SB 2354 - Signed by Gov Rauner - How It Effects Associations in Illinois

A new bill, SB 2354 (Sen. Haine), which will admend the Illinois Condominium Property Act and the Common Interest Community Association Act, will become effective on January 1, 2017. This bill was signed into law by Governor Rauner and became Public Act 99-0567. Since this bill amends both the ICPA and the CICA, the results affect both condominium associations and town home associations in Illinois.

This amendment is critical to condominium and town home associations as it negates many of the restrictions that were previously introduced by the "Palm Case". (Palm v. 2800 Lake Shore Drive, 2014) You can read an overview of the Palm Case and it's ramifications to associations here. Board members of condo and town home associations in Illinois should be aware of these changes and understand how they affect their ability to govern their communities. Don't fret, this change is great news for board members!

As a condo manager I believe this case primarily relates to two practical issues:

1. Board decisions. How and where must board decisions be made? (Board members voting on issues and making decisions.)
2. Board discussions. What type of conversations or discussions, if any, can a board of directors have about their association outside of a properly scheduled board meeting? This would include email conversations and other types of communications where board members discuss association-related matters.

To understand how these changes will affect your board of directors, it is helpful to understand some background, how the Palm ruling affected the law, and how this new bill helps to remedy the situation.

Board Decisions and Discussions Prior to Palm

Prior to the Palm case, which was ruled upon in 2014 by the Illinois Appellate Court, the interpretation of the laws relating to board decisions and board discussions were generally understood as follows:

Board Decisions

Board decisions were required to be made at a properly scheduled board meeting. Regardless of the topic, if a decision was needed from the board of directors, this must occur by a vote of the members of the board at a properly scheduled board meeting. While this requirement may be time consuming and annoying to board members who have busy lives, the idea behind this rule is sound.

Board decisions occur at a board meeting so that 1) the vote occurs "in the open" and in front of the owners that choose to attend the board meeting, and 2) the decision is documented in the minutes of the meeting. By having board decisions documented in meeting minutes, if a question arises in the future such as "When was that decision made and who approved it?", the meeting minutes can be produced to clearly show that the decision was official.

As a condo manager I can confirm that, in reality, very few board decisions are actually made at properly scheduled board meetings. Some board members do not understand that their decisions must be made at board meetings. More often, however, board members choose to ignore this requirement and make the majority of their decisions through email or informal conversations among the members.

While I advise boards to follow the law and make decisions at board meetings, it is arguably unrealistic to expect them to do so. This is one example where a disconnect exists between the intent of the law and the reality of what is feasible and reasonable for board members. With the number of decisions needing to be made by boards, and the time sensitive nature of some, holding meetings for each is impractical.

Nevertheless, the key takeaway is that board members are required to make decisions at properly scheduled meetings.

Note: It should be stated that the law is complex and there are situations where certain decisions can be made outside of a meeting and later ratified/recorded at a future board meeting. There may also be strategies used with a management company to bypass this requirement in certain situations.

Board Discussions

In general, there were no restrictions on board members having discussions about association-related matters outside of board meetings. Board members could have discussions through email, phone or impromptu meetings. Board members and unit owners could also form committees to discuss association matters. As long as decisions were not being made, discussions could occur freely.

Board Decisions and Discussions After Palm

What the Illinois Appellate Court introduced with their ruling on the Palm case, as it relates to board decisions and board discussions, was the following:

Board Decisions

No changes. Board decisions must still occur at properly scheduled board meetings.

Board Discussions

This is where the Palm case caused such a stir within the industry. The court ruled, in essence, that all conversations and discussions related to association matters must occur at a properly scheduled board meeting.

Emails between board members to discuss issues, phone calls to review matters, and even "hallway conversations" were now illegal. From a practical perspective this ruling made it nearly impossible for any board to run their association in a strictly legal fashion. It is not reasonable to expect board members to schedule and hold meetings each time they need to discuss a problem within their association. It would be impossible to run an association in this fashion unless a board is willing to have weekly, or daily, board meetings. Few board members, unpaid volunteers, are willing to invest this amount of time to the process.

The result of the Palm ruling has been what could be logically expected. The law has been almost exclusively ignored. If a law is written such that it is impossible to follow, it won't be followed. This is exactly what has happened.

Board Decisions and Discussions After SB 2354

While perhaps simplifying the matter somewhat, what this new bill achieves, is to overrule the Palm case and bring things back to "Pre-Palm" days. The law firm of Kovitz, Shifrin & Nesbit has a posted an overview of the bill on their blog. (Link to article)

From a practical perspective, this bill affects board members in the following ways:

1. The board may have informal discussions (outside of a board meeting) related to any of the following topics:
   • To discuss probable or pending litigation
   • To discuss third party contracts (Vendor proposals, vendor contracts, etc.)
   • To discuss hiring or firing any employee, contractor or agent. This would include discussing which vendor to hire for a particular project.
   • To interview an employee, vendor, contractor or any other provider of services. This would include meeting with vendors.
   • To discuss violations to the rules and regulations of the association.
   • To discuss owner delinquencies.
   • To meet with the association's attorney.
2. All of the topics listed above may also be discussed in a closed session of a board meeting. This is not super-exciting in my mind, but should be noted.

There are a few additional points of clarification that board members should understand related to this bill and how the results can be used:

1. The new laws go into effect on January 1, 2017. Until that time, boards are still under the restriction of the Palm ruling.
2. The new laws allow the board of directors to discuss the items numerated above. Do not confuse this with meaning that the board can discuss these issues with the general unit ownership. These conversations are restricted to board members only. For example, this law does not allow the board to discuss delinquencies with unit owners!
3. Board decisions must still occur at properly scheduled board meetings. This has never changed and likely never will. The board may have discussions about issues outside of board meetings, but the board may not make decisions on these issues outside of a board meeting.

The ability for the board to discuss these matters outside of a board meeting is exciting news and is a welcome step towards reasonableness. This bill goes a long way towards remedying the silliness that was introduced to the condo world with the ruling on the Palm case in 2014.