Hitting The Ceiling

Case in point. We recently represented a condo board that was dealing with serious facade issues. It had signed all the contracts for a $2.5 million repair job, only to discover later that the bylaws stated there was a $1 million spending cap. The board was faced with a decision: get unit-owner approval for the extra $1.5 million, or move forward without unit-owner approval and potentially get hit with a breach of fiduciary duty claim. The board decided to call a special meeting to explain that the repairs had to be made quickly to avoid fines and correct a dangerous safety hazard, and the owners approved the additional expenses.

Essential or optional. These spending thresholds, usually found in the powers-and-duties section or the alteration section of the bylaws, were obviously put into place to prevent out-of-control spending by condo boards. Under the business judgment rule, emergency repairs, especially related to facade work, may allow boards more leeway in exceeding caps. But if there’s a $500,000 ceiling in the bylaws and you undertake a $1 million lobby renovation, you’d be more exposed in a breach of fiduciary duty suit because the urgency to conduct the work just isn’t there.

First things first. If your spending cap doesn’t reflect current costs, the board should proactively reach out to see if it can get owner approval to raise those limits by amending the bylaws. And if there’s an upcoming renovation or repair project that exceeds your cap, take the temperature of the building and see if this is something that owners will approve rather than just going out and hiring a contractor — and risking the loss of time and money.