The Illinois Condominium Property Act (the “Condominium Act”) does not provide complete guidance on when a board decision may be invalidated due to a conflict of interest. Therefore, a court, when deciding if a decision should be set aside due to a conflict, looks to the General Not for Profit Corporation Act of 1986 (the “Not For Profit Act”).
The Not For Profit Act states that if a transaction is fair to a corporation at the time it is approved, the fact that a director of the corporation is directly or indirectly a party to the transaction is not grounds for invalidating the transaction. The court will not decide if the transaction is unfair to the complaining owner, but to the association as a whole.
If a unit owner does decide to challenge the validity of a board decision the burden is generally on the Association (if it seeks to uphold the decision) to demonstrate that the transaction was fair. However, the unit owner will be required to prove unfairness if the material facts of the transaction were disclosed and the decision was approved by a majority of disinterested board members or was ratified by disinterested members.
The Condominium Act does provide guidance on contractual conflicts and states that “the board of managers may not enter into a contract with a current board member or with a corporation or partnership in which a board member or a member of the board member’s immediate family has 25% or more interest…” unless specific protocols in notifying owners are followed.
If your association needs legal guidance regarding the Illinois Condominium Property Act or the Not For Profit Act and their impact on your community, do not hesitate to contact Kovitz Shifrin Nesbit. Our law firm can be reached at 855-537-0550 or by visiting the KSN website at www.ksnlaw.com.
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