Can boards require ‘good standing’ for candidates?
Q: Our condominium association board is claiming that each candidate for the board of directors must be in “good standing” before they are allowed to run or serve on the board. We are not sure exactly what “good standing” means. Is that a valid requirement?
A: Generally, an Illinois condominium association must be careful with any restrictions that bar a unit owner from running for the board. The Illinois Condominium Property Act says board members are elected from the unit owners “at large.”
Additionally, the Act’s election provisions say ballots must include timely submitted candidates’ names and allow voters to write in other names. However, the Act does not expressly make “good standing” or being current in assessments as a qualification for candidacy or board membership.
Whether this requirement is valid often depends on what the association means by “good standing,” how carefully it is described and where the requirement appears within the association’s governing documents.
Ideally, a specific, well defined “good standing” requirement in the association’s declaration or bylaws is the best method of enforcement. On the other hand, a well-defined board-created “good-standing” rule or regulation may also be enforceable. If it’s a rule, the board needs to make sure that the rule was properly adopted and specifically defines what “good standing” means (current in assessments and no outstanding or continuing violations). Usually, a board will ask the association counsel to review this type of rule before the association adopts it or rejects a candidate under the rule due to the important impact.
Q. Our condominium association is involved in a large roof replacement project for which the association designated and utilized our reserve funds to pay. We’re now involved in a lawsuit against one of the roofing contractors for breach of contract. The question now is can the board use the reserve funds to pay for the lawsuit since it deals with the project financed by reserve funds, or do we have to use our regular operating funds?
A. The fact that the roof project was paid for with reserve funds does not automatically make the lawsuit a valid reserve expense. Additionally, the mere fact that the lawsuit is against the roofing contractor, by itself, does not settle the issue of which account should be used to pay litigation costs.
The association’s legal fees are a separate cost from the actual underlying project, and the proper use of association funds depends on the governing documents. Illinois law requires condominium budgets to provide for reasonable reserves for capital expenditures and deferred maintenance such as repair or replace common elements. The act also recognizes that the board may earmark reserve funds for a specific project. The act does not clearly say that legal fees for a contractor lawsuit can be paid from that project’s reserve allocation.
Moreover, there are Illinois appellate decisions that caution condominium boards against using reserve funds for expenses that are otherwise properly assigned to the operating fund without adequate legal support. That said, the declaration and bylaws can contain language that would authorize the use of reserve funds for this type of expense.
So, the key will be the precise wording of the declaration and bylaws. Before charging the lawsuit expenses to the reserves, the board should work closely with their attorney (and possibly their accountant) to review the declaration, bylaws, reserve study and the board minutes or resolutions that designated the reserve funds for the roof project. The proper allocation of the roof-related litigation expenses will be determined by this type of review and analysis.
• 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.