Associations Tend to Forget about Their 'Legal Checkup'

Article excerpt

Most associations have a relationship with a law firm, but many boards of directors fail to use their lawyers for one of the most important services they offer: legal risk management.

When was the last time your board had a "legal checkup"? It may cost a little more than what Lucy typically charges the Peanuts gang, but the dollar value of the cost saving it can provide could be in the thousands. There is also the peace of mind that such a checkup provides. The board should consider areas in which it may feel vulnerable and review them with legal counsel.

Further review may also include an insurance professional.

Your attorney should be familiar with all of the association's legal documents, including the Declaration, By-laws and rules and regulations.

Next, the board should compile a list of potential problem areas for the attorney and then convene a meeting to discuss proactive policies. The attorney should also have a list of areas that he sees may pose a liability risk for the association.

Therefore, new policies can be put in place either by revising and updating the rules, amending the Declaration or convening an owners meeting.

The typical areas where an association needs to analyze potential problems are:

Updated legal documents. Is the Declaration consistent with Illinois law?

Statutory changes and case law may create confusion among owners in such areas as special assessments, unit owner responsibility for maintenance, etc.

Do the documents need an entire "facelift" or is an amendment or a legal opinion all that is necessary? The same holds true for rules. Since the board generally adopts the rules after owner input, the rules can be updated as often as necessary, but certainly no less than every other year.

Are the rules enforced uniformly and are they non- discriminatory? Legal decisions are frequently handed down by reviewing courts and the legislature adopts new law integrating or striking down certain association policies.

Laypeople are generally not informed of these developments, so they rely upon their original documents. A periodic review of new laws in the form of a newsletter can, at the very least, keep owners informed.

Financial procedures. Is there a system of checks and balances in place?

This system is needed regardless of whether the association uses professional management. Are there regular financial reports available to the board and to owners (on request)? Are these reports concise, readable and performed in accordance with generally accepted accounting principles? Is more than one signature required on checks and withdrawals? This is a primary area where associations can get into trouble.

Insurance coverage. What is covered and what is not? Each board should obtain a copy of its master policy and review it in order to see what is excluded.

If the building is going to undergo major repairs that would result in unit owners being relocated, will insurance cover these costs? Are floods, broken water heaters and the on-site janitor's car covered? These are issues that boards need to be aware of to avoid unnecessary disputes.

Rule enforcement. Is a rule violator afforded due process? …