In Illinois, is it legal to have property management company whose owner lives in the complex and is related to president of the board?
Good question. The zip code you gave us places you in Algonquin, Illinois, a suburb of Chicago. We thought conflicts of interest, incestuous business relationships and back-room deals weren’t just common there – they were practically mandatory!
Alas, however, it turns out that even Illinois legislators have limits. In this case, you should consult Section 18 of the Illinois Condominium Property Act, which regulates how condo associations must conduct themselves and do business.
It turns out that yes, it is possible for a condominium board of directors to enter into a contract with a vendor who is an immediate family member of one or more board members, without running afoul of the law. BUT – the board must disclose that fact to the members of the association within 20 days (Section 18 (A)16).*
From that point, if 20 percent of unit owners demand it via petition, they can put the contract up for a vote for approval or disapproval. That vote must be held within 30 days of the petition, so the total window comes out to 50 days.
Note that the statute defines a board member’s ‘family’ for the purpose of this law as a spouse, parent or child. If we’re just talking about the association president’s cousin, there’s no direct violation of this statute.
Also, if the board disclosed that it was awarding the contract to a related individual and there was no objection from the other owners, or they petitioned for a vote and then voted to approve the contract, then there’s nothing illegal about the arrangement.
However, while there is no legal conflict of interest, any good manager would be very concerned about the potential appearance of a conflict of interest. The unit owners should be vigilant about this property manager’s performance and make sure they get a good value for their investment.
*Actual text: The Board of Directors 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 notice of intent to enter the contract is given to unit owners within 20 days after a decision is made to enter into the contract and the unit owners are afforded an opportunity by filing a petition, signed by 20% of the unit owners, for an election to approve or disapprove the contract; such petition shall be filed within 20 days after such notice and such election shall be held within 30 days after filing the petition; for purposes of this subsection, a board member’s immediate family means the board member’s spouse, parents, and children.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.