This post originally appeared on tBL Marketplace Partner R. Kymn Harp's blog - HARP - on this and is republished with permission. Find out how to syndicate your content with theBrokerList.

Attached is my new Practice Note published by Practical Law Real Estate discussing Condominium Deconversion under the Illinois Condominium Property Act (the “Act”). I typically represent investors acquiring condominium units with the intent to deconvert into multifamily rental housing.

The proper exercise of Board fiduciary duties in connection with a prospective condominium deconversion should be a serious concern to all stakeholders in the condominium deconversion marketplace. It is especially important to my clients that we monitor Board actions to make sure the process is not derailed by Board members failing to adequately adhere to their fiduciary duties to Unit owners. If, as is sometimes the case, my client is buying into a condominium project piecemeal, some of those unit owners include my client. As important as it is to my clients that Board members do not breach their fiduciary duties by working against us, it is equally important to make sure the Board is abiding by its fiduciary duties and properly exercising Board authority on behalf of all unit owners because at some point my client may come into control of the Board. Additionally, while not in control of the Board, my clients do not need the added cost and delay that may result from well-founded litigation asserting the existing Board is acting beyond the scope of its authority or in breach of its fiduciary duties.

The condominium form of ownership is purely statutory. Condominiums did not exist at common law. The Board’s authority to act on behalf of the Unit owners in the administration of the Association comes from only one of three places: (1) the express language of the Act; (2) the Declaration and Bylaws – so long as they do not conflict with the Act; and (3) special authority granted to the Board by the Unit owners at a special meeting duly called for that purpose.

It is remarkable how often fiduciary duties are being breached by condominium Boards, either by usurping the authority of Unit owners, exceeding the Board’s statutory or special authority, or merely failing to adhere to their fiduciary duty to act toward Unit owners with the utmost candor, rectitude, care, loyalty and good faith as required by law. This can result in personal liability to Board members and the Association, but it can also needlessly complicate the planned transaction.

Those dealing with Boards in pursuit of a condominium deconversion should likewise be concerned. As noted in the attached Practice Note, if a Board is acting beyond the scope of its authority, the actions are ultra vires and therefore without binding legal effect on the Association. If you are a real estate broker, attorney, appraiser, or other professional hired by an Association Board in connection with a possible sale of the property as a whole on behalf of all Unit owners, you should be careful to ascertain that the Board and the Board officers have actual authority to retain your services for the intended scope. Otherwise, you might not get paid.

As discussed in the attached Practice Note, Board authority cannot be merely assumed – notwithstanding the stated position of the Board President or Association counsel. Contrary to popular belief, a condominium Board of Managers does not have limitless authority to act on behalf of the Association, or to bind the Association, on all matters.

I hope you enjoy the attached Practice Note and find it informative. If you are an investor looking to invest in a potential condominium deconversion project, please don’t hesitate to call.

Best regards!

Kymn

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