Association, board member must follow contract procedure

Q: Our condominium association owns a unit it leases out to third parties. One of the board members is a real estate agent for a real estate company and wants to act as leasing agent for the association regarding this unit. He would be paid a commission by the real estate company for whom he is employed and is not an owner of the real estate company. Can the board retain the real estate company here?

A: The issue is generally governed by Section 18(a)(6) of the Illinois Condominium Property Act.

That section provides that the board may not enter into a contract with a current board member or with a corporation or partnership in which a board member or a member of the board member's immediate family has 25% or more interest, unless it follows the specific procedure described in that section.

Under the scenario you describe, the board would not need to follow the procedure set forth in the act. That is because the agreement would be between the association and the real estate company for whom the board member is an employee, as he does not have an ownership interest in the real estate company. The board can proceed with the agreement.

I do want to note some associations have policies in place whereby they won't enter into any sort of agreements with board members (regardless of whether Section 18(a)(6) is applicable) to provide goods or services because it can leave an unintended impression that a board member is "profiting" from their position. Some associations go so far as to have policies that prohibit them from entering into contracts with any unit owners for any sort of goods or services.

Under the Act, in order for an association to enter into an agreement with a board member (or with a corporation or partnership in which a board member or a member of the board member's immediate family has 25% or more interest), written notice of the board's intent to enter into that contract must be given to all unit owners within 20 days after that decision is made. Within 30 days after the notice is issued by the board, the owners can file a petition signed by 20% of the unit owners requesting a meeting of the owners to vote to approve or disapprove the contract.

If the owner petition is filed, the owner meeting to vote on the contract must be held within 30 days after filing the petition. If no petition is filed, or if the owners voted to approve the contract, the board could enter into the contract with the board member. If a petition is received and the owners vote to disapprove the contract, then the board could not enter into it.

Q: Does a member of the association have to be current in the payment of his or her assessments to run for and to serve on the board? We are considering such a requirement for our association.

A: A restriction in the governing documents for a common interest community association that imposes a "good standing" requirement to serve on the board may pass judicial scrutiny. However, a restriction in a condominium that requires a candidate to be current in payment of assessments to be eligible to run for and to serve on the board is not likely permitted. This is because the Condominium Property Act provides, in part, that board members are elected from among the owners at large.

• 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.