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Board can be asked to cast proxy vote

Q. We have our election of board members coming up in March. Many owners submit proxies naming "the board" as the proxy holder. These proxies frequently don't instruct the board to vote for any particular candidate, and give "the board" the complete discretion to vote for candidates of the board's choosing. How does the board decide who among the candidates to vote for?

A. In this situation, the board needs to hold a meeting to decide for what candidates the votes are to be cast under these proxies. The board also needs to designate who among the board members will actually cast the votes on the ballot. That is cumbersome, and it's usually easier if an owner just identifies a specific individual as the proxy holder rather than a group like "the board."

Q. One of the board members in our association wants to invest a portion of the association's reserve fund in a stock market mutual fund. This sounds very risky to me. Are such investments permitted by an association?

A. The "prudent investor rule" has been adopted as an Illinois statute. It requires that an investment strategy must consider both the reasonable production of income and safety of principal. Accordingly, a decision to invest the association's reserve funds in a product that may result in the loss of principal would certainly be subject to criticism and potential exposure to liability for breach of fiduciary duty should there be loss of principal.

Q. Our condominium association has been in an unresolved dispute with the developer for some time. The board now wants to file suit, but the declaration requires the approval of two-thirds of the unit owners in order to proceed with litigation. That's impractical. Does the board need to obtain unit owner approval here?

A. The board can proceed with the litigation against the developer without obtaining unit owner approval. The Condominium Property Act was amended, effective Jan. 1, to provide that any provision in a condominium instrument is void as against public policy, and ineffective, if it limits or restricts the rights of the board by requiring the prior consent of the unit owners in order for the board of managers to take any action, including the institution of any action in court. So the provision in your declaration that requires unit owner approval to file suit is invalid.

The board alone can approve the initiation of litigation against the developer. The decision and vote to initiate such litigation needs to be made at a board meeting. Of course, any discussion concerning the litigation can be conducted at a portion of the meeting "closed" to owners.

Q. A current board member is threatening litigation against the association. How should the board handle discussions and decisions concerning this threatened litigation?

A. Discussions and decisions concerning the threatened litigation should be among and by the board members who are not threatening to sue the association. The board member who is threatening the suit should not be present during, or participate in, any board discussions or decisions concerning the litigation. These discussions should take place in executive session of the board (without any owners present). The board member threatening litigation should be excused from the executive session. Participation by this board member would be a conflict of interest and a breach of his or her fiduciary duty. Other board members should be reminded not to share any confidential information related to this threatened litigation with the board member making the threat. The same guidance would apply if the board member actually files the suit.

• 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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