Condo board can indemnify unit owner sued over elevator contract
Q: Years ago, one of our condominium unit owners signed the association’s elevator contract at the request and direction of the board president. At the time, it was urgent for the association to have someone sign the contract so the elevator service for the building didn’t lapse. The unit owner simply signed the contract and printed his name. Eventually, the board of directors decided to terminate the elevator contract due to deficient service. Recently, the elevator vendor filed a breach of law contract lawsuit against the individual owner for the balance of the association contract — naming only the individual unit owner and not the Association as a defendant. Can our board agree to pay for the owner’s defense costs and make any settlement or judgment that may be entered in the case?
A: Yes. Based upon your facts, it appears that the individual owner named as the sole defendant in the lawsuit was acting at the direction of the board president and/or as an authorized agent of the association and for the benefit of the association and other unit owners. Sections 108.75(a) and (b) of the Illinois General Not For Profit Corporation Act permits the Association to indemnify the individually named unit owner. Moreover, pursuant to Section 9.1(a) of the Illinois Condominium Property Act, the liability of an individual unit owner named in this type of lawsuit is expressly limited to their percentage ownership interest. To protect the owner, the board must vote to indemnify and defend the individual owner at an open board meeting. The association shall then be responsible for the payment of attorney’s fees and costs incurred in the defense of the lawsuit and any settlement or judgment amount entered therein. In the future, your board should follow the proper protocol to sign contacts only after approval of a majority of the board. Also, it is always advisable that any board member or officer clearly indicate that they are signing the contract on the behalf of the association in their capacity as a board member or board officer. You can do this by simply notating your position immediately after your signature.
Q: Traditionally, the board of our association held a meeting of the owners to discuss the proposed budget before the board voted on the budget. The board does not intend on doing that this year. Rather, the board will only call a meeting of the board to adopt the budget. Is the board required to hold a meeting of the owners to discuss the proposed budget?
A: Whether a condominium or a common interest community association, the board does not necessarily need to call a “preliminary” meeting (i.e. an additional meeting prior to the meeting where the board actually votes on the final budget) of the owners to discuss the proposed budget. Here's a summary of the procedure that has to be followed by the board to adopt the annual budget. A copy of the proposed budget needs to be mailed or delivered to owners at least 25 days prior to the board's adoption of the budget. Also, written notice of the date, time, place and purpose of the board meeting needs to be mailed or delivered to owners no less than 10 and no more than 30 days prior to the board meeting to adopt the annual budget.
• Matthew Moodhe is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. 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.