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posted: 9/21/2012 9:24 AM

Why indemnify a property manager

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Q. Our association is hiring a property manager, and the board is reviewing the proposed management agreement. The management agreement requires the association to indemnify the property manager against claims made by third parties. Is this a typical provision, and what does it mean?

A. Indemnification provisions are common in management agreements, as they are in contracts generally that establish a principal-agent relationship. An indemnification clause requires the association to compensate the property manager for a loss or damages resulting from a claim made by a third party (like an owner or vendor). It is appropriate for a management agreement to require an association to indemnify a property manager against claims made in the course of the relationship where the agent is acting within the scope of the property manager's authority.

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On the other hand, the indemnification should not cover claims arising from acts of the property manager that are beyond the scope of the property manager's authority. Further, the agent should be required to indemnify the association for claims made against the association that arise from an act of the property manager, if the property manager acted outside the scope of the agent's authority. The scope of the property manager's authority will generally be based on the authority set forth in the management agreement and/or instructions provided by the association.

An indemnification provision usually also includes language that requires the association to defend the property manager in a lawsuit filed against the property manager. That means the association must provide an attorney for the property manager.

The risk of a loss associated with an association's duty to indemnify and defend a property manager can be managed by having appropriate insurance. The association should speak with its insurance agent/broker to make sure that the association's insurance covers this sort of contractually created liability and defense obligation; often they do. This should be done before signing the management agreement.

Q. I own a condominium unit in Illinois, but spend much of the year in an apartment in Florida. My daughter is not an owner of my unit, but I gave her power of attorney to manage my affairs when I am away. Can my daughter serve on the condominium board?

A. Your daughter may not serve on the board of your Illinois condominium association. Board members are elected from among the unit owners. Your daughter is not a unit owner. A power of attorney may grant your daughter rights to act on your behalf concerning your Illinois real estate, and this could include permitting your daughter to vote on your behalf at meetings of the owners. However, a power of attorney does not grant an ownership interest in your unit to your daughter.

Q. A unit owner in our association submitted a written request for the names and addresses of all of the owners in the association. The owner said he wants this information so that he can solicit proxies from the owners for the next annual meeting to elect board members. This seems like an invasion of the other owners' privacy. Must the board provide this information to the owner?

A. Yes, the owner here is entitled to receive the names and addresses (and weighted vote) of the members entitled to vote. Each association is required to maintain, and an owner is entitled to inspect and make copies of, this information. However, the owner may only examine and copy this information for a proper purpose. The purpose here is proper. An owner would not be entitled to this information if they did not state any purpose or if they want the information so they can solicit owners for their business. For example, an owner would not be entitled to this information if they want to use it to send brochures for their painting business, or their real estate business.

Q. What is a reasonable late charge for nonpayment of association assessments?

A. The board of an association may impose charges for late payment of a unit owner's proportionate share of the common expenses. Recent case law states that condominium associations may charge a late fee only for the month that an assessment is not paid, or not paid on time. That case also found that a $25 late charge was reasonable. In general, the late charge must reflect the administrative expenses of the association in dealing with the unpaid assessment. A late charge can't be punitive, yet late fees are often intended to be just that.

• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.

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