From Mark R. Rosenbaum
An opinion of the First District Appellate Court in the case of Siena at Old Orchard Condo Assn v. Siena at Old Orchard, LLC, 2017 Il App (1st) 151846 was handed down on March 24, 2017. The First District governs Cook County, so this case will now be precedent for all of Cook County.
Although there were a number of issues addressed by the Appellate Court in its opinion, there are two interesting ones. One has to do with the interpretation of Section 27 of the Condo Act, governing amendment procedures. The second issue is the procedure for officers to sign documents which bind the assn.
A. On the Section 27 side, two issues were decided: 1. That a provision in a declaration that requires non-owners, like developers, to consent to any amendment affecting them in order for the amendment to be valid is itself invalid, and 2. Section 27 allows a declaration to be amended by a simple majority of unit owner votes (by percentage interest) if the declaration so allows.
1. In the case, the developer had added an Article to the declaration that established a complicated procedure (notice, mediation, arbitration) before the developer could be sued over construction issues. The Article had a provision that stated: “Without the express prior written consent of Declarant, this Article may not be amended for a period of twenty years from the effective date of this Declaration.”
The Assn went ahead and amended the declaration anyway, without the developer’s consent, to delete that provision. The Declarant (developer) argued that amendment was invalid as it (the developer) had never consented to it.
On appeal, the Court said the action of the Assn in amending the declaration to delete the provision was valid. It held that Section 27 requires that only unit owners vote on amendments, and that the additional requirement of getting the developer’s consent was therefore in violation of Section 27. It is to be noted that the developer was not a unit owner when the amendment was adopted. I do not know how this decision would affect a situation where the developer is still a unit owner.
Many declarations contain provisions left behind by the developer which require developer consent to change the declaration in a way that affects the developer (adversely or not). This ruling now invalidates all such provisions.
But note that Section 27 expressly states that if the declaration requires a mortgagee or other lienholder (non-owners) to consent to an amendment, that consent must be obtained. Such mortgagee-related provisions are still valid.
2. Section 27 reads, in part, the declarations and bylaws may only be amended: “upon the affirmative vote of 2/3rds of those voting or upon the majority specified by the (declaration and bylaws), provided that in no event shall the (declaration and bylaws) require more than a three-quarters vote of unit owners;”.
What the court said, in non-binding dicta, is that this language allows for a declaration (or bylaws) to only require a 60% or 55% or 50.01% vote of the owners to amend. And if the declaration (or bylaws) so states, it controls over the 2/3rds requirement. The 3/4ths language only means that the documents cannot require higher than that percentage. Section 27 says nothing about a lower majority vote. So the 2/3rds vote only applies if the declaration does not specify a percentage vote for the unit owners to amend.
Frankly, I think most condo attys have assumed that the language did not allow a declaration to lower the amendment percentage. I suspect there will be a move to amend Section 27 to make it say something like “or upon any greater majority specified in the declaration or bylaws, provided that in no event shall the declaration and bylaws require more than a three-quarters vote of unit owners.” But there may be a window of opportunity here for assns. to amend their documents to lower the unit owner vote needed to amend.
B. A different issue in the case revolved around a document, signed by only the president of the assn, that released the developer from construction–related liability to the Assn. The release was not attested to by another officer, nor was it notarized. The Assn argued the release had not been authorized by the Bd (true), and the president had no authority to sign the release, so it wasn’t valid.
The court found that the declaration allowed the Bd to name any officer to sign a document, but that if it did not name a particular person, then the president could sign, provided the signature was attested by the secretary of the assn. There might have been an argument about the party relying on the release being entitled to rely on the signature of the president alone, if it didn’t know about the attestation language. But there the party relying on the release was the developer, which had drafted the declaration. So it had “knowledge” of the attestation requirement. The release was found invalid.
The effect of this ruling can cut both ways, depending on the situation. An assn should look at its documents carefully to see if there are specific provisions about which person(s) has/have to sign a document in order for it to be binding on the assn. Of course, if the Bd authorizes the action and the Bd authorizes a particular person (or persons) to sign, that should end the matter.