Q-In 1989, the board of directors called a special meeting of the unit owners to approve a contract to reduce real estate taxes. The real estate tax work has been done by a current board member with an accounting background.
This year, we received an unusually high tax increase. The increase was reduced by the director, but he presented a $6,600 invoice to the association for his time and expenses. This charge was assessed to the unit owners at $50 per unit.
After complaints from the unit owners, the board explained that the owners’ approval in 1989 was sufficient to cover the current year and the owners had received a real estate tax savings from this work. While there was little supporting information for the invoice, this board member voted to approve a special assessment to pay his fee.
Did the board of directors act properly in accepting the invoice for the tax reduction work? Is there a conflict of interest when a board member votes to accept an invoice or levy an assessment to pay for his services? Do unit owners have a right to examine invoices accepted by the board and ask questions regarding the services rendered?
A-The board of directors did not act properly in accepting the invoice from the director for the tax reduction work. The board cannot enter into a contract with a director unless 20 days’ notice of the proposed agreement is given to the unit owners so they have sufficient time to request a vote on the contract.
A board member has a conflict of interest when he votes to accept an invoice for his services.
Condominium associations have the powers and duties of Illinois not-for-profit corporations. The Illinois General Not-For-Profit Corporation Act permits a contract between a director and the corporation if the director does not vote on the transaction.
Under Section 19 of the Illinois Condominium Property Act, unit owners have the right to examine invoices for association contracts. The board is not required to answer questions regarding such invoices, but it is often more practical to respond to questions since the owners have a right to call a special meeting to discuss association issues.
In reviewing your convoluted situation, the board’s first mistake was not retaining experienced real estate tax counsel to handle this matter at a reasonable contingent fee.
Even if the accountant was not a board member at the time he began the real estate tax work, his election to the board created an immediate conflict when the association continued to use his services.
The 1989 consent of the unit owners did not permit the directors to retain the same individual for the 1992 tax year.
However, two-thirds of the board members may retain professionals to seek real estate tax relief for the association without a unit owner vote. If the board properly votes to retain tax counsel, the board can also charge the attorney’s fee to the owners as a special assessment.
Q-We are a 15-unit condominium association that is being torn apart because of an owner who is renting rooms in his unit. Some owners want to file suit to stop this, while others shy away because of the legal expense.
All unit owners are advised that they are not allowed to rent their units. One of the owners is renting out rooms in his condominium to students. The owner admits that these people are guests who are sharing his expenses.
However, every quarter of the school term, these guests change. Our declaration specifically provides that a unit cannot be used for business or commercial purposes. The owner contends that he is not using the unit for business purposes because he is only sharing expenses for the units.
On the basis of our declaration, can we prohibit this continued activity?
A-The board can take action to stop the use of this unit as a boarding house.
Given the owner’s admission that he is residing with guests without a lease and your information that the guests change several times a year, this unit is being used for transient purposes.
While the owner gains an economic benefit from this arrangement, review your declaration to determine whether, like similar documents, it specifically prohibits the use of a unit for transient or hotel purposes.
The owner has also permitted occupancy of the unit without first supplying leases to the board required by the Condominium Act. Since the revolving guests constitute a transient arrangement and a business use, the board may fine the owner, evict the unlawful occupants, or sue the owner to prohibit this activity.
Unless the owners are content to let their condominium degenerate into a rooming house, they should not fear legitimate action to enforce association regulations.
This unit owner fails to understand that he is subject to restrictions and he cannot use the unit in a manner which blatantly ignores regulations.
Q-My husband and I will soon become first-time condominium owners. We will be purchasing a unit in a building that has been recently converted to condominiums. Do you know of any books or materials which might reassure us that our association is being managed properly?
A-I recommend a book entitled Owners and Managers Guide to Condominium Management. The book is published by the Institute of Real Estate Management, but you may purchase the text from the Community Associations Institute at 703-836-6905.
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Mark Pearlstein, is Chicago attorney who specializes in condominium law. Questions to him can be addressed to Condo Log, Real Estate Section, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611.
