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12 Common Board Mistakes

It happens despite the best of intentions to prevent them. Volunteer condominium boards of directors make unintentional mistakes navigating through the economic and administrative issues for their association. But fear not because with a little education, condominium directors can prevent themselves from falling into "12 Common Board Mistakes".

1. Too many closed meetings.

 

There are no secrets in condominium associations. In fact, the Illinois Condominium Property Act ("Act") requires boards to hold open meetings for all unit owners to attend with the exceptions of (i) rule enforcement or unpaid assessments issues, (ii) threatened or pending litigation against the association or the board and/or (iii) employment issues relating to the hiring or firing of employees.

Board meetings are a gathering of the board to conduct business (i.e., vote). So while a board may meet to communicate with each other how to handle association issues at an open meeting, a board should minimize these informal discussions.

2. Insufficient or Overly Detailed Board Meeting Minutes.

 

The standard for the contents of board meeting minutes is set out in Robert's Rules of Order. In sum, Robert's Rules dictates that board-meeting minutes should contain the record of what was done and not a record of what was stated.

Efficient board meeting minutes should contain a record of agenda, motions, votes, and points of order. To protect the board, board-meeting minutes should also contain factors leading to a decision such as how many contracts were solicited and/or reviewed, considerations for a particular action, or the rationale of the board for a board decision. Minutes should reflect that the board members have met their fiduciary obligation.

3. Failure to Promptly Collect Overdue Assessments.

 

While boards generally sympathize with unit owners during difficult financial times, the board's intention to assist a unit owner by delaying the collection of assessments actually jeopardizes the cash flow of the association. Such actions may make the association unable to fulfill its financial obligations and could unintentionally set a precedent for other unit owners to make late assessment payments without fear of legal action.

Boards should consider adopting collection policy whereby if a unit owner at a certain period of time is past due (usually 60 days), the board will pursue legal action.

4. Failure to Make Promptly Building Repairs.

 

Many boards have been known to defer necessary maintenance and/or preventative maintenance of the association building to avoid imposing financial hardships on the unit owners.

While such an action usually receives overwhelming support from the unit owners, boards must consider their fiduciary obligations to maintain, repair, and if necessary, replace the common elements of their building. Boards should also consider that deferred maintenance often leads to major replacement costs down the road (which may lead to larger assessment increases in the future).

5. Election Mistakes (Part 1 – Notice/Endorsements).

 

Quite frequently, boards provide inadequate notice for the association's annual meeting. The annual meeting date is usually contained in the association's by-laws. Pursuant to Section 18 of the Act, a minimum of ten (10) days notice and a maximum of thirty (30) days notice is required to be delivered to unit owners, and posted conspicuously in the common elements, prior to the annual meeting.

Additionally, directors must be cognizant that pursuant to Section 18 of the Act, the board may not endorse candidates in a board election and that only unit owners may serve on the board as a director (spouses and/or non-title holders may not be candidates). Their endorsement must be done in such a manner so as to avoid any inference of impropriety, and avoid the impression that it originated from the board.

6. Election Mistakes (Part II – Proxies/Tabulation).

 

Quite frequently, boards mistakenly use proxies as absentee ballots.¹ A proxy is a legal document allowing a unit owner to appoint another person as his/her attorney-in-fact to vote in his/her stead at an annual meeting on his/her behalf.

During the election process, a proxy holder must bring with him/her a properly executed proxy, which is exchanged for a ballot at the annual meeting to be voted consistent with the unit owner's preferences, if identified.

Another frequent mistake with elections occurs after the voting has concluded. Boards mistakenly tabulate the ballots secretly. The Illinois General-Not-For Profit Corporation Act of 1986, and the Condominium Act permit candidates and/or inspectors to be present for the tabulation of ballots.

It is our recommendation that all association boards, not simply condominiums, retain ballots for at least one (1) year in the event the validity of the election is challenged.

7. Over Regulating.

 

Pursuant to Section 18.4 of the Act and condominium declarations, boards have the responsibility to govern the association. If possible, governance should facilitate harmony within the association.

Frequently, boards unintentionally over-regulate by (i) adopting too many rules and regulations, and/or (ii) do not consistently enforce the rules and regulations. Courts have determined that the standard to determine the validity of a rule and regulation is whether the rule is reasonable.²

Boards should not enforce rules for every minor violation, apply the rules consistently between unit owners, and give unit owners due process rights as provided in the Act, declaration and by-laws and/or rules and regulations. The failure of a board to give notice and reasonable opportunity to be heard before levying a fine, and/or adopting excessive fines will prevent the board from enforcing association rules.

Boards should consider requiring unit owners to verify complaints in writing to obtain the proper identification of violators and should take a common sense approach. The bottom line, be fair and be consistent.

8. Fiscal Irresponsibility.

 

 

 

Boards must be prudent with their investment decisions and maintain their funds in low risk investments, while earning a reasonable rate of return for the association. It's best to avoid large amounts of money in low-interest paying checking accounts by putting those funds in better interest rate money market accounts.

Additionally, boards should be careful to not always take the lowest bid for a particular repair project. Value - not price – should be the determinative factor. Boards are best served to look at repairs over the long term and not merely accept the cheapest price to fix the issue of the day.

9. Failure to Review Association Financial Statements.

 

 

Boards must review financial statements delivered by management to them to ensure (i) management is properly handling its funds and (ii) the association is fiscally sound. It is sometimes bewildering how boards fall into a false sense of security by purely believing "everything will be okay" only to learn that the association has been operating at a deficit and an unanticipated special assessment is required to address the association's poor financial condition.

10. Failure to Provide an Annual summary of the Association's Finances to Unit Owners .

 

 

Board's must be aware that Section 18 of the Act requires the board to supply annually to all unit owners an itemized accounting of the common expenses for the preceding year actually incurred or paid. The accounting should also state what portions of Association funds were for reserves, capital expenditure, repairs, and payment of real estate taxes with a tabulation of the amounts collected pursuant to the budget. The accounting must also state the net excess or deficit of income over expenditures plus reserves. To prepare the accounting, the board may engage an accountant to perform an audit, compilation or review.

11. Failure to Follow Corporate Formalities.

 

 

The law must be followed. A condominium association is a business and like all businesses, it must comply with the applicable laws. Condominium boards must meet at least four (4) times per year. Notice of meetings must be provided to all unit owners. Meeting minutes must be written documenting the actions of meetings.

12. Failure to Enlist the Help of Professionals.

 

 

Penny wise, pound foolish. This old adage best describes a board that fails to enlist the help of professionals, when needed, in the name of saving a few pennies. Management Companies relieve boards of the burdens and demands of day-to-day administration of the property and provide guidance on governance issues; Attorneys provide valuable legal services to boards from issuing legal opinions to collecting a delinquent unit owner's assessments and Accountants analyze the financial condition of associations and prepare necessary reports.

In sum, an unknowledgeable board can be a dangerous board. However, a board preventing itself from falling into the clutches of the"12 Common Board Mistakes" discussed above will inevitably be a successful board.

[1] Section 18(b)(9) of the Act was amended to allow absentee ballots if a Board adopts rules allowing for absentee ballots at least 120 days before the board election. Section 18(b)(9)(a) sets out further requirements that should be reviewed prior to any implementation of such rules.

 

[2]The case of Apple II Condominium Assoc. v. Worth Bank & Trust Co., 277 Ill.App.3d 345, 659 N.E.2d 93 (1st Dist. 1995) discusses the reasonableness st

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