Transparency touted by association board candidates
Q. The word “transparency” gets tossed around a lot in our association, particularly as it relates to our board of directors. Several candidates for the board ran on a platform that they would be more “transparent.” What does that really mean in the context of board actions?
A. “Transparency” is definitely a “buzzword” we see used with increased frequency in the association setting. I recall it was once named the word of the year by a dictionary publisher.
To me, in the context of the association setting, “transparency” means following proper corporate procedures, and specifically refers to the decision-making process of the board of directors. That is, discussion and decisions on issues need to take place within a properly noticed up meeting of the board that is open to the owners. Despite an appellate court ruling that found such a practice improper, I still see a lot of board members engaged in email discussion of matters that should be discussed at an open board meeting. Of course, that would not include discussions that are permitted to be conducted in a closed session per governing law, and an email discussion of those issues would also be permitted, but not necessarily suggested.
Similarly, the association needs to maintain books and records required to be maintained for inspection and copying by owners, to the extent required by governing statutes.
“Transparency” does not mean involving owners in the board discussion and decision-making process as a matter of routine. That isn’t to say that owners should be ignored. However, I have just seen too many boards involve owners in seemingly every discussion/decision of the board. The problem with that is that owners may not have the same information as does the board on a matter and do not have a fiduciary duty like the board does.
Let me add that, in general, boards that approach business less formally do so because they do not know better, and not out of any intention to act in secret or to deceive.
Q. Owner apathy in our condominium association is at an all-time high. The annual meeting was scheduled to elect four of the seven board members whose terms were to expire at the annual meeting. However, even with proxies, a quorum of the owners was not present at the meeting. Does the board have only three members now?
A. The association is still served by seven board members. Under the Illinois General Not for Profit Corporation Act, each director holds office for the term for which they are elected and until their successor shall have been elected and qualified. As such, the board members whose terms were to expire at the annual meeting would continue to serve on the board. Such a board member would have to resign if they did not want to be on the board any further. However, that can create problems when there is not a sufficient pool of owners who are willing to be appointed to fill the vacancy.
Q. Our mid-sized condominium is professionally managed. The board of directors is considering self-managing the association when the current management contract expires. The association has a loan with a bank, and one of the board members claims we need permission of the bank to go self-managed. Is that required by law?
A. There is no law that requires the board to seek approval of the association’s lender to go self-managed. However, the typical loan agreement between an association and a bank does include a requirement that the lender approve of a decision of the board to self-manage. This provision recognizes that lenders feel that a professionally managed association is a better risk.
As such, the board needs to review the loan agreement to see what it says on this issue.
• David M. Bendoff 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.