Legal Tips – “Discretionary” vs. Update Amendments to Declarations: Know the Difference

From time to time, a board member or property manager may contact us stating that their association wants to update its declaration or bylaws and wondering what it would cost. Before I can answer that question, I explain that there are two (2) basic types of common amendments to an association’s declaration and bylaws, which I like to call “discretionary” and “update” amendments.

A “discretionary” amendment is a change or modification to an association’s declaration or bylaws that is not required by law, but rather is something that the community would like to see realized. An “update” amendment, on the other hand, is generally used to conform the declaration and bylaws to the current applicable law, such as the Condominium Property Act (“ILCPA”) for condos and master associations and the Common Interest Community Association Act (“CICAA”) for non-exempt common interest communities.

Discretionary amendments can cover almost any type of change, provided that such change does not conflict with the ILCPA or CICAA, other applicable law, or violate public policy. Examples of discretionary amendments include: changing the date of the annual meeting; increasing or decreasing the number of directors on the board; mandating owner-occupancy; leasing, pet or smoking restrictions; or whatever else the community finds to be in its best interest.

When it comes to discretionary amendments, procedure is the key to validity. The association must strictly follow the procedures set forth in its declaration and bylaws plus the applicable statute to ensure that the amendment is not challenged and deemed invalid by a court due to a procedural error. Some associations have bylaws that are separate from the declaration (typically as an exhibit to the declaration), which may provide for different amendment procedures than the declaration. Accordingly, amendment procedures will vary from association to association, but generally requires that the amendment: (i) be signed by the president or other authorized officer of the board; (ii) be signed by the board, which signatures sometimes must be acknowledged (i.e. notarized); (iii) be approved by a certain majority of owners either at a meeting called for the purpose of voting on the amendment or by having the requisite percentage of owners sign a signature/execution page, which owner signatures are sometimes also required to be notarized; (iv) be sent to lien holders or mortgagees; (v) include an affidavit certifying notice was sent to lien holders or mortgagees; and (vi) be recorded with the county recorder of deeds. Occasionally, the consent or approval of lien holders or mortgagees is also required. Failure to strictly comply with all of those steps can result in an unenforceable or invalid amendment, which can be very problematic.

An update amendment is different from a discretionary amendment in both purpose and procedure, the most significant being that the board alone, without any owner vote, can approve an update amendment. The scope of an update amendment is limited to only changes permitted by the applicable statute, e.g. Sections 27(b) (for condos) and 18.5(h) (for master associations) of the ILCPA and Section 1-60 of the CICAA (for nonexempt common interest communities). No “extra” (i.e. a change not permitted by statute) is allowed. The most common use of an update amendment is to “update” the declaration and bylaws to bring them into compliance with Illinois law, which can be done upon at least two-thirds approval of the board. Remember that the owners do have petition or referendum rights to reject the update amendment passed by the board. Those petition rights cannot be used to make the association follow provisions of its declaration or bylaws that are outdated and superseded by law; the association must comply with the law regardless of what its documents provide. Instead, those petition rights give owners the opportunity to stop the implementation of an amendment that exceeds the scope of an update amendment, so that an unscrupulous board cannot slip in something that should rightfully be the subject of a discretionary amendment.

In summary, the two basic types of common amendments are: (1) discretionary amendments, which are used to make changes to the declaration and bylaws for the purpose of creating the kind of community owners desire or to aid in the efficient administration of the association; and (2) update amendments, which are used to conform the declaration and bylaws to current law and help eliminate the possibility of the association inadvertently doing something wrong by following superseded provisions of its declaration and bylaws. Knowing the difference between these two types of amendments will help boards and managers understand the appropriate means of achieving the association’s objectives and what procedure needs to be followed.

Contact Altus Legal with questions on this or other issues.