Wolinsky v. Kadison

Brief Fact Summary. A condominium unit holder attempted to purchase another unit but the condominium board exercised its right of first refusal and so prevented the sale.

Synopsis of Rule of Law. A condominium association’s officers and board members must exercise its right of first refusal in a reasonable manner. They also owe a fiduciary duty to members of the association, so they must act in a manner reasonably related to that duty, and failure to do so will result in liability for the association as well as individual members.

Facts. Debra Wae Wolinsky (Plaintiff) is an unmarried woman with children. She owned a unit in a condominium and contracted to purchase another unit in the building. The board of directors of the condominium; (Defendants) notified her that it was exercising its right of first refusal with regards to the unit, and so the contract for sale was terminated. The association’s bylaws state that when exercising the right of first refusal, the board must first obtain a two-thirds affirmative vote of the ownership of the common elements. Chicago’s condominium ordinance states that “no person shall be denied the right to purchase or lease a unit because of race, religion, sex, sexual preference, marital status or national origin.” Municipal Code of Chicago 1978, ch. 100.2, par. 100.2-4. Plaintiff alleges that the board exercised an unreasonable restraint on alienation, which was in violation of the bylaws and a breach of fiduciary duty and violated the anti-discrimination section of the Chicag
o condominium ordinance.

Issue. When exercising the right of first refusal, must a condominium board act in a way that is reasonably related to the association’s interests?

Held. Yes.
A board must exercise its right of first refusal reasonably upon consideration of the purchaser’s application in light of the economic and social reasons, which justify the right of refusal. There is an implication that this right of first refusal must be exercised reasonably. The test for reasonableness has two parts: whether the exercise of the right is rationally related to the protection, preservation or proper operation of the property and whether the power was exercised in a fair and nondiscriminatory manner.
Condominium association officers and board members become fiduciaries to the members of the association when they take office. A fiduciary is bound to act in good faith with regard to the interests of the other and must act in a manner reasonably related to the exercise of that duty. Failure to do so will result in liability for the association and the individuals. There is a duty to strictly comply with the condominium declaration and bylaws.
Discrimination based on sex or marital status is explicitly prohibited by the city’s ordinance.

Discussion. The exercise of the right of first refusal by a condominium board must be done reasonably. Otherwise it would be an unreasonable restraint on alienation and would also be a breach of the fiduciary relationship between the board and the association members.