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Illinois Court Rules Condo Association Did Not Properly Elect Directors and Vote to Amend Condo Bylaws

When a party buys a condominium unit in a condominium development that is still in its infancy, many issues may arise, including how control of the board of managers will be transitioned from the developer to the unit owners and how the board will be elected.  This issue can become even more difficult when one, or more, parties refuse to follow the provisions of the Illinois Condominium Property Act and the unit owners are unaware of the requirements under the operative instruments and the Condominium Property Act regarding items such as elections, voting, and amendments of the various instruments. Recently, in the case of 4043 S. Drexel Condominium Association v. Burke, 2022 IL App (1st) 210666-U, the Illinois First District Appellate Court outlined the importance of following the voting procedure contained in the condominium bylaws and the consequences of ignoring the condominium bylaws.

 

Transition of The Condominium Board to Non-Developer Unit Owners

The procedure to transition control of an Illinois condominium association was previously outlined in Developer Turnover: How to Transfer an Illinois HOA From a Developer to the Owners.  In short, the election of the first unit owner board must take place no later than 60 days after the conveyance of 75% of the units, or 3 years after the condominium declaration was recorded, whichever is earlier.  If the developer does not call the initial meeting to elect the condo board, a group of unit owners owning 20% or more of the interests in the condominium can call a meeting to elect the board.

 

Notice of Meetings and Condo Board Elections

The mechanism for providing notice to unit owners regarding condominium association meetings are prescribed in the condominium bylaws.  In accordance with the Illinois Condominium Property Act, notice of condominium board meetings must be given at least 48 hours before the meeting, posted in a conspicuous place, and sent by mail or delivery unless the unit owners provide written authorization to conduct business by other “technological means,” including electronic mail.  Notice of general membership meetings must be provided at least 10 days, but not more than 30 days, in advance of the meeting.  The notice that is sent regarding the membership meeting can only be sent electronically if the condominium instruments allow for such delivery or if properly adopted rules are passed by the association that allow for notices to be sent electronically and the unit owner(s) agree to service by electronic means.

The Illinois Condominium Property Act sets some guidelines for elections, but provides that the bylaws shall include, at a minimum, the following provisions:  (1) the number of members of the board; (2) that the terms of at least 1/3 of the members of the board expire annually and that no board member may be elected for a term exceeding 2 years; (3) that all members of the board are to be elected at large; and (4) that if there are multiple owners of a unit, that only one may be on the board.  Once again, the condominium documents will control if they meet these minimum requirements.

 

Amendments to The Operative Condominium Documents

The general rule is that most provisions in condominium declarations and bylaws can be amended.  Depending on what is being amended, the amendment may be done by the board, or may be subject to a unit owner (and possibly a mortgagee) vote. Once again, the language in the declaration and/or the bylaws will control, if any amendment provision requires less than a 75% vote (which is the ceiling in the Illinois Condominium Property Act).  In most condominium declarations and bylaws, the standard approval percentage for amendments that impact the unit owners is around a two-thirds’ majority.

Once again, the language in the declaration and bylaws needs to be reviewed and followed by the board.  Many times, if an amendment to the condominium bylaws is to be proposed, a draft of the amendment must be circulated to all the unit owners and a vote on the amendment taken.  Even further, in most instances, the condominium documents also require the vote on an amendment to be conducted at a properly noticed meeting.

 

The 4043 S. Drexel Condominium Decision

The decision in the 4043 S. Drexel Condominium case was the culmination of many years of fighting between unit owners in a 12-unit condominium in Chicago. There are many facts outlined in the decision, but for purposes of this article, the key facts are summarized below.

The condominium was formed when the declaration and bylaws were recorded in August 2006. One of the defendants (Burke) purchased a unit in 2006, and then a series of corporate entities for which Burke served as an officer bought 7 other units for the purpose of renting those units. In total, these entities owned nearly 50% of the units, and after acquiring another unit after the litigation was started, a total of about 56% of the ownership interest in the condominium.

Section 5.1 of the declaration provided that the board of directors was to include five members, with the developer to select the initial board (which was to include only 3 members) until the initial meeting of the unit owners. The appellate court identified that the record did not identify whether an initial meeting of unit owners happened, or, if at any time, annual meetings were conducted.  Similarly, it appears that at no time was a board made up of five members ever elected prior at least 2018.

In March of 2008, Burke incorporated the condominium association and identified three directors in the incorporation documents.  Every year between 2009 and 2016, annual reports were filed with the State of Illinois identifying that the board was made up of only three directors.  No minutes were kept of any meetings between 2008 and 2016 and formal elections never took place.

Disputes then arose between the unit owners and Burke over items such as the rental of units within the condominium (which was limited to four in the declaration) as well as Burke’s failure to manage the association and the common elements of the condominium.  As a result, Burke sent an email to the unit owners proposing a meeting to elect a three-person board, and such a meeting and election occurred in April 2016.  At this election, Burke was elected treasurer of the association.

Thereafter, when Burke purportedly failed to produce documents related to the condominium association, an attorney was retained purportedly on behalf of the condominium association.  In response, and despite what he filed with the Secretary of State, Burke claimed that there was no board of managers before 2016.  Soon thereafter, Burke and another member resigned from the board.

Thereafter, by email, two of the unit owners set a meeting of the owners with a proposed agenda that included “Governance and Election of the Board of Directors.”  Some of the members of the condominium association attended the meeting in person, and some others telephonically.  One unit owner raised, for the first time at the meeting, that the number of board members should be reduced from five to three.  The unit owners then agreed to reduce the number of board members but did not do so by a formal vote.  An election also did not happen at the meeting, and instead, ballots were sent out after the meeting to the unit owners who were given one day (from a Saturday to Sunday) to identify if they wanted to be on the board.  Burke did not vote, and this informal process resulted in an “election” of members of the board to fill the seats left vacant by the earlier resignations (the “First Board”).

About seven months later, at a board meeting, the reduction in the number of board members was brought up again.  At that meeting, a reduction in the number of board members from five to three was “passed” and an amendment to the declaration later recorded with the Cook County Recorder of Deeds identifying the purported change.

By certified mail, Burke then sent a notice of a special meeting to the unit owners to elect a “proper” board.  The association responded saying the notice was improper and the board was already properly elected.  Burke then went forward with his meeting where he was the only attendee.  At that meeting, Burke elected 5 members of the board (of which 4 were not present) (the “Second Board”).  The association objected to the election and demanded payment of assessments on the 7 units owned by Burke.  This Second Board later voted to remove or rescind the amendment to the declaration that reduced the number of board members from five to three.

The lawsuit at issue was filed in September 2018 by the First Board seeking, among other things, a declaration that Burke lacked authority to call the special meeting for the election of the Second Board and that the Second Board was not the actual board for the condominium.  Burke raised defenses in the case, including that the First Board lacked standing to assert a claim because it was not properly elected in accordance with the condominium instruments.

The trial court ruled in favor of Burke and against the condominium association on all claims.  The Illinois Appellate Court sustained all the lower court’s rulings and more specifically held that:

    1.  The election of the First Board was invalid because it did not take place at an actual “meeting” and was done y email ballots tabulated after the actual meeting;
    2.  The election of the First Board was invalid because the declaration and bylaws did not allow for electronic voting and no electronic voting procedures were actually followed;
    3.  The election of the First Board was invalid because the original meeting where an election was discussed was improperly noticed because notice was sent by electronic mail only;
    4. The amendment to the declaration (reducing the number of board members from 5 to 3) was invalid because it was not presented to the unit owners in advance of a meeting;
    5. The amendment to the declaration (reducing the number of board members from 5 to 3) was invalid because no actual vote was taken as required by the declaration; and
    6. Because they were not properly elected, the First Board (acting on behalf of the association) was not authorized to file the lawsuit.

As said above, the defendants (including Burke) were granted judgment in their favor on all the claims asserted, and the appellate court sustained the decisions of the lower court.  The appellate decision was issued almost exactly 4 years after the initial lawsuit was filed.  The court did say that it was not ruling that the Second Board was properly elected or that any of the unit owners could not file their own separate suit on behalf of the association, but the association (led by the First Board) could not sustain the action against Burke.

 

Takeaways

The primary takeaway from the 4043 S. Drexel Condominium case is that condominium associations and HOAs must be cognizant of the procedures set forth in the governing instruments and Illinois law when performing tasks such as sending out notice of meetings, conducting elections of board members and amending the instruments. The failure to follow the procedures exactly can undo years of actions purportedly taken on behalf of a condominium .  In that case, an invalid board spent four years litigating a case and the actions taken by the board were all undone. Hiring counsel, especially when a condominium is still new, is critical to assist the board in ensuring that notice, elections, and amendments to the condominium documents are handled correctly.[1]

Adam Toosley is a member at Hirzel Law, PLC and focuses his practice on real estate litigation, zoning and land use, construction, and financial services litigation. Over the course of his career, he has represented property owners, landlords, condominium associations, lenders, and all parties in the construction chain, handling all aspects of real estate-related disputes, including construction defect cases, payment, and landlord-tenant disputes as well as real estate foreclosures, mechanic’s lien cases and fraud and business tort claims in state and federal court as well as in mediations and arbitrations throughout the United States. He is licensed in both Michigan and Illinois. He can be reached at (312) 626-4535 or at atoosley@hirzellaw.com.


[1] Interestingly, Senator Adriane Johnson introduced Illinois Senate Bill 3434 earlier in 2022 that would require all boards for condominiums and HOAs to complete, at least yearly, a training program.  That training program includes training specifically on meetings and elections.  As of the date of this article, Senate Bill 3434 has not been passed, but it is worth monitoring moving forward.

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atoosley@hirzellaw.com

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