Columnist

Financial records of a home assn. must remain an open book

 
 
Published: 6/18/2010 12:01 AM

A recent Illinois Appellate Court decision has come down hard on an association that was not fully cooperative in disclosing its books and records. This of course, must sink in. For over 25 years, the Illinois Condominium Property Act has mandated transparency of association operations, by requiring open meetings and full disclosure of building conditions and financial reports.

In it, (765 ILCS 605 et. seq.) Section 19 specifically provides that a request made in writing must be complied with, within 30 days, or the board could be subject to sanctions and paying the owners' attorneys' fees. There are exceptions; employee disciplinary files, court documents that are not public record, delinquent owners files, sale and purchase files, should be confidential.

Also, though not written into the act specifically, I would say if the association is privy to other confidential information that is mandated by completely different laws, such as HIPAA (which governs confidentiality of medical information, disability requests) and so forth, it would also be incumbent upon a board to keep this information under lock and key.

However, sometimes the property manager and/or the board decides an owner is being "difficult" or has personal motives, so they choose not to cooperate and give the owner what they are requesting. Why? In my opinion, there is no reason not to disclose whatever an owner requests that does not warrant a confidentiality label.

Sometimes it's an owner who is stirring up other owners with real or imagined issues; sometimes it's someone who is actually planning to sue the association, or sometimes it is just an interested owner who wants to see where their money is going. Illinois case law and Section 19 require that the requesting owner "state a proper purpose." It does not take much imagination not to say, "So I can throw out the board," versus "I would just like to see how all of our money is being allocated."

This particular portion of the statute seems pretty clear and has since its inception. However, we must also remember there are a number of different levels of authority that an association must answer to: federal statutes, federal case law, federal agencies, state statutes, state case law, state agencies and, finally, local ordinances. After this, come the association's governing documents.

In the recent decision of Gary Palm v. 2800 Lake Shore Drive Condominium Association, et al. (No. 1-08-2436, Fifth Division, May 28, 2010) the Illinois Appellate Court awarded the plaintiff owner his attorneys' fees because the association failed to comply with the city of Chicago Condominium Ordinance. (Considering the underlying suit was filed in 2000, I can assume the fee award was enormous).

Although most of the readers of this column do not live in Chicago, it really does not matter with respect to some of the holdings of this decision, which could impact all condominiums (and now homeowners associations due to the new statutes disclosure requirements) in some fashion.

The court has ruled as to the following:

• Even if the local ordinance differs with state law, the ordinance was enacted by the city through its Home Rule Authority, and was not deemed to be in conflict, but rather compatible. The city ordinance has a stricter standard on production of records, and the court will uphold the stricter standard when enacted with the proper authority.

• The city ordinance states that, "No person shall fail to allow unit owners to inspect the financial books and records of the condominium association within three business days of the time written request for examination of the records is received." Neither the Condominium Act nor the state Not-For-Profit Corporation Act contains language that would render a local ordinance invalid.

• In order to limit home rule powers of a municipality, the state statute must expressly say that specifically.

• A city ordinance has the same power to compel the payment of attorneys' fees for failure to timely disclose records, as long as it is not specifically pre-empted by state statute.

• The fee-shifting portion of the ordinance, just as the state statute, is a consumer protection law, allowing plaintiffs to bring meritorious action without fear of financial loss - as well as providing financial incentive to attorneys to litigate on behalf of these types of plaintiffs who have worthwhile cases, but due to the limited nature of the controversy would not normally consider litigation as being in their client's financial best interests.

• In considering an award of attorneys' fees to the prevailing party, the court must consider such factors as the skill and standing of the attorney, the nature of the case, the novelty or difficulty of the issues involved, the importance of the matter, the degree of responsibility required, the usual and customary charges for comparable services, the benefit to the client, and whether there is a reasonable connection between the fees and the amount involved in the litigation.

• Except to the extent a declaration predates the state statute, in the event of a conflict between the provisions of the declaration and the bylaws, the declaration prevails except to the extent it is inconsistent with the act. In other words, in most instances state statute supersedes the declaration except when otherwise stated.

• For the first time, a court has set at least one standard for "proper purpose;" where it was alleged that there was corporate mismanagement. Where an owner asserts a good-faith fear of mismanagement of financial matters by the association, he has established a proper purpose.

In conclusion, some of the holdings of this decision are not new, but does remind associations, their managers and counsel, that there must be a very good reason for any owner to ever be denied access to financial records. First, Chicago is not the only city or village with its own condominium ordinance (Evanston, Oak Park, et. al.) and each must be given full consideration before any issue is conclusive. When the local standard is stricter, the stricter standard must be applied.

Second, it appears that the courts have no reluctance to make full attorneys' fees awards to aggrieved owners where they feel the statute/ordinance is violated. Unless the issue is obvious as to the maintenance of confidentiality, if in doubt, err on the side of full disclosure.

• Jordan Shifrin is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at jshifrin@ksnlaw.com. This column is not a substitute for consultation with legal counsel. Past columns can be read at www.ksnlaw.com.