants" may come to meetings for "Voting Members". Our covenants and By-Laws have specific language about members of our Association, and about "Homeowners' Association meetings" which are defined as "Meetings of the voting members."  Renters are not voting members.

I believe the action by our CD and the Board is illegal, which is to say, is not in accordance with our covenants and By-Laws. Our Board exceeded its authority. It is disturbing that our CD, who proposed this, did not even have a copy of the governing documents in hand, so that this could be properly discussed. Our board president was not present for the meeting. This is another example of someone on our Board "running their agenda" for their own personal reasons and personal motives.

The board does have the right to change or "Amend" the By-Laws, but only by "action and approval of the voting members having at least two-thirds (2/3) of the total votes; provided....no provision...[will] conflict with the provisions of the Condominium Property Act."  However, this unilateral action by the board is not in accordance with our By-Laws. The motive appears to be the personal agenda of various members of the Board.

There was a lively discussion by the unit owners who were present. As was pointed out by a unit owner, this will undermine the relationship of the owner who is the landlord, to his or her tenant, replacing the landlord with the Board. Perhaps that is the intention of our CD. However, this raises some serious questions. The By-Laws already pertain to Unit Owners and Occupants alike. So what is the goal here? When the question of the guidance of the By-Laws was discussed, and possible review by legal counsel, this was quickly passed over, in the rush to second and vote. This appears to be a clear breach of Fiduciary Duty. There was no attempt to consider and be "informed". With the exception of the 2009 meeting cited above, there has been no other discussion with Unit Owners present. Of course, various members of the Board are apparently privately discussing this and other "good things" for our HOA.

As a Unit Owner, it is extremely disappointing to see Board members who are so eager to pass their personal agendas that they are unwilling to do the necessary research. As a Unit Owner, I suspect I have invested much more time on reading the governing documents and studying the issues than our Board has. Various owners wonder why we have problems here at BLMH. I suggest they attend unit owner Association meetings and observe the action and character of the Board. Then they may have a better understanding of the incredible problems facing this HOA.

I'll be doing my own, independent research on the pros and cons of such a change to the By-Laws, since our CD is unwilling to discuss her rationale, other than that she has read somewhere that this is "a good thing".  It may be this is "a good thing", but I am unconvinced. It is also a fact that there is protocol for making changes to the By-Laws. and this is not the legal way.  I am also concerned that so many of our Board members voted for the affirmative!

Comment Added March 15, 2010. 
There is disinformation being distributed about who is allowed at meetings in accordance with the Illinois Condominium Act. The 2010 version of the "Act" Section 18.a.9 states that the Bylaws shall include at a minimum that "Meetings of the Board of Managers shall be open to any unit owner..." Section 18.3 goes on to state that "Each unit owner shall be a member of the Association." Renters or other "occupants" are not members of the association. If anyone tells you otherwise, ask them to cite the specific section of the "Act". If they can't then they are deliberately deceiving you.

Comment Added March 18, 2010. 

I have been asked if all of the board voted for this. The Treasure voted "NO" and explained exactly why. The President was absent from the meeting. 

Board Operation, Some Examples and Fiduciary Duties revisited - Part III

Aspects of Fiduciary Duties 

(3) "A fiduciary duty arises out of a relationship in which one person or entity is entrusted to make decisions for, and control the interests of, another person or persons. Boards of directors owe a fiduciary duty to the association’s members. Most jurisdictions have either enacted statutes or have specific case law that establishes directors of nonprofit and non-stock corporations as fiduciaries.

There are two aspects of fiduciary duty. The first relates to a director’s responsibility to perform his duties in good faith, in a manner each director believes to be in the best interest of the association, and with such care, including reasonable inquiry, as a prudent person in a like position would ordinarily use under similar circumstances. This standard of care has been adopted in most jurisdictions and is often cited as the “prudent person standard” or the “business judgment rule.” Directors will not be liable for mere mistakes in judgment so long as they act in good faith and have a rational and informed basis for their decision.

The second aspect relates to a director’s duty of undivided loyalty to the association and its membership. This higher standard of performance is breached when a director acts in his or her own interest or with a conflicting interest. Not only must directors perform their duties in good faith and in the association’s best interest, but they also must exercise undivided loyalty and honesty and avoid any conflict of interest or self dealing.

• A director can comply with the standard of due care by following the business judgment rule requirements. Courts will not second-guess a director’s decision that is made with reasonable diligence and is believed to be in the association’s best interest. The business judgment rule requires directors to:
• Be informed about the association’s business at all times.
• Attend and participate in all meetings.
• Register a dissent in the minutes.
• Remain knowledgeable about the declaration, bylaws, rules and other documents essential to the association’s operation.

As to the avoidance of conflicts of interest, failure to meet the standard of undivided loyalty and honesty could expose the director to liability for a breach of fiduciary duty. When faced with a decision involving a potential conflict of interest, the director should disclose the conflict of interest in writing and abstain from voting on the issue."

(4) "The law of fiduciary responsibility can be viewed as having two purposes. The first is moral or educational in nature. The law sets a standard for appropriate conduct of association directors. It is intended to guide proper conduct and avoid inappropriate actions. The other role of the law of fiduciary duty is to act as a practical tool for restitution. If a homeowners association is damaged because of a breach of fiduciary duty by the director, the law affords a remedy to recover the resulting damages. A wealth of resources are available to directors to assist in understanding and meeting their fiduciary responsibilities. Books, pamphlets, magazines and newsletters are one source of information. Professional advisors, including attorneys, accountants, reserve study consultants, engineers, architects, insurance brokers and community association management consultants are among the paid advisors who may be engaged to advise on either a narrow issue or more broadly to help directors understand and comply with their legal standard of care.

The ability of volunteer directors to effectively perform their fiduciary duties will ultimately determine the success of common interest developments as a form of housing. While there are widespread examples of successfully run subdivisions, there are unfortunately also well known instances of leadership failures where homeowners associations are in political turmoil, financial collapse and physical deterioration. The challenge to each director is to exercise good leadership to avoid such a downward spiral of economic and political self-destruction.

(5) Recipes for Success and Failure

From the legal standpoint, directors incur liability when they breach the standard of care to which they are held under the statutory and case law which are discussed below. In reality, however, suits for breach of fiduciary duty can be viewed as arising from a lack of leadership and management skills by the board of directors. It is appropriate, therefore, to pause and consider the characteristics of successful leadership and management.

In successfully run homeowners associations, members of the board of directors possess good communication skills, carefully plan in advance, make good judgments based on sound decision making practices, delegate work to qualified committees or advisors, exercise initiative and independent thinking, and work well together as a team. In contrast, political or fiscal failures often result from the acts or omissions of boards of directors lacking good communication skills, procrastinating necessary work, making bad judgments without seeking input from committees or advisors, stagnating for lack of initiative, or political stalemates caused by dysfunctional personal relationships among the board members. From this perspective, the exercise of fiduciary duty flows naturally from effective business management, and it is the breakdown of good management practices, and the lack of skilled leadership, that breeds claims for breach of fiduciary duty.

(6) What is Fiduciary Duty

Fiduciary duty is a standard of care which inheres in a legal relationship of trust and confidence between one in a position of power, dominance or authority, and another who is dependent on the proper exercise of that authority. Fiduciary duty exists in relationships between directors and their corporation, trustees and their trusts, and attorneys and their clients. Inherent in fiduciary duty is the responsibility to act in good faith and candor, the duty to act in the interests of another and to avoid self-dealing transactions, and the obligation to not exert undo pressure or to act without the knowledge and consent of the "beneficiary".

The law imposes fiduciary responsibilities to ensure that power is exercised responsibly. Directors are expected to act in the best interests of the corporation, and not to exploit their position of power for personal gain or advantage. No one argues with the soundness of this principle in the abstract. Experience demonstrates, however, that directors can become paralyzed in the stressful situation where the responsibility to act in the best interests of the corporation conflicts with personal or emotional needs, such as the basic human need for personal approval from one's neighbors and friends. Enforcing the governing instruments, properly funding the economic needs of the association, or pursuing causes of action for defective construction potentially place the director in the position of controversy and criticism. The good people who volunteer to serve their community through election or appointment to the board of directors are often unprepared for the emotional and political crossfires that can easily arise in the performance of these duties. Even the anticipation of such controversy is sufficient to keep many directors from taking difficult short term actions that are important to the long term well being of the homeowners association."

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I encourage the reader to visit the following sites and continue and expand their education. The more informed our unit owners and our Board of Directors are, the better run our HOA will be.

References:

(3)   Harborview HOA blog

(4), (5), (6)  HOA Law - Jeffry A. Barnett, APC

Board Operation, Some Examples and Fiduciary Duties revisited - Part IIb

An Interesting Case Study:

(1) "Among many other obligations, an Association, acting through its Board of Directors has the absolute duty to manage, operate, maintain and repair all common areas and to keep them in a safe, attractive and desirable condition for the use and enjoyment of its owners. In fulfilling this obligation the Board of Directors also has the duty to prepare a budget and establish assessments for the Association adequate to meet the financial requirements necessary to maintain the common areas.

[HOA Services Group] was recently awarded the management contract for a large 25-year old condominium community.....This community could easily spend $500,000 just to address the obvious deficiencies. And, of course, their reserves are $0.

[A]tremendous opportunity for [HOA Services Group] and That's exactly what we believed as well. Unfortunately the easiest and very first step in beginning to clean up this community, the landscaping, still hasn't been addressed because the Board is trying to get the contractor to reduce his quote for an initial cleanup of the entire property from $900 to $750, a whopping savings of $150....

...we've pointed out that this “band aid” approach will ultimately cost the owners substantially more in the long run......According to the Board we just need to keep any special assessment to minimum, and be careful about proposing any increase in the monthly dues even though they haven't been adjusted in years. Is it any wonder why this property is in its present condition, and what exactly is the likelihood that we'll be able to convince this Board to properly address their many needs?

A Board of Directors has a fiduciary duty to always act in the best interests of its members. Unfortunately many Board members make decisions based on their personal situations, and sometimes forget that service on the Board carries with it the obligation to represent the interests of all the owners in the community. Failure to meet this duty will often result in decreased property values, dissention among the owners, and quite possibly lawsuits against the Association and its Board members. Defense of these types of claims against the Board of Directors can be both costly and time consuming, and typically compounds the already existing animosity between the owners and the Board of Directors.

We still have hopes that we'll be able to better educate the Board members of the community mentioned above. Unfortunately, while our efforts could be directed at returning this community to a well-maintained and desirable place to own and live, we'll first have to devote a substantial amount of time to changing this Board's philosophy. Hopefully we can do that before they have the opportunity to test out that new Directors & Officers Liability policy."

In the above, there are several interesting items, from which I draw a few parallels.

1. [The] "Board of Directors has the absolute duty to manage, operate, maintain and repair all common areas and to keep them in a safe, attractive and desirable condition for the use and enjoyment of its owners."
2. "[The] Board of Directors also has the duty to prepare a budget and establish assessments for the Association adequate to meet the financial requirements necessary to maintain the common areas."
3. The experts who wrote this stated that it was their perspective that this was an opportunity for the "Board of Directors to make a real impact on this community and to dramatically improve the property values of the unit owners."
4. The Board of Directors in this case study were having great difficulty establishing priorities and were, for example, improperly embroiled in a negotiation with a contractor over a difference in perspective which was "a whopping savings of $150."
5. The authors went on to state that it was the perspective of the Board that "we just need to keep any special assessment to minimum, and be careful about proposing any increase in the monthly dues."
6.  The authors then went on to state "we've pointed out that this “band aid” approach will ultimately cost the owners substantially more in the long run."
7. They also stated that "A Board of Directors has a fiduciary duty to always act in the best interests of its members. Unfortunately many Board members make decisions based on their personal situations, and sometimes forget that service on the Board carries with it the obligation to represent the interests of all the owners in the community. "
8. The authors closed with the statement that "We still have hopes that we'll be able to better educate the Board members......our efforts could be directed at returning this community to a well-maintained and desirable place to own and live, we'll first have to devote a substantial amount of time to changing this Board's philosophy."

Here at BLMH, everyone including our paid managers, who were put on notice, have taken the perspective that it is best to keep their collective heads down and keep their jobs, while in 2009 our new board argued in favor of parties and garage sales which benefit the few, glossy newletters, $500 bids for concrete, championed semi-trailers on the property, etc. What will 2010 bring?

In coming posts, we'll take a look at the aspects of Fiduciary Duty.

Oh, and as I promised, I will be posting an interesting chart pertaining to the condition of our reserves. This is as promised in 2009. I decided to delay this until after the new board had completed its budget "planning", which they did. According to the overwhelming majority of our board, our finances (Operating and Maintenance, as well as Reserves) are in sufficiently good condition that there was absolutely no need to raise our fees this year. In other words, we are accumulating reserves at a rate adequate to fund all the roofs, driveway paving and street repairs, etc. in a timely manner so as to "maintain and repair all common areas and to keep them in a safe, attractive and desirable condition for the use and enjoyment of its owners." Well, it seems our Treasurer wasn't as certain of this as the others on the board. As they say "follow the money". So what do the numbers say? What? Base our decisions on numbers, rather than on our constituents? Is that any way to run a political organization based on "change"? Oh, but this isn't about politics they say, it's about running this HOA.  Okay, I'll go with the flow and we'll see what the numbers tell us!

If you enjoy slick presentations and colorful charts, "you are gonna love this" as they say. According to our official HOA Communications Director, the majority of our members love our new shiny and expanded newsletter, so this post should be enthusiastically greeted by all. Frankly, more information and less pap is my approach and it seems some new leadership is guiding her in that direction. It's my perspective that the more information and data that is available to ALL of our members, the better our association will function.

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References, Errors, Omissions, Additions:

(1)  HOA Services Group - A leading provider of reserve studies and maintenance plans