Board Levies Special Assessment to Sue Potential Tenant

The New York Times Ask Real Estate column (available here) outlines a potentially frightening financial issue that could also face Chicago condo owners. The resident writing in presents a scenario where his association’s board has voted to file a lawsuit to stop a restaurant from occupying their first floor retail space. The board will than assess every owner, regardless of their position on the potential tenant, to pay for legal fees. The columnist cited a similar lawsuit in 2013 against a Denny’s who attempted to occupy a downtown condo building. The case was settled and Denny’s moved in.

The important issue at hand is how much power the board has to impose their will. Rewriting bylaws to stop this sort of action is possible, but not without risk. Board members should entrust a skilled lawyer to handle the process and as well as ensure the Directors and Officers insurance covering the board is appropriate. Individual board members can be personally sued by other owners over an allegation they breached their fiduciary duty.

Not all condo Directors and Officers (D&O) policies are the same. Many low priced “packaged” coverages are included for minimal cost and would not cover this type of allegation. A small building can purchase strong D&O coverage for a $600-750 while larger buildings can run $2,000-$5,000. Once a claim has been filed, the future premiums can skyrocket.

Prevention is always the best strategy. Is is recommended that a seasoned condo attorney is involved in any bylaw changes and their advice is followed closely. Any remember, things are not always as bad as they seem. An eater review of the downtown Denny’s that faced a $10M lawsuit from the condo building where they were attempting to rent space has a surprisingly  good review – “…the two meals I had at Denny’s were not as bad as I’d feared…” and “…a relative bargain”.

Contact today to discuss better protecting your association from the costs of operating in a litigious society.