Condominium board members would do well to consider the emerging law of personal liability of board members in the management and operation of the association. Recent trends give cause for concern as condominium law develops in Illinois.

Section 18.4 of the Condominium Property Act states that "[i]n the performance of their duties, the officers and members of the board, whether appointed by the developer or elected by the unit owners, shall exercise the care required of a fiduciary of the unit owners." For many years, there also has been recognized a common law fiduciary duty for both condominiums and other community associations.

Recently, the trend of court decisions in Illinois have indicated a tendency to actually hold condominium board members liable for a breach of this duty.

Although there have been few judgments, the law for some time has been firmly established that board members hold a fiduciary relationship to the owners. Such a relationship exists where there is a special confidence reposed in a person who is bound to act in good faith and with due regard for the interests of another person. The courts have repeatedly held that community association officers and board members owe a fiduciary duty to the members of the association and that, unless they act in a manner reasonably related to the exercise of that duty, both the association and the individual directors will be held liable.

A very recent case affirms a judgment for more than $800,000.00 against a board composed of unit owners. It would be advisable for community association board members to read and study this decision of the First District Appellate Court: LaSalle National Trust v. Board of Directors of the 1100 Lake Shore Drive Condominium, 677 N.E.2d 1378 (1997).

In the LaSalle case, the owner of a penthouse unit undertook a major renovation of the roof house and deck. She demolished the interior of the unit without seeking approval of the board and without obtaining a city permit. The demolition work resulted in a citation against the board from the City, damage to the elevator, cut-off of the alarm system, violations of several city ordinances, and damage to other units. Shortly thereafter, the unit owner submitted plans for approval of the renovation project.

The board insisted that the unit owner agree to pay for all costs associated with the renovation project, pay for damages to the board president's unit, pay a security deposit to cover future damages, pay $10,969 for the expenses incurred by the board in reviewing and approving the renovation plans, and agree to maintain, repair, and replace the roof and agree to design the roof top structure to be consistent overall, and have a full time, on-site representative present during construction.

In LaSalle, the court found the board to be guilty of constructive fraud: "Constructive fraud does not require actual dishonesty or intent to deceive. 'In a fiduciary relationship, where there is a breach of a legal or equitable duty, a presumption of fraud arises.'" The board breached its duty to the unit by its "extreme lack of cooperation" with respect to the renovation project: "[The unit owner] placed her confidence in the Board, which, by statute, owed her a fiduciary duty. In return, according to the trial court's findings, the Board virtually held her penthouse for ransom. This Board did not 'act in good faith with due regard to the interests of the other.' " [677 NE.2d at 1377]

Board members can shield themselves from liability by exercising business judgment in the conduct of the affairs of the corporation. That means that the board is obligated to use ordinary care in operating the association in the same manner as a reasonably prudent person would do under the same or similar circumstances, and that the board must make reasonably informed decisions in good faith. When making decisions while governing the association, the board members must act prudently, carefully consider all of the facts and circumstances, obtain the advice of legal counsel, and the aid and assistance of other appropriate professionals, and act strictly within the scope of their authority and in compliance with the association's declaration, bylaws, and applicable law. In addition, the board members may not indulge in any self-dealing or act in irrational ways or with improper motives unrelated to the proper purpose of the association.

The courts will protect the association and its board members when they operate reasonably and in good faith. Where the board members overstep these boundaries, however, the courts have expressed a willingness to enforce harsh damage awards.

Association boards do not have an easy task. Operating an association can be difficult and time-consuming and the homeowners who volunteer their valuable time often receive little gratitude from the unit owners for their efforts. Disputes often arise where the interests of an individual unit owner and those of the unit owners as a whole might clash. Yet the board owes a duty both to the association itself and all of its unit owners. It is often impossible to sort out where that duty lies or how to balance the competing interests, rights, and obligations. In the end, the board must exercise the utmost good faith and make every effort to maintain a proper perspective.