Is a condominium - or any type of common interest community - actually a democracy? Do shareholders have unfettered access to the documents and information boards use to make decisions? Can they demand to see those documents? The answer is not a simple yes or no.
What Does the Law Say?
When it comes to non-board residents accessing documents, “Generally, and upon reasonable notice, records are available for inspection and copying, but limited to typical things,” says Michael Kim, an attorney specializing in community law with Chicago-based law firm Schoenfeld Finkel Beederman Bell Glazer. Documents easily obtainable by association members not serving on the board include things like a roster of members of the association, and the minutes of meetings.
But then, what about other kinds of documents, like vendor bids for major capital projects or, for argument's sake, commitments for financing - perhaps for common area improvements in a condominium, or an underlying permanent mortgage for a co-op property? Are condominium members entitled to see those?
“For condos, which are typically not-for-profit corporations, Section 19 [of the Illinois Condominium Property Act] talks about rights to books and records,” explains Kim. “In Chicago specifically, there is an ordinance relative to books and records under state home rule, which overrides state law. One may also look at the governing documents for an individual property. Those documents may add or subtract something. There may be a books-and-records entitlement there.”
Alternatively, Kim continues, “If there is a contract between the condominium entity and a vendor, that contract is eligible for unit owner inspections and copying, but that does not include bids. In some situations, these contracts are confidential by caveat; vendors don’t want competitors to see their bids. Contracts are final, but bids are not. Notes on the evaluation of bids are not included either. The treatment of financing arrangements solicited by board is similar. With respect to a signed loan agreement binding on the entit, the loan docs are eligible for viewing and inspection. But competing proposals are not. An unsigned commitment is not a commitment - therefore, it’s not eligible.”
What About Malfeasance?
Given the restrictions on access to information, what should a condominium member do if they suspect there may have been malfeasance on the part of the board, a board member or management? How can they access documents that might indicate, or even prove, that in fact their suspicions are correct?
Kim says that situations where there may be a perception of malfeasance or other questionable behavior are potentially challenging. He explains that courts have ruled that owners have rights ‘for proper purpose.’ Proper purpose is legalese for having a good faith fear of mismanagement. As long as there is good faith fear (as opposed to a personal agenda, general nosiness, or spite, for example), that is sufficient to sustain proper purpose for obtaining books and records. If there is a suspicion that kickbacks were or are being given for some reason, the question then becomes if ultimately the transaction was reasonable. Is the resulting pricing in line with what the market bears? Is it still fair to the corporation despite the kickback?
“Typically,” Kim continues, “an aggrieved owner will file a court action seeking the records etc., compelling the condominium to produce the records. There have been appellate court decisions siding with the owner’s right to know. There are some boundaries though. The petitioner will not get attorney board communications. Those are protected. Also, if the condominium withholds wrongly, they may have to pay the owner’s attorney fees.”
In short, condominium owners should review both the state and local statutes that govern their associations and the association’s governing documents as well to fully understand their rights to receive and review various types of documents.