SECTION 15 SALE – BREACH OF FIDUCIARY DUTY BY CONDO BOARD?
Here’s the Problem with that Theory . . .
A sale of property pursuant to Section 15 of the Condominium Property Act is an “owner action”, not a “board action”. Section 15 does not require approval or participation by the condominium board of managers (“Board”), except as a depository for written objections from unit owners seeking to have the value of their individual interests determined by appraisal. There is nothing in Section 15, or elsewhere in the Illinois Condominium Property Act (the “Condominium Property Act”), that gives the Board authority, much less a fiduciary duty, to participate in marketing the property as a whole. Likewise, there is nothing in any Declaration of Condominium Ownership or bylaws I have examined (which does not mean one might not exist, just that it appears to be rare) that gives the Board any authority or responsibility for marketing the condominium property. With no authority, there can be no duty, fiduciary or otherwise.
It is the express public policy of the State of Illinois, as set forth in Section 15 of the Condominium Property Act (“Section 15”), to grant the unit owners of a condominium association (not the Board) the authority to approve a sale of the entire property upon the affirmative vote of unit owners holding not less than 75% of the common elements. Section 15 expressly provides that “Such action shall be binding upon all unit owners, and it shall thereupon become the duty of every unit owner to execute and deliver such instruments and to perform all acts in a manner and form as may be necessary to effect such sale.” Section 15(b) expressly provides a method for unit owners who did not vote in favor of the sale to have the value of their respective interests determined if they disagree with the value allocated to their individual unit interest.
Section 18.4 of the Condominium Property Act expressly provides that “The board of managers shall exercise for the association all powers, duties and authority vested in the association by law or the condominium instruments except such powers, duties and authority reserved by law to the members of the association.” If a recalcitrant unit owner’s theory is based upon the general fiduciary duty of the Board to act in the best interest of the members, they should consider the express language of Section 15, and the fact that a supermajority of members, equal or exceeding 75%, has affirmatively voted to approve the sale.
Approval of a sale pursuant to Section 15 is purely within the scope of authority of the unit owners. While the Board has authority to generally act in the interest of unit owners, the Board has no authority to approve or disapprove a sale. That is entirely within the discretion of the unit owners. It would very likely constitute a breach of the Board’s fiduciary duty to association members if, as proposed by some plaintiffs, the Board tried to interfere with the approval process for a Section 15 sale by unit owners holding 75% or more of the common elements. Section 15 was amended as recently as January 1, 2018, and the procedure for owner approval of a sale, the percentage vote necessary to approve a sale, and the duty of all unit owners to participate in the sale, were not changed.
The decision to fight a Section 15 sale authorized pursuant to Section 15 is likely doomed if the legal theory is based upon a claimed breach of fiduciary duty by the Board – which, once again, has no statutory authority to participate in or interfere with a proposed Section 15 sale. Not only is success unlikely, the recalcitrant unit owner stands a risk of being held liable to the other unit owners, as well as to any lender holding an underwater mortgage which would be paid off via the Section 15 sale, and perhaps to the prospective Section 15 purchaser, for monetary damages resulting from breach of the unit owner’s statutory duty under Section 15 to “. . . execute and deliver such instruments and to perform all acts in a manner and form as may be necessary to effect such sale.” Depending upon the facts and circumstances of the particular condominium project and transaction, the damages against the recalcitrant unit owner could be huge.
Thanks for listening . . .
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