May 2015 • Volume 103 • Number 5 • Page 24
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Real Estate Law
Buyer Beware: Advising Condominium Owners in Illinois
Condominium owners are easier to evict than homeowners who fall behind on mortgage payments - and they can't withhold payment when condo boards fail to keep up common areas, as tenants can with landlords. This article offers pointers for representing condo owners and prospective purchasers and looks at the Illinois Supreme Court's recent Spanish Court ruling.
Over the last several decades, the concept of condominium living has become increasingly popular in Illinois.1 Condominium ownership often allows for access to shared spaces and amenities that would not be available to the purchaser of a more traditional single-family home.
For many prospective buyers, it seems to represent the most cost-efficient way to achieve their dream of home ownership.2 But while the notion of sharing the financial burden of property maintenance with neighbors seems like a panacea to some, this system is often not fully considered by buyers before the closing takes place and the champagne is uncorked.
This article examines relevant portions of the Illinois Condominium Property Act ("Condominium Act" or "Act"),3 especially those that relate to assessments paid by unit owners. It then analyzes a recent Illinois Supreme Court decision limiting the ability of condo unit owners to withhold assessments when the association is not properly maintaining the common elements of the building. Finally, it gives practical advice to lawyers representing condominium owners and prospective purchasers. (For an update on proposed changes to the Condiminium Act, see LawPulse at page 10.)
A creature of statute: The Illinois Condominium Property Act
In January of 1963, the Illinois legislature created the Act and set in motion a wave of condominium conversions across Illinois.4 Over the next several decades, real estate markets throughout the state, and particularly in Chicago, experienced surges of condominium conversions and new construction.5
Responsibilities of the board and owners. The owner of an existing building or the developer of a new one can have the property treated as a condominium by recording a declaration of intent to submit the listed real estate to the auspices of the Act.6 After that, an elected board composed of unit owners manages the property. The board is in turn governed by a written and recorded declaration and accompanying by-laws, which must be consistent with the Act.7
Importantly, the declaration must contain a description of both the common and limited common elements.8 These descriptions determine whether the duty to maintain or repair particular areas of the property is the responsibility of the board or unit owners. A clear understanding of the way these elements are delineated in the declaration is key to determining an owner's potential liability for his or her own unit and for the common areas of the property.
Section 18.4 of the Condominium Act spells out the rights and responsibilities of the condominium's elected board of managers. This section enables the board to exercise all of the powers enumerated in the Act, along with the association's declaration and bylaws.
Regular and special assessments. One of the board's primary duties is the collection of monetary assessments from the individual unit owners. There are generally two types of assessments levied by the board against individual owners.
The first is the regular assessment, best characterized as a monthly payment made for the day-to-day upkeep of the property's common elements. This amount generally remains steady from month to month, although there can be annual increases depending on the needs of the association.
The other type is the special assessment, often imposed when the property needs major repairs or replacements. The frequency and amount can vary widely depending on the expense of the work as determined by the board.
Some repairs are classified as emergencies - e.g., immediate threats to health or safety, or violations of a law or ordinance.9 In an emergency, the board can act with unfettered discretion to get the work done and levy the assessment against the unit owners.
Individual unit owners need to know how these costs are calculated and what their financial obligations will be on an annual basis. The regular assessment is usually a fixed cost that owners can adequately plan for. Special assessments are often less predictable and can wreak havoc on owners who have not prepared for them.
Spanish Court: Condo owner's duty to pay not contingent on board's performance
What happens when an owner cannot or will not make assessment payments to the association? A recent Illinois Supreme Court cases provides some answers.
Facts and trial court ruling. In February of 2010, Spanish Court Two Condominium Association (Spanish Court) filed a complaint under the Forcible Entry and Detainer Act (FEDA) against Lisa Carlson, the owner of a unit in the condominium building.10 Spanish Court alleged that Carlson failed to pay her monthly assessments for the preceding six months and sought a money judgment and possession of her unit.
Carlson filed an answer admitting that she had not paid the assessments. She denied that she owed the amounts claimed, however, arguing that the association had failed to properly maintain the roof and that her unit was damaged as a result. Carlson also filed affirmative defenses and a counterclaim based on these allegations and asserted that the association should be estopped from collecting monthly assessments from her.
Spanish Court brought a motion to strike the affirmative defenses and sever the counterclaim, arguing that they were not "germane" to the forcible entry and detainer proceeding.11 The trial court agreed and entered an order striking the defenses and severing the counterclaim.
The parties then submitted an agreed order awarding possession of the unit to Spanish Court and allowing money damages for unpaid monthly assessments. The trial court went on to conduct a bench trial on the issues of unpaid special assessments, late charges, attorneys' fees, and costs. The court eventually entered a final order awarding Spanish Court possession and a money judgment for all sums due through April of 2011.
Appellate court rules for condo owner. Carlson appealed these decisions to the second district appellate court. The second district vacated the judgment of the trial court and remanded the case for partial reinstatement of the affirmative defenses, holding that a unit owner may claim, as a defense to a forcible action, that her duty to pay assessments was nullified by the failure of the association to properly maintain the common elements.
The appellate court's reasoning was that if a tenant could raise a landlord's failure to maintain the premises as a defense in a forcible case, then a condominium unit owner should be able to do the same. The second district viewed the obligation to pay assessments and the duty to repair and maintain the common elements as mutually exchanged promises, concluding that a material breach of the duty to repair could warrant nonpayment of assessments. Spanish Court then appealed that decision to the Illinois Supreme Court.
Supreme court: owners are not tenants. The supreme court framed the issue before it as whether an association's alleged failure to repair or maintain the common elements of the property can be raised as an affirmative defense to a forcible action brought against a unit owner for unpaid assessments. The court stated that review of the FEDA and the appropriate provisions of the Condominium Act would be necessary to resolve the issue.
The majority made the point that the landlord-tenant relationship is contractual, while the relationship between the unit owner and the board is created by statute, primarily the Condominium Act. With this in mind, the court distinguished the contractual obligation of a tenant to pay rent, which may be excused when a landlord fails to maintain the property, with the duty of a unit owner to pay assessments, which is not abrogated even when the association fails to perform its duties.
The court underlined this difference by pointing out that when a landlord successfully brings a forcible action against a tenant, the landlord-tenant relationship is terminated and there is no ongoing obligation between the parties. Conversely, even when a unit owner loses possession of their unit, they do not cease to be an owner and their monetary obligation to the association continues.
The court thus determined that a unit owner's obligation to pay assessments is not in any way contingent on the association's performance of its duties to repair and maintain the common elements. Accordingly, it cannot be raised by a unit owner as a defense to a forcible action because it is not germane to that proceeding. The court went on to emphasize the necessity of allowing associations a quick and efficient method of collecting assessments and stressed the perceived dangers if unit owners were allowed to base payment of their assessments on performance by the association.
Scant options for owners. This case highlights key differences between a traditional tenancy and condominium ownership. It also underscores the power of the board to collect assessments and the scant options a unit owner has if his or her payments are unaffordable or the association fails to repair or maintain common elements.
The decision also demonstrates how the condominium owner is in a unique position with regard to other types of property owners or occupants. The owner of a traditional single family home is not subject to the same type of summary eviction action based on non-payment that a unit owner is under the Act. Homeowners enjoy substantially more procedural safeguards to maintain possession of their homes when they fall behind on mortgage payments than condominium unit owners do when facing dispossession for failing to pay assessments.12
In this way, unit owners are treated more like tenants, who lack ownership rights and are subject to a relatively speedy eviction process under the FEDA. However, as the Spanish Court majority makes clear, unit owners are not in the position of tenants when it comes to their ongoing financial liability to the association. In cases where they are displaced by court order, unit owners are not relieved of their responsibility to make continuing regular and special assessment payments. These obligations will continue to accrue as long as the owner is still part of the condominium development.
Advising and representing potential or current condominium owners
So what should you do when you are approached by prospective condo purchasers or current unit owners who find themselves facing difficulties with their boards? Here are points to consider.
Know your rights under the Condominium Act. It is important to note that the Condominium Act does provide owners with a number of protections and the board cannot run roughshod over these safeguards or take action outside the scope of what they are authorized to do under the Act.13 However, exercising the enumerated rights or trying to curtail the actions of a board that oversteps its bounds or fails to carry out its duties can be difficult and expensive. A unit owner may not have the time, resources, or basic knowledge to ensure that they are being treated fairly by the board of managers.
As an attorney advising a condo owner or prospective purchaser, you must explain these rights. They include such things as the ability to force the board to provide an accounting of all association funds or initiating owner votes on certain types of assessments.
You must also warn of any practical obstacles to actually accomplishing these things. Unit owners often have full-time jobs and families that would make it difficult to participate in the types of activities that the Act allows. An experienced lawyer can be extremely useful in helping owners to understand the structure of the Condominium Act and assisting them in taking action as necessary.
Investigate before buying. Another thing attorneys should advise clients to do - especially prospective purchasers - is make sure the building has been properly maintained. This includes finding out whether the association has ample money in its reserve accounts and whether major repairs or renovations are on the horizon. The seller of a condominium unit has a duty to disclose this type of information to potential buyers, and it is essential that both sides of the transaction understand what their responsibilities are and how to properly interpret this data.
Those planning to buy a condominium should fully investigate the age and condition of the building and examine the results of any recent inspections. The Condominium Act does not mandate any specific level of reserve funds that must be maintained, so the board is largely free to use its discretion when planning for future work on the property.14 Cash reserves should be adequate to handle a potentially large emergency repair or replacement. Boards often fail to make allowance for such contingencies, which can lead to sizable special assessments.
Know the board. The client should also ask about the nature and composition of condominium boards. While the board members may have good intentions, they can be compromised by their hectic personal schedules and lack of business or management acumen. These board members may not have experience allocating and accounting for large sums of money, and that could undermine their effectiveness.
Understand the community nature of condo life. Lawyers should also advise clients about the interpersonal aspect of condominium living. This will underscore the importance of dealing with their fellow condominium dwellers in a calm, even-keeled manner that keeps disputes from escalating.
Litigating on behalf of unit owners. Should litigation be necessary, an attorney can help owners assert their rights. Examples include filing an injunction to block a board that violates the Act or forcing the board to provide documents for an accounting of funds under its control.15 Doing so empowers a unit owner to hold the board accountable and prevent improper financial liability that could lead to loss of their unit.
An attorney can also defend against an eviction action brought by the board, keeping in mind the limitations imposed by the Spanish Court decision. The lawyer should be aware that there is essentially no way to avoid liability for unpaid assessments and reasonable attorney's fees, even if the association has failed to properly maintain the premises. One approach is to consider the filing of a separate action that raises these issues and seeks a set-off against the amount owed.
It will be crucial to understand the limitations in defending these cases, and to let your clients know that the board can almost certainly take possession of their unit if they have not paid their assessments. The lawyer who acknowledges the power of a condominium board to collect these fees may focus more on settlement options, such as a payment plan that will allow clients to stay in the unit while paying a reduced amount.
This article is not intended to dissuade people from buying a condo unit. It simply seeks to ensure that owners and prospective buyers understand how a condominium association functions and the powers it can exert over its members.
This type of ownership has many attractive aspects, but it can be fraught with financial peril for the unsophisticated purchaser. An attorney with a good fundamental grasp of the Condominium Act and the recent decisions interpreting it can offer sound counsel to clients facing any type of situation involving a condominium board.
Damon Ritenhouse <email@example.com> is an attorney at EV Has, LLC in Chicago, where he specializes in residential foreclosure and eviction defense.
- Kathryn B. Richards, The Illinois Condominium Property Act: An Analysis of Legislative Efforts to Improve Tenants' Rights in the Condominium Conversion Process, 57 DePaul L. Rev. 829 (2008).
- Id. at 835.
- 765 ILCS 605/1.
- Richards, supra note 1.
- Id. at 833.
- 765 ILCS 605/3.
- Id. § 605/4; id. § 605/18; id. § 605/2.1.
- Id. § 605/4(g).
- Id. § 605/18(a)(8)(iv).
- Spanish Court Two Condominium Ass'n v. Carlson, 2014 IL 115342, ¶ 3.
- Id. ¶ 5.
- See, e.g., 735 ILCS 5/15-1502.5; id. § 5/15-1504.5.
- See Goldberg v. Astor Plaza Condominium Ass'n, 2012 IL App (1st) 110620.
- See 765 ILCS 605/9(c)(3).
- See Palm v. 2800 Lake Shore Drive Condominium Ass'n, 2014 IL App (1st) 111290.