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posted: 11/9/2013 12:32 AM

Some boards overreach in handling late fees

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Q. Our condominium association imposes a $25 late charge every month that an owner's account has an open balance. Is this permitted?

A. The board may absolutely impose charges for late payment of a unit owner's proportionate share of the common expenses. That is unquestionable. However, 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. Therefore, the practice of charging a late fee whenever there is an open balance on an owner's account at the end of a month, if the assessment for that month was paid on time, would violate case law.

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Q. Our condominium association is considering borrowing money to pay for maintenance, repair and replacement projects. The association doesn't own any real estate to mortgage. What collateral would the association provide for a loan?

A. Associations have something far better than real estate to pledge as collateral. Associations have cash and cash-flow. The board can pledge the right of the association to future income from assessments or other sources, unless the governing documents state otherwise.

Depending on the language in the association's governing documents, approval by two-thirds of the owners might be required if the board proposes to pledge all or substantially all of the assets of the association as collateral for a loan. The bank's right to receive the collateral is only triggered if the association defaults on the loan. Otherwise, owners pay assessments to the association as always.

Q. The new members of the board met in private after our recent annual meeting, and decided who would serve in each officer position. Was this appropriate?

A. No. The election of the officers, the president, secretary, and treasurer must be conducted by the board at a duly called and held board meeting or portion thereof open to all of the owners of the association.

Q. Our association enters into many contracts each year with numerous contractors. The contractor typically provides the board with its one or two page proposal that the board agrees to and signs without question. From time to time, we have problems with the performance by contractors; yet the association seems to have little recourse under the contracts. The proposals are reviewed by the board and our property manager before the board signs them. What can we do to better protect the association?

A. This is an all too common problem in associations, regardless of the amount of the contract. The relatively small amount the association would pay to have counsel review and revise a proposed contract is worth the thousands of dollars the association may spend to battle a contractor over an issue that should have been addressed in the contract.

The typical one-page proposal submitted by a contractor does not address key issues that would offer protection to the association. Detailed specifications, start dates and completion deadlines, contractor insurance requirements, delivery of lien waivers, termination in the case of a breach, warranty, and recovery of attorney's fees by the association are among the important issues that need to be included in any contract, regardless of the amount, and are often absent in proposals submitted by contractors.

Unfortunately, many associations simply rely on a board member or the property manager to review proposals; neither is a substitute for review by legal counsel.

Q. The president of our homeowners association never votes on issues that come before the board, unless there is a "tie" vote. Is this proper?

A. The board president, like every other member of the board, does have a vote and should exercise his or her right to vote. Unless there is a legitimate reason to "abstain" from voting on a particular issue, not voting is arguably a breach of a board member's fiduciary duty.

• 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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