June 2014 • Volume 102 • Number 6 • Page 266
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Condo unit owners can’t withhold payment
Condo unit owners may not withhold assessments even if the condo association fails to make repairs and perform maintenance, a divided Illinois Supreme Court rules.
The owner of a condo unit may not withhold monthly assessments and other expenses in response to an alleged failure by her condominium association to maintain common elements and make repairs, a divided Illinois Supreme Court ruled recently.
In a four to three decision, the majority of the justices rejected a theory that condo unit owners should have the same rights as tenants in a leasehold agreement. The issue arose when a Lake County resident/owner of the Spanish Court Two Condominium Association, who had failed to pay her fees for six months, tried to defend herself against the association's attempt to take possession of her unit. She argued that a leaky roof just above her unit had caused extensive water damage, her faulty toilet was not repaired, and that general upkeep of the common areas of the building was not maintained, and thus she was entitled to withhold payment.
Not a purely contractual relationship
An appellate court panel in 2012 ruled in the condo owner's favor, which evoked a strong reaction from associations and management companies. "Everyone was up in arms," said Chicago real estate attorney William Anaya of Arnstein & Lehr, LLP, who represents such groups. "If there was a right to nullify [i.e., defend against an association's attempt to take ownership for unpaid assessments by arguing that the association did not meet its end of the bargain], your assessments would double." Although many condo owners did not know about the appellate court ruling, some condo lawyers said they saw a slight uptick in unit owners using a similar defense to forcible entry and detainer actions, Anaya said.
The Illinois Condominium Act and associations' individual bylaws require unit owners to pay monthly assessments, special assessments, and fees and authorize associations to take action to possess the unit of the defaulting owner. Also, the Illinois forcible entry statute, 735 ILCS 5/9-106, allows an association (or a landlord) to take possession of a unit if its owner has fallen behind on payments.
The majority of the justices in the 4-3 ruling said a landlord/tenant scenario is contractual and distinguishable from a community living situation. Condo boards and associations could face serious financial difficulties if they had no recourse to collect unpaid assessments, the court observed.
"The Condominium Act establishes that: 'It shall be the duty of each owner *** to pay his proportionate share of the common expenses,'" Justice Theis noted in an opinion that Justices Garman, Thomas, and Karmeier joined. For its part, associations, through their boards of managers, must provide for the operation, care, upkeep, maintenance, replacement, and improvement of the common elements, Theis observed.
These duties and obligations, while they exist in condo declarations and association bylaws, are also imposed by statute, she noted. "Accordingly, a unit owner's obligation to pay assessments is not akin to a tenant's purely contractual obligation to pay rent, which may be excused or nullified because the other party failed to perform."
That is not to say that a condo unit owner may not take other action against her association, for example, by seeking a declaratory injunction, explained Chicago condominium attorney Howard Dakoff of Levenfeld Pearlstein, LLC. "An owner may still file a breach of fiduciary duty claim against the board of directors, seeking damages and a mandatory injunction," he said.
The owner may not, however, file a counterclaim or nullification action in response to a forcible entry and detainer action by the association seeking possession of the unit for unpaid assessments.
Dissent: an 'expensive and time-consuming burden' for unit owners
Part of the controversy that gave rise to this decision has to do with language in the forcible entry and detainer statute, which says: "No matters not germane to the distinctive purpose of the proceeding shall be introduced by joinder, counterclaim or otherwise."
The General Assembly did not define "germane" and the majority said it was not going to apply it in this case. The dissenting justices took the opposite position, arguing that because the legislation is vague on the concept of germaneness, the court could find that the unit owner's defense in this case was germane. The dissent also added that the matter must then be left to the legislature to clarify the statute.
"It is true that the form of condominium ownership only works if each unit owner faithfully pays his or her share of the common expenses," Justice Freeman, writing for himself and Justices Kilbride and Burke, said in dissent. "It is equally true that condominium ownership only works if the association likewise fulfills its obligations.
"Not permitting a unit owner to raise a nullification defense in a forcible action denies a voice to an ever growing segment of the population who purchase condominium property," the dissenters continued. "True, unit owners can continue to pay assessments and bring a lawsuit against the association for its failure to repair or maintain; however, that puts an expensive and time-consuming burden on the unit owner rather than litigating the matter in the forcible proceeding that is already before the court, as is done in a landlord-tenant situation."
The dissenting justices also noted that Illinois is the only state in the country that allows for forcible entry and detainer for unpaid assessments. In Illinois, an action for possession of a unit can occur within 180 days if a unit owner is in default.
Nevertheless, the majority "made a statement of public policy that is right," said Anaya. "Whenever the General Assembly uses a funny word like 'germane' we don't know what it means. What the court said is the General Assembly could put more definitiveness [into the language of the statute] if it wants to."