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During the previous Illinois General Assembly legislative session, Representative Drury introduced House Bill 3755, which would have amended the Condominium Property Act (the “Act”) to allow a unit owner to recover attorneys’ fees and costs from his or her association if he or she prevailed in any litigation or arbitration proceeding, regardless of whether that unit owner was the plaintiff or defendant in such proceeding.  Despite strong opposition, House Bill 3755 did pass out of the House and into the Senate, but did not go further.  The support that bill received, and its relative success in moving out of the House, seems to indicate that we have not heard the last about fee-shifting in favor of unit owners.

I think it is fair to say that those who have been involved in the community association industry over the last several years are well aware of growing advocacy for individual unit owner rights in the face of alleged or perceived oppressive boards.  High profile cases such as Palm v. 2800 Lake Shore Drive Condominium Association only adds fuel to that fire.  One thing that I have heard repeatedly is that individual unit owners have little to no recourse against abusive or oppressive boards.  Specifically, the expense of litigation against an association is cost prohibitive for individual unit owners; and thus, unit owners are at the mercy of capricious boards.  One solution that has been bandied about is allowing unit owners the ability to recover attorneys’ fees.  Ergo, House Bill 3755 was introduced.

For context, readers should be aware that the “American Rule”, in contrast to the “English Rule” or “European Rule”, is the default rule in the United States.  Under the English Rule, the wining party in a litigation proceeding can shift its expenses to the losing party; in other words, the loser pays the winner’s fees and costs.  Under the American Rule, which was adopted early in the American colonies, each party pays their own fees and costs, regardless of who wins in the litigation proceeding.  Generally, the American Rule applies unless fee-shifting is permitted pursuant to an agreement between the disputing parties (i.e. a contract) or pursuant to statute.

Typically, condominium declarations (which are deemed contracts) do not provide for unit owners to recover legal expenses in disputes with the association.  Except for in very limited circumstances, the Act does not permit unit owner to recover legal expenses.  However, declarations and the Act do provide associations the ability to recover legal expenses from unit owners in successful enforcement actions.  Accordingly, the current situation generally favors the associations.

This fee-shifting issue has proved to be divisive, with emphatic voices on both sides decrying the other.

On one hand, at a fundamental level, there is a question about equal access to legal services and representation.  On the other, there is a concern about chilling volunteerism in associations.  And at the core of it all, is the functionality of a community comprised of disparate interests and backgrounds.  After all, a condominium is a person’s home, and as the adage goes, a person’s home is their castle, but in the case of a condominium, a shared castle.

Proponents argue that fee-shifting in favor of unit owners will “level the playing field” and actually reduce litigation.  They argue that, as mentioned above, unit owners do not have recourse against abusive or oppressive boards.  The prospect of a paying legal expenses if they lose will incentivize boards to act lawfully and discourage frivolous or abusive actions against innocent unit owners.  Often proponents point to the facts of the Palm case or the Spanish Court Two Condominium Association v. Carlson case as examples of bad acting boards that fee-shifting would address.

Opponents argue that fee-shifting in favor of unit owners will only serve to increase litigation, because it will incentivize unit owners and unscrupulous plaintiffs’ attorneys to file lawsuits against associations.  It will likely result in higher assessments for all owners because budgets will account for increased legal services and insurance premiums are likely to increase with the rise of litigation.  Also, it will likely further discourage owners to volunteer their time and energy to serve on the board if there is a high risk of being sued, which would only compound an already difficult task of finding qualified owners to serve on their boards.

There are legitimate points raised on both sides of the issue, and there are many questions left to explore.  Would fee-shifting in favor of unit owners discourage or encourage settlement?  Should unit owners have to show that individual board members acted maliciously or were grossly negligent to be entitled to recover fees and costs? Should individual board members be personally liable for fees and costs, and prohibited from looking to the association for indemnification, if they acted maliciously or were grossly negligent?  Should fines be treated differently than assessments?  Should collection actions be excluded from fee-shifting in favor of unit owners?  Should mandatory arbitration be imposed for non-collection disputes?  Should mandatory mediation be imposed for non-collection disputes as a condition precedent to any lawsuit or arbitration?  Do other jurisdictions permit unit owners to recover legal expenses?  How has fee-shifting worked in other jurisdictions?  Does fee-shifting reduce or encourage litigation?

So, should the Act allow unit owners the ability to recover attorneys’ fees?  I do not have the answer.  But, if both sides are unwilling to discuss the legitimate concerns of the other side, and insist only on their own respective solution, then I am presently left wondering whether there is a win/win solution to the issue.  Since, at the end of the day, we are talking about people’s homes and the communities in which they live, I hope we can find a positive solution that encourages and ensures the proper operation and administration of a condominium while giving individual unit owners assurance that the space enclosed and bounded by the horizontal and vertical planes shown on the plat is, in fact, their castle.

Kristofer D. Kasten, Associate Attorney, Michael C. Kim & Associates

 

While being named as a defendant in a lawsuit is never ideal, community associations have a number of defense tactics available to prepare for the possibility of litigation.  These defense measures may enable an association to avoid costly litigation and defer additional liability when faced with an action filed by an owner or resident in the association.  The following is a general overview of the actions that should be taken when a lawsuit is filed, or when an association, through its board members or management, receives a threat or notice of a claim that may result in litigation.

Ensure Proper Insurance Coverage

One of the best ways that an association can prepare itself to defend against litigation and future claims is to obtain, and continue to carry, proper insurance coverage.  Community associations should consult with an insurance agent who specializes in coverage for community associations when determining which policies to select.  The policy should be reviewed annually to confirm that the association has adequate amounts of coverage.

Notification of Claim: Insurance Carrier(s) and Attorney

Depending on the nature of the claim that is asserted, the association may have an insurance policy available to fund a defense of the litigation and to cover a potential judgment.  While it may be difficult to determine whether insurance coverage will be available when a claim is first threatened or filed, an association should always err on the side of caution, and timely communicate the threat of litigation to its insurance carrier(s).  Many associations often contact their insurance providers simply to put the provider on notice that they have received a communication which contains a threat of a claim, prior to the filing of actual litigation.  It is important to note that many insurance companies have very strict terms as to when the insurance company must be notified about a claim or even a potential claim.  Under many policies, associations are required to provide “reasonable” notice to their insurance provider to obtain coverage under the policy.  As a result, notifying the insurance company at the outset will aid in ensuring that the association is complying with the insurer’s reporting requirements, even if a claim is not immediately opened.

Contemporaneous with notifying the insurance company, management and/or the board of directors should also contact the association’s legal counsel upon receipt of the threat of a claim or notice of a lawsuit.  Counsel may provide specific direction to the association regarding certain steps that may be taken to preserve evidence or to minimize potential liability.

Determining if Insurance Coverage Exists

Many claims that are filed against associations and board members may be covered by one or more of the association’s insurance policies.  For example, a number of claims filed against a board of directors may be covered under the Directors and Officers Liability (“D&O”) policy.  This policy covers claims filed against board members who are sued for acts or omissions that have occurred in the course of their service as board members.  The D&O policy may provide coverage for the defense of the litigation and/or indemnification for board members and management.  A common claim that typically triggers coverage under the D&O policy is a claim for breach of fiduciary duty filed against the association’s board of directors.  Generally, a claim of breach of fiduciary duty includes allegations against board members for wrongdoing or failing to properly address issues within the association.  Some common breach of fiduciary allegations include failure to maintain the common elements, failure to maintain sufficient association reserves, mishandling of association funds, self-dealing, and failure to adhere to or enforce the association’s governing documents.

In addition to claims covered under an association’s D&O policy, certain claims may trigger insurance coverage under an association’s General Commercial Liability policy.  Claims that may trigger coverage under such a policy typically include allegations involving property damage, such as water leaks, damaged patio decks, and damage to personal property.

In sum, whether insurance coverage exists for a particular claim will depend on the facts of the case, the cause of the alleged damage (whether monetary or property damage), and also whether the alleged acts fall within the insurance policy period.  As a result, it is crucial that an association be mindful of the terms of its insurance policies and comply with all notice requirements set forth in the policy.

Confirm Legal Representation

When a lawsuit is filed, an association’s insurance carrier may assign legal counsel from a panel of “pre-approved” attorneys often used by the insurance company.  Generally speaking, the insurance-appointed counsel works for insurance companies on all types of non-community association matters, and generally has pre-existing fee arrangements with the insurance provider.  In many cases, the legal counsel assigned by the insurance company will begin work on a case before the Board has agreed to accept the representation.  However, in many cases, the association may actually have the right to select its own attorney to defend the litigation.  For instance, when there are multiple counts in a lawsuit filed against the Board and/or the association, and the insurance company agrees to cover some but not all of the counts, the association may be entitled to select its own counsel at the insurer’s expense.  Thus, prior to agreeing to work with the insurance-appointed legal counsel, management and the Board should consult with the association’s own legal counsel to determine if the insurer has the absolute right to choose counsel for the association.  Similarly, the association’s counsel often has knowledge of a history with the unit owner or resident who has filed the claim, or history with the particular building issue that is involved in the litigation.  In this regard, the association may prefer to utilize its own legal counsel who is experienced and knowledgeable in the association’s history rather than proceeding with an attorney who is unfamiliar with the facts, and who may not specialize in the representation of community associations.  It is important for management and/or the Board to immediately address the issue of representation and confirm the arrangement in writing, whether it be the use of insurance-appointed counsel or the association’s own counsel.

Vote to Defend Against Litigation

Note that one of the most important – and most overlooked – steps in the process of defending litigation is the formal vote to defend the lawsuit.  As the court in the Palm case expressly held, a board of directors must also vote to defend the association (whether the claim was filed against the Board members, management or the association) in a lawsuit.  Accordingly, any time an action is filed against individual board members, the “board” as a whole, the property manager or management company, or the association, the board must take the formal action of voting in an open meeting to defend the litigation.

Conclusion

In summary, in order to ensure your association is well prepared to properly defend against litigation or threats of litigation, it is important that management and/or the board obtains appropriate insurance coverage long before a claim or potential claim arises.  Management and the board should work swiftly to notify the insurance carrier and report the claim, and contact legal counsel to discuss steps to minimize liability and coordinate the effort to determine whether insurance coverage exists.  Lastly, if the option exists, the association should select legal representation based upon the case and opt for an experienced and trusted legal counsel to resolve the litigation.

 

by Kelly C. Elmore, Principal
Kovitz Shifrin Nesbit

I. Introduction: In 2014, Palm v 2800 Lake Shore Drive Condominium Association, 2014 IL App (1st) 111290 (known as “Palm II” because it was the second reported opinion in the case) sparked a buzz of commentary and debate among condominium and common interest community association (“CICA”) attorneys (hereinafter collectively “CICA Attorneys”), board members, and property managers. Prior to Palm II, there was a consensus among most CICA Attorneys that boards could informally discuss association business as long as voting occurred at a properly-noticed meeting. While Palm II addressed many issues, none have caused more consternation than its holding that “not only must all board voting occur at meetings open to unit owners, so must all board discussion or consideration of association matters, except for discussion or consideration of the three specified exceptions.” Id., at ¶55. More than one article has suggested this interpretation, arguably the heart of Palm II, would be difficult, if not impossible, to follow.

At the center of Palm II lies a simple question: In 1993, when the legislature passed P.A. 88-417 to redefine “Meeting of Board of Managers” (requiring formalities of notice, an agenda, and a quorum) from a meeting held for the purpose of “discussing board business” to “conducting board business”, did it intend to subject more board activities to the required formalities, or fewer? The record shows the legislature intended to subject fewer actions to these formalities.

II. Background: Unlike commercial and charitable corporate boards, condominium and CICA boards (hereinafter collectively “Boards”) volunteer their time to serve the communities in which they live, almost universally without pay. Balancing work, family, and civic obligations with Board commitments is a difficult task that is compounded if Board members are not able to use emails or texts like most corporate boards. Answering emails in the checkout line or texting while watching a soccer game is a part of everyday life, and Palm II prohibits such communications regarding association matters if a quorum is involved.

Board actions typically fall into three general categories: 1) fact-finding and/or gathering information; 2) discussing and/or analyzing the facts and information; and 3) making a decision and/or voting. Although the categories easy to identify, slotting a specific conversation, email, or text into one category is often impossible. Moreover, Boards often discuss association issues that require no formal vote, or that are so trivial, formalities should not be required. The problem with Palm II is that all Board communications regarding association issues with a quorum “present” are subject to formalities, regardless of how trivial. A manager polling a Board via email to see if they think the temperature of the swimming pool is too cold? A president texting a Board to see who is in town for an upcoming meeting? Under Palm II, these, and a myriad of other communications now require notice, an agenda, and a meeting open to unit owners before they can legally be discussed. From a practical standpoint, Palm II will likely drive two undesirable trends. First, emails will be sent to just one Board member (to avoid a quorum), and then members will eventually string together the emails to individual members in an inefficient splintering of communications to avoid triggering a quorum. Second, Boards may give too much power to property managers to avoid cumbersome procedures. This holding of Palm II defies logic, is overly-formalistic, and fortunately, is not what the legislature intended.

III. “Conducting” Versus “Discussing” Business: In determining the intent of P.A. 88-417, the Palm II court considered the definitions of “discuss” (investigate or talk about), and “conduct” (generally to direct or take part), but then focused solely on the new statute, ignoring the old. It concluded “[nothing] in the wording of the statute leads us to conclude…‘conducting board business’ should be interpreted to mean only ‘voting on board business.’” Palm II, at ¶58. While it recognized “[one] cannot direct or take part in [i.e. conduct] the operation or management of a business unless one also discusses and considers that business before making decisions/voting on that business,” (Palm II, at ¶59), the Court concluded the change to “conducting” from “discussing” meant the legislature intended to trigger formalities earlier in the process of conducting Board business. While discussing is a necessary precursor to conducting Board business, it is easy to conceive of a Board discussing association issues without it rising to the level of conducting business (such as surveying the Board on the temperature of the pool). By triggering formalities only when conducting Board business rather than simply discussing it, the legislature clearly intended the opposite of what Palm II concluded.

The legislative history of P.A. 88-417 confirms it was intended to unshackle Boards. On May 18, 1993, the Illinois House considered the underlying bill, which arose from a Chicago Bar Association (“CBA”) effort to “clean up some inconsistencies” in the Condominium Property Act (the “Act”) “that do not simply work in condominium boards” especially “where a quorum might constitute three people.” See House of Representatives Transcription Debate, May 18, 1993, Page 30, Lines 22-23. The legislation was intended to help residents “live together a little easier.” Id., Pages 31, Line 3. When asked if the bill would “eliminate” voting rights, the sponsor answered it would not, as it was especially designed for “very small boards.” Id., Page 31, Lines 6-12. Over the past two decades, the CBA’s position has not changed, for in response to Palm II, the CBA Condominium Law Subcommittee proposed a revision to the Act (HB2645) that would have clarified that a “meeting of board of managers” would not include “mere discussion, conference, or working session at which no formal vote is taken.”

IV. Conclusion: Although the legislative response to Palm II (P.A. 99–0567) that expanded the exceptions to formalities was well-intentioned, it did not address the underlying problem. A quorum is still required to follow formalities for all other communications related to association business. An approach like the CBA’s suggested HB2645 is simple, and is consistent with a February 23, 2011 Attorney General Public Access Counselor opinion that school board members do not violate the Open Meetings Act by engaging in a “meeting” via email, when simply sharing information or exchanging non-deliberative casual commentary or remarks. Until the legislature clarifies its intent, associations will continue to unnecessarily struggle to balance efficient management with overly-protective unnecessary formalities.

In general, the exceptions are: 1) discussion of litigation; 2) consideration of employment matters; and 3) discussion of violations of rules and regulations. See 765 ILCS 605/18(a)(9)(A).
See Palm II, at ¶59, addressing: 1) investigations; 2) discussions; and 3) voting. See also Robert’s Rules of Order, addressing: 1) reports; 2) debate and discussion; and 3) voting. See Robert’s Rules of Order, 9th Edition, Sections 3, 10, 40, 42, 43, 47, and 50.

Scott E. Pointner, Esq.

A debate on surveillance is often one between security, privacy and finances. With increased access to low cost, higher quality equipment, boards are being requested to step up security to combat against increased crime. However, there are legal issues a board should consider and multiple steps to take to protect an association from the very high cost of avoidable litigation.

Governing documents may require a board to provide security. Even without a specific statutory mandate or language in the governing documents a board shall act within its fiduciary duty. A board is charged to act with reasonable and/or due care when the need arises, to prevent harm from foreseeable danger and/or criminal activity; failure to do so may result in claims for breach of duty, privacy claims and federal housing claims among a few. A board is charged to act with reasonable or due care when it undertakes safety measures whether there is a duty, and failure to do so may result in a charge of negligence or even a violation of privacy. Lastly, issues between owners are generally not board responsibility but when conflict escalates over time, police called, grievances filed, a board may have a duty under their declaration and/or other laws to protect its owners from each other.

The below cases discuss these principles. Frances T. v. Village Green Owners Assn, 723 P. 2d 573 (Calif. Supreme Ct. 1986) discussed negligence and breach of duty for no exterior lighting in a crime driven neighborhood. In Morgan v. 253 East Delaware Condo Assn, 231 Ill.App.3d 208 (1st Dist. 1992) the association documents did not create a duty. Only duty is if harm is reasonably foreseeable, undertaking is negligent and it must be proximate cause. The court found in Reeves v. Carrollsburg Condo Unit Owners Assn., District of Columbia District Court, Case No. 1:96-cv-02495 (open since 1999) failure to enforce the associations covenants and to protect one owner from another’s perpetual harassment and defamation, may represent a possible violation of the Federal Fair Housing Act. See also, Martinez v. Woodmar IV Condo Homeowners Assn, Inc., 941 P. 2d 218 (Ariz. 1997); Atrium Unit Owners Association v. King, 585 S.E.2d 545 (Virginia Supreme Ct. 2003) and Vazquez v. Lago Grande Homeowners Assn, 900 So. 2d 587 (D.C. of App FL 2004). Nader v. Carlyle Condos, (2010-Ohio-4359).

The next step will be for the board to perform a security threat assessment. A board needs to determine what money it can allot to such project which it is mandated to do and determine the objectives of security for its association. The Board should consult a security consultant to help determine whether cameras or other forms of surveillance or security are necessary and what equipment is best for each specific purpose. Today there are so many options that it is easy to get drawn in by the device rather than concentrate on the need of the association. The security consultant will provide information on how to find a company that is licensed with vetted technicians, that will provide good customer care and technical support. In a relationship such as this one, it is important to have a company that can perform all services so you can hold them accountable. Also, any single measure is rarely the solution, measures should be integrated and the consultant will be able to assist with this.

The project should then be previewed at a homeowner meeting along with a previously distributed technology policy that will set out the purpose of the technology, what it will and will not do, who is affected or has a duty under the policy, how the data is to be stored and for how long (with advances in technology the ability to retain the records is endless), and how it may be accessed. Advise your insurance and you may get a discount. Boards should as well stay clear of statements such as the property is ‘secure’ and should never imply that guard’s, doorpersons, or other employees are present for personal security, only to watch out for property, unless they are. Often used dummy cameras are dangerous and fall into the don’t ever do category. If the owners believe it is real, a false sense of safety is created and the board could be found liable if resultant damage is the proximate result of the board’s negligence.

What about privacy, so where can cameras/ other surveillance be placed? Cameras may be placed anywhere the association has the authority to exert control, excluding the personal residences or property bathrooms, locker rooms, etc., where there is a reasonable expectation of privacy. There is no expectation of privacy in the common areas. If a board installs or permits surveillance, it must ensure the recordings, both video and audio, if any, do not violate state or federal law. In Illinois and many other jurisdictions an audio recording may not be made of another even in common areas without that person’s consent. Depending where it might occur it is a violation of the Federal Wiretap Act and/or the Il Eavesdropping Law. An oversimplified summation of the laws a board must be aware of is that a camera may not be pointed towards any area where there is a reasonable expectation of privacy. Since these laws also encompass audio, a board should be extremely cautious if it decides to install a camera that records audio. The laws are:

A. 720 ILCS 5/14-2
“A person commits eavesdropping when he or she knowingly and intentionally: (1) Uses an eavesdropping device, in a surreptitious manner, for the purpose of overhearing, transmitting, or recording all or part of any private conversation to which he or she is not a party unless he or she does so with the consent of all parties to the private conversation.”
B. 720 ILCS 5/26-4(a)
“It is unlawful for any person to knowingly make a video record or transmit live video of another person without that person’s consent in a restroom, tanning bed, tanning salon, locker room, changing room, or hotel bedroom.
(a-5) It is unlawful for any person to knowingly make a video record or transmit live video of another person in that other person’s residence without that person’s consent.
(a-6) It is unlawful for any person to knowingly make a video record or transmit live video of another person in that other person’s residence without that person’s consent when the recording or transmission is made outside that person’s residence by use of an audio or video device that records or transmits from a remote location.”
C. Intrusion Upon Seclusion
This common law claim includes the following elements: “(1) an unauthorized intrusion or prying into the plaintiff’s seclusion; (2) an intrusion that is highly offensive or objectionable to a reasonable person; (3) that the matter upon which the intrusion occurs is private; and (4) the intrusion causes anguish and suffering.” Jacobson v. CBS Broad, Inc., 19 N.E. 3d 1165, 1180 (2014).
D. 18 U.S. Code §2511
The Federal Wiretapping Act could apply to the audio captured by the Cameras. This is a criminal law that requires prosecution by a federal agency.

Conclusion
Best practices require a board to be educated, perform a threat assessment, discuss and vote based upon due diligence research in open session, and undertake measures to ensure compliance with state and federal laws. Keeping the process in balance is safe for everyone and will protect the board if litigation should ever arise. And remember, the most effective method of security is any plan tailored to the needs of the association.

Sima L. Kirsch
Law Office of Sima L. Kirsch, PC

For Immediate Release                                                                                      Contact: Terry Horstman
August 7, 2017                                                                                                     Phone: 217.558.2953
E-mail: Terry.Horstman@Illinois.gov

CHICAGO – Illinois condominium owners now have a comprehensive, educational guide at their fingertips
thanks to a recently compiled handbook by the Illinois Condominium and Common Interest Community (CCIC)
Ombudsperson, Adrienne Levatino. The Condo Unit Owner’s Rights and Responsibilities Handbook provides an
unbiased, objective look at Illinois law governing condominium unit owners and marks the kick-off of the
Ombudsperson’s educational program aimed at informing condo owners of their rights and responsibilities.
Future publications will address the rights of condominium and common interest association boards and the
rights and responsibilities of owners living in common interest communities.

“Living in a condominium community presents its own unique set of challenges that are starkly different from
those in a single family dwelling”, said Kreg Allison, Director of the Division of Real Estate (“DRE”) for the Illinois
Department of Financial and Professional Regulation (“IDFPR”). “Individual rights and obligations can often be
confused in the condo setting, leading to disputes between unit owners and associations. By providing an easily
accessible, inclusive handbook for condo owners, we strive to educate everyone involved, set reasonable
expectations, and minimize disputes.”

The Condo Unit Owner’s Rights and Responsibilities Handbook may be found in the Publications tab on the CCIC
Ombudsperson webpage at http://www.idfpr.com/CCICO/.

Follow IDFPR on Facebook, Twitter and YouTube to stay current on the latest from the state’s regulatory agency.

About the Illinois Condo Ombudsperson
Kreg Allison, the Director of the Division of Real Estate (“DRE”) for the Illinois Department of Financial and
Professional Regulation (“IDFPR”) appointed Adrienne Levatino as the Condominium and Common Interest
Community Ombudsperson (“CCIC Ombudsperson”) effective January 1, 2017.
The mission of the CCIC Ombudsperson is to provide information to unit owners, condominium and common
interest community associations and their respective boards in order that they all may better understand their
rights and obligations under the Condominium Property Act and the Common Interest Community Association
Act.

It is not uncommon to find that when a unit owner fails to pay his/her assessments, they are also not paying their mortgage. Thus, oftentimes foreclosures go hand-in-hand with the collection of delinquent assessments. Fortunately for associations, the Condo Act addresses the association’s options with regard to collection of delinquent assessments when a unit is in foreclosure.

PRE-FORECLOSURE AMOUNTS – THE “6 MONTH RULE”
Section 9(g)(1) of the Illinois Condominium Property Act (the “Condo Act”), creates a lien in favor of a condominium association when a unit owner fails to pay their assessments. 765 ILCS 605/9(g)(1).
Further, Section 9(g)(4) of the Condo Act was created in order to allow associations to recover a portion of the prior owner’s unpaid assessments from a new third-party owner.
Section 9(g)(4) of the Condo Act states as follows:

(4) The purchaser of a condominium unit at a judicial foreclosure sale, other than a mortgagee, who takes possession of a condominium unit pursuant to a court order or a purchaser who acquires title from a mortgagee shall have the duty to pay the proportionate share, if any, of the common expenses for the unit which would have become due in the absence of any assessment acceleration during the 6 months immediately preceding institution of an action to enforce the collection of assessments, and which remain unpaid by the owner during whose possession the assessments accrued. If the outstanding assessments are paid at any time during any action to enforce the collection of assessments, the purchaser shall have no obligation to pay any assessments which accrued before he or she acquired title. (Emphasis Added)

Under Sections 9(g)(4) of the Condo Act, associations can recover up to 6 months of unpaid assessments from a post-foreclosure purchaser (other than the bank – i.e. a third-party purchaser) provided the association attempted to collect from that owner before foreclosure concludes. Courts have generally interpreted the phrase “institution of an action” to be a lawsuit brought in court. Thus, it is highly recommended that, in order to preserve its right to collect under the 6 Month Rule, associations file a lawsuit under the Forcible Entry and Detainer Act as opposed to just initiating collections by sending a letter or 30-day notice and demand.

Additionally, Section 9(g)(5) of the Condo Act allows an association to collect from a post-foreclosure purchaser all costs and legal fees associated with a prior action to collect against the foreclosed owner. Section 9(g)(5) of the Condo Act requires that the notice of foreclosure sale state that the purchaser of the foreclosed unit (other than a mortgagee) shall pay the assessments and the legal fees required by Sections 9(g)(1) and 9(g)(4) of the Condo Act. There is no “6 month” limitation set forth in Section 9(g)(5) that would limit the costs and legal fees to only 6 months’ worth. Thus, under Sections 9(g)(4) and 9(g)(5) of the Condo Act, an association can collect 6 months of assessments plus all costs and legal fees associated with a prior action to collect against the foreclosed owner.

Similar rules apply to common interest communities via Section 18.5(g-1) of the Condo Act.

POST-FORECLOSURE AMOUNTS
Under Section 9(g)(3) of the Condo Act, an association’s lien for unpaid assessments from before the judicial foreclosure sale is not fully extinguished by the judicial foreclosure sale. Rather, the association’s lien for unpaid assessments is only extinguished when the foreclosure sale purchaser makes the assessment payment due after the sale. In other words, in order for a foreclosure sale purchaser, including mortgagees, to extinguish an association’s lien and avoid liability for the unpaid assessments from before the judicial foreclosure sale, the purchaser must begin paying assessments the month following the foreclosure sale to confirm the extinguishment of the lien created by the prior owner’s non-payment of assessments.

But how strictly does the statute to apply in order for a lien to be extinguished?

In 1010 Lake Shore Association v. Duetsche Bank National Trust Co., 2015 IL 118372 (Dec. 3, 2015), the Illinois Supreme Court held that a foreclosure does not extinguish an association’s lien for unpaid assessments until and unless the purchaser “promptly” pays post-sale assessments beginning in the month following the foreclosure sale. The Illinois Supreme Court analyzed the language of Section 9(g)(3) and held that it “plainly requires a foreclosure sale purchaser to pay common expense assessments beginning in the month following the foreclosure sale.” Id. at ¶ 24. The Court held that the second sentence of Section 9(g)(3) provides “an incentive for prompt payment of those post-foreclosure sale assessments, stating ‘[s]uch payment confirms the extinguishment of any lien created’ under subsection 9(g)(1) by the prior unit owner’s failure to pay assessments.” Id. Thus, the association’s lien is not extinguished, like other liens on the property, by virtue of the judgment of foreclosure. Further, when a purchaser fails to promptly make post-foreclosure sale assessment payments, the prior owner’s lien is not extinguished and the entire prior owner’s entire balance comes due by the purchaser.

The 1010 Lake Shore case has been a good friend to many associations when it comes to collecting delinquent assessments. On March 31, 2017, however, the Illinois First District Appellate Court issued an opinion which appears to muddy the waters and the interpretation of Section 9(g)(3) of the Condo Act and make things much more complicated for associations.

In 5510 Sheridan Road Condominium Association v. U.S. Bank, 2017 IL App (1st) 160279, a condominium association filed a lawsuit under the Forcible Entry and Detainer Act against a bank who purchased a unit at a foreclosure sale. The association sent a demand to the bank seeking both pre- and post-foreclosure amounts, as the bank failed to promptly pay all of the assessments due after the sale. Id. at ¶ 6. Shortly before the association filed its lawsuit, the bank made a partial payment, but did not pay the post-foreclosure assessments (nor the outstanding account balance) in full. Id. Nine months after the lawsuit suit had been filed, the bank made payment in full of the post-foreclosure assessments. Id. at ¶ 9 In making that payment, the bank argued that it had properly extinguished the lien. Id. at ¶ 9 The association, however, argued that Section 9(g)(3) of the Condo Act created a firm deadline for the payment of assessments – the first day of the first month after the foreclosure sale and thus the bank’s payment nine months late did not extinguish the association’s lien and thus the prior owner’s entire balance was also due . Id. at ¶ 10.

The First District of the Illinois Appellate Court disagreed with the association and held that Section 9(g)(3) does not set a strict deadline for when payment must be made. Id. at ¶ 20. The Appellate Court held that the first sentence of Section 9(g)(3) which states “from and after the first day of the month after the date of the judicial foreclosure sale” means only the time when the third-party purchaser must begins to be liable for post-sale assessments. Id. at ¶ 24. The Appellate Court determined that if the legislature intended for Section 9(g)(3) to contain a strict timing deadline, it would have included a deadline in the statute. Id. at ¶ 25. Accordingly, the Appellate Court held that since the bank paid the full amount of post-foreclosure assessments it owed, the association’s lien was extinguished, regardless whether it was made promptly or not. Id. at ¶ 32.

The Appellate Court’s opinion reached a very different conclusion than the Illinois Supreme Court did in 1010 Lake Shore, where it found a prompt payment requirement. 5510 Sheridan Road appears to provide that the as far as the timing requirement, purchasers of condominium units at a judicial foreclosure sale only need to make payment of any post-sale assessments prior to a judgment being entered in an action against the purchaser for failure to pay said assessments. But what happens if the third-party purchaser fails to timely pay post-sale assessments forcing the Association for file suit under the Forcible Entry and Detainer Act and pays only the assessments due after the suit is filed? Can an association recover the costs and fees incurred to file that lawsuit? How will a court view an association’s trial based only on fees and costs when all assessments have been paid? These questions were not addressed by the Appellate Court and will likely be a source of litigation in the near future.

Kathryn A. Formeller and Anita Jahanban


Given the municipal smoking ban in public places(1) and the proven harm of secondhand and third hand smoke, many Boards continue to be besieged with complaints from residents of transmission of smoke into their homes. These complaints can range from annoyance with smoke odors to complaints that smoke transmission is life-threatening and renders a home uninhabitable. Most governing documents prohibit residents from engaging in noxious or offensive activities, and residents therefore look to the Board to resolve smoke transmission complaints.

Noxious activities are those defined as physically harmful or destructive to human beings(2). A nuisance is an unreasonable, unwarranted or unlawful use of one’s property that invades the use and enjoyment of the property. However, in determining whether a particular annoyance constitutes a nuisance, a court would consider the effect of the annoyance on the ordinary, reasonable person, rather than an effect on a person who has heightened sensitivities(3). Thus, the determination of whether the conduct is a nuisance is based upon an objective standard. In a condominium situation, the Board determines whether a nuisance exists by ascertaining whether the conduct is unreasonable for the average person residing in the particular type of building property.

The dangers of second hand smoke have been sufficiently established in medical circles for the Board to reasonably conclude that it is justified in imposing abatement requirements.

Assuming the Board is not interested in the spending the time and expense of attempting to adopt a declaration amendment to ban or limit smoking (which requires unit owner approval), the Board may approve Smoking Rules in the same manner it adopts all rules with merely majority Board approval after calling a meeting of the Owners to discuss the proposed rule. The following is a draft Smoking Rule regarding smoke transmission:

“Residents are allowed to smoke in the Units; however, if the smoke emanating from a Unit causes a nuisance or annoyance to other residents, the Board, in its sole discretion, may require the Unit Owner to take one or more of the following steps, at the Unit Owner’s sole cost and expense, to minimize smoke transmission from their Units:

A. Properly and fully seal the Unit;

B. Install an air purifier capable of eliminating smoke including, but not limited to, cigar, cigarette, or pipe smoke;

C. Operate the kitchen and/or bathroom vents when smoking;

D. Confine smoking to rooms of the Unit which do not abut a complaining resident’s Unit.

Failure to comply with this smoking rule will result in the Board exercising one or more of the remedies to which it is entitled to enforce against a Unit Owner pursuant to the Declaration, By-Laws and Illinois Condominium Property Act.”

After the approval of any such Smoking Rules, the Board may fine a Unit Owner for violating the smoking regulations and would have a reasonable basis for assessing fines or even pursuing a lawsuit seeking to prevent a Unit Owner from smoking in the Unit where the smoke emanates to another Unit creating a noxious or offensive activity.

The proposed rule does not specify cigarette or cigar smoke and could be utilized in the event marijuana smoke is causing the annoyance. Given medical marijuana use is currently allowed by statute in Illinois, some associations are now having to deal with the issue of medical marijuana smoke wafting to other units or the common elements and becoming an annoyance to other residents.

The question typically posed is whether authorized individuals with a medical need to smoke medical marijuana must be permitted to smoke whenever and wherever they choose? The answer to that question is “no.” While the Medical Cannabis Act prohibits discrimination against medical marijuana users, the law specifically states that marijuana users do not have a right to smoke in any place they choose (4). Medical marijuana registry card holders must still comply with the association’s governing documents or be subject to applicable association remedies.

1 Chicago Clean Indoor Air Ordinance of 2005.
2 Merriam-Webster’s Collegiate Dictionary.
3 Kolstadvs.Rankin, 543 N.E.2d. 1373 (1989).
4 410 ILL Comp Stat Ann §130/30.

Patricia A. O’Connor

The law that applies to accommodations for an emotional support animal is primarily the Fair Housing Act (“FHA”). Please note that the American with Disabilities Act pertains to the state and federal government being prohibited from discriminating against people with disabilities in public places. It does apply to some types of housing situations, but is not the applicable statute for the Association, with service animal requests. The FHA requires “accommodations that are necessary (or indispensable or essential) to achieving the objective of equal housing opportunities between those with disabilities and those without.” Cinnamon Hills Youth Crisis Center, Inc. v. Saint George City, 685 F. 3d 917, 923 (10th Cir.2012).

Therefore, when considering whether the provisions above apply, the Association must
consider two questions:

1. Does the person seeking to have a service animal have a disability?
2. Does the animal perform tasks that assist a person with a disability?

If the Association answers both those questions affirmatively, then it must make an exception to its no-pet policy, as same would be considered a “reasonable accommodation” under the FHA.

The FHA prohibits the Association from placing restrictions on emotional support animals, and must permit owners to keep such animals. However, the Association can conduct a “reasonable inquiry” into the disability giving rise to the need of such an animal, to ensure that the FHA provision applies, if the disability is not obvious. This means that it can make an inquiry, but cannot be overly intrusive in its questioning. It also does not need and should not make an inquiry if the disability is readily apparent. For example, the Association must be cautious not to delve further if it can ascertain that the person is blind, requires assistance in mobility, or even if it receives a medical note, as same must be taken at face value. Courts have found that inquiries asking about treatment, medications, the diagnosis, etc., are beyond the scope of a reasonable inquiry. The
Association can also inquire as to the reasonable nexus between the emotional support animal and the person’s disability. In other words, the Association can ask why the animal is necessary. Please note that a note from a physician is typically sufficient to show the nexus. It is not for the Association to make a medical diagnosis of the person or even to determine if the animal is really necessary. It is only for the Association to ensure compliance with the law.

Once these requirements are met, an accommodation must be made and the “no pet” rule should not be enforced against the Owner. The Owner is also subject to certain rules of the Association but not those related to fees assessed by the Association. However, the FHA does provide exceptions and allows an Association to restrict the animal if the presence would cause an undue financial and administrative burden. In addition, if the animal poses a direct threat to health and safety of others, the Association may prohibit the animal. Please note that this must be based on actual conduct of the animal, not mere speculation, i.e. just because the animal is a Rottweiler does not mean that the request can be denied.

Generally, the best way for the Association to avoid litigation or a discrimination claim is to develop and follow a policy and procedure for the treatment of any accommodation requests. A policy should include what information the association requires to make a determination and how the determination is made to ensure a meaningful review of the request. The Association should develop a standardized request form and submission packet. Before implementing any standardized form, the Association should have the documents and procedure reviewed by its attorney, so that we can ensure that the Association is asking only questions permitted under statute. After all, even asking for certain information can give rise to a discrimination claim.

The following are certain statements or actions a Board should avoid when considering a request for an accommodation:

1. Telling the Owner this is a no pet building and all animals are prohibited.
2. Telling an Owner they are responsible for paying the Association’s annual fee for
pets who reside in the Building.
3. Denying a request because the Board does not believe that this particular breed will
provide the proper emotional support for the Owner.
4. Denying the request because the Board does not believe that the person is disabled
enough.
5. Denying a request because the Board does not believe the doctor who provided the
note is a legitimate doctor.

(You laugh, but these are true statements or actions by a Board!)

Finally, please note that a Board can decide to deny a request. Yet, it is important that before a request is denied, the Board consults with an attorney, as failure to properly consider a request or denial of a legitimate request may give rise to a discrimination lawsuit against the association and even individual board members.

The focus of this article is to provide a brief overview on the disclosures provided in Illinois by a
condominium association to a prospective buyer of a unit and: (a) what is mandated by law; (b)
what current practice is; (c) associations’ and board members’ exposures to claims for failure to
comply; and (d) action needed to remedy the ills that exist in the market today.

In Illinois, condominium associations are governed by the Illinois Condominium Property Act
(“ICPA”) while homeowner associations are governed by the Illinois Common Interest
Community Association Act (“ICICAA”). Both Acts contain provisions regarding certain resale
disclosure requirements to prospective purchasers of units within the association. In the ICPA, it
is Section 22.1 that contains these mandates, while in the ICICAA, it is Section 1-35. For purposes
of this article, since the two statutes have the same objectives and contain similar language, we
will focus on Section 22.1 of the ICPA. The reader should note that the discussion in this article is
focused on resale disclosures only, not original sales from developers as those latter sales are
governed by different provisions within each Act.

ICPA Section 22.1

Sections 22.1 (a) and (b) of the ICPA state as follows:

Sec. 22.1. (a) In the event of any resale of a condominium unit by a unit owner other
than the developer such owner shall obtain from the Board of Managers and shall
make available for inspection to the prospective purchaser, upon demand, the
following:
(1) A copy of the Declaration, by-laws, other condominium instruments and any
rules and regulations.
(2) A statement of any liens, including a statement of the account of the unit
setting forth the amounts of unpaid assessments and other charges due and owing
as authorized and limited by the provisions of Section 9 of this Act or the
condominium instruments.
(3) A statement of any capital expenditures anticipated by the unit owner’s
association within the current or succeeding two fiscal years.
(4) A statement of the status and amount of any reserve for replacement fund and
any portion of such fund earmarked for any specified project by the Board of
Managers.
(5) A copy of the statement of financial condition of the unit owner’s association
for the last fiscal year for which such statement is available.
(6) A statement of the status of any pending suits or judgments in which the unit
owner’s association is a party.
(7) A statement setting forth what insurance coverage is provided for all unit
owners by the unit owner’s association.
(8) A statement that any improvements or alterations made to the unit, or the
limited common elements assigned thereto, by the prior unit owner are in good faith
believed to be in compliance with the condominium instruments.
(9) The identity and mailing address of the principal office of the unit owner’s
association or of the other officer or agent as is specifically designated to receive
notices.
b) The principal officer of the unit owner’s association or such other officer as is
specifically designated shall furnish the above information when requested to do so in
writing and within 30 days of the request.

735 ILCS 605/22.1 (a)/(b). Section 22 (including 22.1) was first proposed to the Illinois legislature
on May 9, 1972. 77th Ill. Gen. Assem., House Proceedings, May 15, 1972 at 149. In introducing
the bill proposing to amend the ICPA to add this section, Representative David Regner described
it as a “truth in selling” provision. Id. When the bill was debated in the Senate, Senator Graham
explained that the bill was directed toward providing information for the elderly and other persons
on fixed incomes, so that they would be fully aware of the financial obligations associated with
their purchase at the outset of purchase negotiations. (emphasis added) 77th Ill. Gen. Assem.,
Senate Debates, June 21, 1972, at 91. In general, the legislative history behind Section 22 and
Section 22.1 show that the legislative intent was to encourage disclosure by the seller of a
condominium unit for the protection of the prospective purchaser.

Some of the key elements of the statute to bear in mind as the reader continues through this article
are:
– It is mandatory for a seller to obtain and make available for inspection those items set forth
in the statute.
– To trigger the protections of this statute, a purchaser must demand the required disclosures
of the seller.
– The association’s obligations under the statute, however, are only triggered upon the
written demand of the seller (owner).
– The association is granted 30 days in which to provide the mandated disclosures.
– The statute requires that the information be furnished by an officer of the association.

The current reality of Section 22.1 compliance

In today’s residential real estate practice, virtually all standard form contracts in areas with
condominiums contain some provision addressing the need for a condominium unit seller to
comply with the provisions of Section 22.1. Following are two versions of such provisions from
form contracts commonly used at present in the Chicagoland area.

Seller shall, within five (5) Business Days from the Date of Acceptance, apply for
those items of disclosure upon sale as described in the Illinois Condominium
Property Act, and provide same in a timely manner, but no later than the time period
provided for by law. This Contract is subject to the condition that Seller be able to
procure and provide to Buyer a release or waiver of any right of first refusal or other
pre-emptive rights to purchase created by the Declaration/CCRs. In the event the
Condominium Association requires the personal appearance of Buyer or additional
documentation, Buyer agrees to comply with same. (Excerpt from Paragraph 15 of
Multi-Board Residential Real Estate Contract 6.1)
Seller shall deliver to Buyer the items stipulated by the Illinois Condominium
Property Act (765 ILCS 605/1 et seq.) (“ICPA Documents”), including but not
limited to the declaration, bylaws, rules and regulations, and the prior and current
years’ operating budgets within ______ business days of the Acceptance Date.
(Excerpt from Paragraph 10 of Chicago Association of Realtors Residential Real
Estate Purchase and Sale Contract, Rev. 01/2012)

As the reader will quickly note, practice immediately begins to conflict with the statute in that the
contracts commonly used attempt to impose a significantly reduced timeline for compliance with
the statute. Whereas the ICPA gives an association up to thirty days in which to furnish the required
disclosures, sellers and purchasers consistently enter into contracts requiring the seller to furnish
that same information, which the seller must obtain from the association, within a handful of
business days after the contract has been executed. 765 ILCS 605/22.1 (b).

Furthermore, it is very common for real estate brokers and others, including attorneys, involved in
the residential real estate industry to be misinformed regarding practice versus reality, often
advising buyers that the Section 22.1 disclosures must be made to buyers during the attorney
review period found built into residential real estate contracts. This is simply not accurate.
Contracts should, and generally do, contain a separate contingency for approval of the ICPA
mandated disclosures precisely because that contingency will often take weeks to satisfy, whereas
attorney review contingencies should be concluded in a matter of days.

Another interesting matter of constant conflict arises in the form in which the disclosures are made.
Associations, particularly larger ones, are often managed by professional property managers.
Because the furnishing of these ICPA mandated disclosures involves the assumption of certain
aspects of liability and associations must safeguard against providing false or inaccurate
representations, associations and property managers, especially at the urging of their counsels, are
constantly working to limit their exposure in responding to these resale demands. Many large
property management companies now have their own forms which they require their association
clients to use and furnish when responding to 22.1 resale disclosure demands. In seeking to
minimize the liability exposure of the association and/or manager, many of these forms have
developed into pseudo disclosures that are circular in nature and which almost invariably fail to
provide all of the information required under the statute.

One example of this conflict is the following, taken from a professional property manager’s
preprinted 22.1 disclosure form submitted to a client of our firm, who was purchasing a
condominium unit in Chicago last year:

1. Are there any liens against the Association? If yes, please give details concerning
all such liens.
A: Not to our knowledge, however, we have not ordered a search.

In the foregoing example, when comparing the form’s preprinted question, it would appear that
the disclosure form is attempting to comply with Section 22.1(a)(2), which calls for a statement
disclosing any liens. The problem lies in the fact that the question is completely off target in that
Section 22.1(a)(2) is not directed towards liens “against the Association”. 765 ILCS 605/22.1
(a)(2). Instead, it calls for “a statement of the account of the unit setting forth the amounts of unpaid
assessments and other charges due and owing as authorized…by the provisions of Section 9 of this
Act…” Providing information regarding liens against the Association does nothing to comply with
Section 22.1(a)(2).

From the same disclosure form, consider the following example:

5. Any Improvements or alterations in the above referenced Unit or in the limited
common elements assigned to the Unit by the current and any prior owners are in
good faith believed to be in compliance with the Condominium Declaration. If not,
please specify those items not in compliance with the Condominium Declaration.

A: We have not inspected the premises.
This question and answer excerpt clearly is directed at satisfying the mandate of Section 22.1(a)(8).
However, it is questionable whether the answer provided by the association in the above example
even serves as a disclosure of any kind. The purpose of Section 22.1 is to provide a prospective
purchaser with full financial information before they purchase a unit. The legislature,
acknowledging that the association should have and supply the necessary information to allow a
prospective purchaser in making a fully informed decision, did not carve out exceptions for failure
to inspect the premises. Rather, the legislature specifically included the words “in good faith” in
Section 22.1(a)(8). The Association is supposed to make and provide an affirmative statement that,
in good faith, it believes that any improvements or alterations in the unit were made in compliance
with the Declaration. At minimum, to truly comply with the intent and mandate of this section, the
association should be required to state that it is not aware of any improvements or alterations
having been made in the unit. That is at least a statement upon which the purchaser can rely in
making a decision. To suggest that the answer provided by the association in the foregoing example
is a good faith compliance with Section 22.1(a)(8) is to completely gut the protections established
by the statute.

Dealing with the same Section 22.1(a)(8), consider the following response provided on a different
manager’s form for another Chicago condominium purchase:

(8) A statement that any improvements or alterations made to this unit, or the
limited common elements assigned thereto, by the prior unit owner are in good faith
believed to be in compliance with the condominium instruments.

A: The Association does not inspect individual apartments and takes no
responsibility for improvements or alterations made by individual unit owners
within individual units or to limited common elements. The Association has no
knowledge of any improvements or alterations made by the unit owner to the
subject unit (or to the limited common elements that serve that unit) that are not in
compliance with the Association’s Declaration and rules.

Here, the association has at least made an affirmative statement by including the second sentence.
But, upon scrutiny, it is hard to support the notion that the association is truly making this
disclosure in good faith. By including limited common elements in the first sentence, the
association, in this author’s opinion, belies any good faith. Limited common elements are owned
by the association, not the unit owner. Therefore, should it not be incumbent upon the association,
in making these disclosures, to actually determine that no improvements or alterations have been
made to the limited common elements or that any improvements or alterations thereto are in
compliance?

Continuing with the disclosure form cited in the first two examples, above, we find the following
disclosure which purports to be provided in satisfaction of Section 22.1(a)(5):

7. A copy of the latest financial statement, operating budget and Board meeting
minutes
showing any possible anticipated capital expenditures and/or approval of special
assessments, if applicable, should be requested from the seller.

Talk about being circular! This disclosure does not even bother to pose a question and present an
answer. Rather, it simply restates portions of the relevant statute and directs the intended recipient,
the purchaser, to request the documentation from the seller. This flies in the face of Section 22.1(b)
which, as previously noted, expressly states that an “officer of the unit owner’s association… shall
furnish the above information when requested to do so.” 765 ILCS 605/22.1(b).

One last example – see the following disclosure provided in connection with the mandates of
Section 22.1(a)(5):

(5) A copy of the statement of financial condition of the unit owner’s association
for the last fiscal year for which such statement is available.

A: A copy of the Annual Budget may be ordered from the HomeWiseDocs website.

While Section 22.1 does only require that the association “shall make available” the copies called
for in subsection (a)(5), is that obligation satisfied when the access referenced on the referenced
website requires payment and, as is not uncommon, the seller turns around and tells the purchaser
to log into the website and pay the requisite fees? Fighting this common practice is like tilting at
the windmills and buyer’s attorneys have little choice in these cases but to tell their clients to play
along and go with the flow. But this shifting of the burden and liability under the statute is
detrimental to purchasers and severely undermines the intent behind the enactment of Section 22.1.

Lender’s Questionnaires

Oddly enough, concurrent with a steady erosion of compliance with Section 22.1, there has been
a growing, and equally concerning expansion of association exposure to liability through
responding to lender’s condominium association questionnaires. Almost invariably, when a
purchaser applies for a loan for the purchase of a condominium unit, the lender sends the
association its own questionnaire, which the lender must get back and have approved by the
lender’s underwriter before the purchaser’s financing can be approved. These questionnaires
commonly mimic many of the questions posed by Section 22.1 but also go well beyond the scope
of that statute. Typical questions asked in these questionnaires include the following (taken from
the USBHM Established Condominium Project Underwriting Questionnaire, Revision
02.11.2015):

– Does at least 10% of the budget provide for funding of replacement reserves, capital
expenditures, deferred maintenance, and insurance deductibles?
– Number of units over 60 days delinquent in payment of HOA dues or assessments
(including REO owned units).
– Do the project documents include any restrictions on sale which would limit the free
transferability of title?
– Are the recreational amenities or common elements leased?
– Does the association have any knowledge of any adverse environmental factors affecting
the project as a whole or as individual units?
– Does the property management company (if applicable) have the authority to draw checks
against or transfer from the reserve account?
– Are two or more members of the Board of Directors required to sign checks drafted against
the reserve account?

There is no statute requiring an association to provide the above information. In the event that an
association were to elect to not provide the requested answers, it is almost certain that the
prospective purchaser’s financing would be declined. Since most, if not all, conventional lenders
have some form of condominium questionnaire similar to the one cited above, refusal of an
association to respond to the questionnaire would mean that an owner would be limited to selling
to a purchaser buying with cash or unconventional financing, severely reducing the available pool
of purchasers and likely significantly suppressing the purchase price. For this reason, despite being
adverse to providing information strictly compliant with Section 22.1, associations regularly
provide answers to the lenders’ questionnaires, even though doing so vastly expands the potential
for liability for having provided bad information.

Enforcement Rights in the Event of Non-Compliance
Unfortunately, Section 22.1 does not contain specific enforcement rights or remedies in the event
of a breach of seller or association obligations under the statute. A prospective buyer, of course,
can rely on contractual rights contained in their purchase contract prior to closing on the unit
purchase, should the seller fail to provide the requisite disclosures upon demand. But dealing with
evasive, erroneous, misleading, or even fraudulent disclosures can be significantly more difficult
for a buyer, particularly because they generally will not find out that the disclosures were such
until after they have closed on their purchase. And by then, the economics of the situation very
often are such that they simply move on and bear the brunt of the misrepresentations because
taking legal action is too risky when the legal fees would significantly outweigh the damages
sustained as a result of the defective disclosures.

But a small number of cases have been litigated in Illinois and serve as critical precedent in this
arena. One such case is Mikulecky v. Bart, 355 Ill. App. 3d 1006 (2004), which addressed Section
22.1(a)(3). The reader will recall that this section of the statute calls for a statement regarding any
anticipated capital expenditures in the current and succeeding two years. In Mikulecky, the
purchaser received disclosures that only set out known (approved) capital expenditures but omitted
information regarding various capital expenditures that had been discussed and planned, but not
yet finalized or confirmed. 355 Ill. App. 3d at 1008. Shortly after closing on her purchase, the
plaintiff discovered that those anticipated expenditures were going to cost her over $10,000 in
additional special assessments. Id.

On appeal, the court reversed a trial court ruling in favor of the association and held that “disclosure
of information [by sellers] in furtherance of the public policy of Illinois” was the driving legislative
mandate behind the statute. 355 Ill. App. 3d at 1012. More specifically, the appellate court ruled
that the word “anticipated” must be defined in this context by giving “effect to the plain and
ordinary meaning of the language without resort to other tools of statutory construction.” Id. at
1013. In doing so, the court rejected the seller’s argument that it had satisfied its obligations under
the statute by simply disclosing those capital expenditures which had been approved, despite the
fact that the seller and the association knew that other major capital expenditures had been
discussed and likely would be undertaken by the association in the near future. Id.

Another recent Illinois case (D’Attomo v. Baubeck, 2015 IL App (2d) 140865) shed light upon,
and confirmed the existence of, post-closing remedies available to purchasers who have been
provided with less than complete disclosures pursuant to Section 22.1. In D’Attomo, the purchaser
had been provided with a copy of the original Declarations and Bylaws of the association, but not
of an amendment that had been passed prior to his purchase. 2015 IL App (2d) 140865 at 7. The
trial court, as in the Mikulecky case, ruled in favor of the association and the seller. Id. at 16.
Significant portions of that ruling (for procedural reasons, only as to the seller) were reversed on
appeal. Id. at 76. The appellate court, after expressly noting that “Section 22.1 is silent with respect
to any remedy for the violation of the disclosure obligations” (Id. at 35), held that said silence is
not to be interpreted as precluding a purchaser’s private cause of action under that statute and,
citing to Mikulecky and legislative intent, further ruled that an implied private right of action in
favor of the purchaser, post-closing, did exist under Section 22.1 in light of the facts presented. Id.
at 39.

Conclusion

In the opinion of this author, legislative action needs to be taken to stop the use of evasive
responses that have become so commonplace in the condominium resale market when providing
Section 22.1 disclosures. Steps need to be taken to clarify and codify the intent of the statute and
to incorporate the key elements of the Mikulecky and D’Attomo cases into the statutory provisions.
The legislature should also revise the statute to provide for specific remedies for misleading or
erroneous disclosures. Barring such intervention, it is unlikely that the abuses often being exercised
so flagrantly by associations and property management companies will be stemmed because the
economics of a legal battle by individual purchasers to challenge those abuses is virtually always
going to be cost-prohibitive. Until and unless these changes are made, condominium purchasers
should exercise caution in relying exclusively on the intended protections of Section 22.1 and
should attempt to dig deeper into the association records and require the seller to provide direct
answers to specific questions – something that can be quite impractical in a seller’s market.

Our firm represents many condominium associations throughout the Chicagoland area, as well as
sellers and purchasers of condominium units. We understand that associations and their counsels
may resist the changes suggested by this article. We likewise understand the position of sellers
who don’t want to absorb any more liability than necessary in responding to purchaser’s inquiries.
But, when viewed in light of what is most equitable and when factoring in the significant impact
that major undisclosed special assessments can have on a new owner, it benefits nobody to support
continued lack of transparency and wordsmithing in this context. In the end, there can be as much
harm to the association when an owner struggles to meet his or her financial obligations as a result
of being caught by surprise by anticipated, but undisclosed repairs and capital expenditures. Nor
is it beneficial to welcome an owner into the community on such negative terms. After all, as
emphasized throughout this article and in the caselaw, transparency and focus on protection of the
purchaser was the underlying impetus when our legislature promulgated Section 22.1 in the
first
place.

Written By: James A. Erwin, Principal
Contributing Author: Michelle Craig, Law Clerk

As a practitioner for many years in the area of association law, I have been aware of a long-standing difference of opinion among association attorneys as to the obligation of a condominium association to pay for damages caused to the Common Elements (CE), Limited Common Elements (LCE), and to the Units and personal property of owners by the failure of the CE. An example would be water damage caused by the failure of the roof to keep rain water out. On the one hand, some association attorneys argue that an association’s only obligation with regard to such an event is to repair and replace the CE, up through the primer paint covering the walls of a unit. On the other hand, I (and various other attorneys) believe that if an association is responsible to maintain, repair and replace the CE (the usual formulation) which fails to do its job, the association is responsible for all of the damages that result from that failure. The whole question is complicated by variations in relevant declaration provisions and also by the duties of both an association and its unit owners to maintain casualty (property) and/or liability insurance. While it is possible that the interplay of liability law, declaration provisions and insurance may result in an association’s out-of-pocket liability being limited to the repair and replacement of CE up through the primer paint, I believe that such an outcome should not be assumed to be the customary outcome. Indeed, it will often not be the customary outcome.

What is very interesting to me is that there is no controlling caselaw in Illinois answering the question. Although CEs fail every day, causing damage to both real and personal property in condo associations, it appears to be one of those matters that does not get litigated (or at least not litigated at the appellate level).
As a further matter, I want to recognize that it is possible that CE could fail for reasons beyond an association’s control. The roof could be struck by lightning; an exceptionally heavy snow or rain could fall. Such “occurrences” (an insurance term, which will be relevant later on in this article) from nature are not what I am trying to address. However, an association could have a routine and apparently proper repair/replacement policy on which it follows though in a timely manner, with the result that it could argue that it has not breached its duty to keep the roof (or the particular CE at issue) in good repair. Still, I have found that such an argument usually has holes in it: Repairs may have been timely done, but the contractor hired to do the job may not have done it properly; the repair/replacement policy misunderstood the useful life of the CE with the result that it was in fact “older” than the Board realized; some prior event damaged the CE in a way that could have been noticed but wasn’t. I am not arguing that an association has “strict liability” for a failure of a CE. But it has been my experience that an extremely high percentage of CE failures are avoidable with proper attention from the Board. It is those CE failures, which raise the issue of breach of duty, to which I address myself.

In order to examine the problem at hand, I want to go back to basics:
In a condominium property, everything is either Unit or CE. See Section 2(e) of the Illinois Condominium Property Act, 765 ILCS 605/1 et seq., the “Act”. If and to the extent that a property has LCE, the LCE are simply “a portion of the common elements as designated in the declaration as being reserved for the use of a certain unit or units to the exclusion of the units…” Act, Section 2(s).
The boundaries of units at an association are defined on the plats of survey required to be attached as an exhibit to the declaration. Act, Sections 5 and 6. An example of a common formulation of the definition of the boundaries of a unit is: “The horizontal and vertical planes forming the boundaries of a unit coincide with the top of the finished floor, bottom of finished ceiling and interior face of perimeter finished walls.” Thus a unit is a cube of air ending at the finished walls, floor and ceiling. In the absence of any other provision in the declaration, the finishes on the walls, ceiling and floor (paint, wallpaper, molding, paneling, etc.) are also considered part of the unit. Act, Section 4.1(a)(2).

Important: The Act does not control many aspects of the issues discussed below. Since there is no one standard form of condominium declaration in Illinois, the following analysis cannot be deemed to be always correct for every condominium association. What follows are what I consider to be general rules in this area. It is always possible that a given declaration may have language that mandates a different result. Review of any given situation by the association’s attorney is always proper.

A. Maintenance, Repair and Replacement (“MRR”)
The Act makes the association, by its board, responsible for the maintenance of the CE. Act, Section 18.4 preamble and (a). Every declaration I can remember seeing (and I have seen hundreds) makes the association responsible for the MRR of the CE.
Somewhat oddly, the Act says nothing at all about who is responsible for the MRR of the units (although as will be seen later, the association is obligated to insure the entire building, at least up to the bare walls, bare floors and bare ceiling of the unit-i.e. through the primer paint, but not the finishes). Since the units are separate real estate, title to which is owned by the unit owner, logically the MRR of the unit should fall to the unit owner. Virtually all declarations I have seen make a unit owner responsible for the MRR of the owner’s own unit.
Responsibility for the MRR of LCE is variable. If a declaration says nothing specifically about the LCE, then the MRR of the LCE are treated the same way as the CE (remember that LCE are just a subcategory of CE). But often, especially in more modern declarations, there is a separate provision that makes the relevant unit owner(s) directly responsible to maintain some part or all of their appurtenant LCE. Or a declaration may give the association the right or even obligation for the MRR of the LCE, but then allow the association to charge the cost back to the appurtenant unit owners. This is authorized under Act, Section 9(e).
So the result is that in order to analyze the obligation for the MRR of a part of a condominium, first you must determine what part of the building is at issue: CE, Unit or LCE. Even then, you must review the declaration to see who has the obligation for the MRR of that particular part of the building.

B. Common Elements Failures
To make this discussion slightly easier, I want to use the example of the roof as a CE. The roof of a condominium building is almost always expressly deemed a CE. And, if there is a rainstorm and the roof leaks, it is easy to see understand the consequences of such a leak.
If a roof leaks, virtually every type of property at a building can be affected. The roof itself, the hallway walls, walls interior to units, the finishes on the walls, floor and ceiling of a unit, even an owner’s personal property inside a unit, like furniture, rugs and clothing, can all be damaged by water from a leaking roof.

C. A Pure Liability Analysis
In what follows I am assuming that no person caused the roof to leak. That is, noone went up on the roof and poked holes in it or took any other actions to cause the leak. If someone does damage CE, whether intentionally or through negligence, virtually all declarations make the person doing so liable for all injury and damages caused by his/her actions. See, e.g. Gelinas v. Barry Quadrangle Condo. Assn., 2017 IL App (1st) 160826, para. 18.
Rather, the situation I am positing is that the roof is, for whatever reason, not properly maintained, and that as a result the roof begins to leak.
By contrast, if the cause of the water leak is from a unit (overflowing tub or other water leak internal to the unit), the Act, at Section 9.1(a), makes the unit owner responsible for all injury and damages cause by the leak. “A unit owner shall be liable for any claims, damages, or judgment entered as a result of the use or operation of his unit, or caused by his own conduct.”
No similar statement exists in the Act for association CEs.
As a general proposition, the party who has the duty to maintain, repair or replace a part of building is responsible for injury and damages caused by the failure of the relevant part of the building. Kallman v. Radioshack Corp., 315 F.3d 731, 737-39 (7th Cir. 2002), rehearing denied. As mentioned above, the Act clearly makes the association, by its board, responsible for the MRR of the CE. Act, Section 18.4(a); See also Spanish Court Two Condominium Association v Carlson, 2014 IL 115342, at para. 21.

Generally speaking, at Illinois common law, the elements of a claim for premises liability are existence of a duty owed by the defendant to the plaintiff, breach of the duty, and injury (or damage) caused as a result. Keating vs. 68th and Paxton LLC, 401 Ill.App.3d 456 (1st Dist. 2010), appeal denied 237 Ill.2d 559.

The duty of the association for the MRR of the roof is thus both statutory (Act, Section 18.4) and per the declaration (a form of contract). The failure of the roof to prevent the leak is a breach of the duty. The injury is the actual damage caused as a result of the leak.

The next question is the measurement of the damages. In Illinois, it depends if the property damaged is beyond repair or not. If beyond repair, then the damages are the fair market value of the property immediately before the destruction, less any salvage value the property may have. If the property can be repaired, then the damages are the cost of repairs necessary to restore the property to its physical condition before the damage. Macy’s Inc. v Johnson Controls World Services, Inc., 670 F.Supp.2d 790, 800-01 (N. D. Ill., 2009). To the extent that personal property is damaged, the damages are the fair market value of the property immediately before the loss. But not the replacement cost. See Benford v. Everett Commons, LLC, 2014 IL App (1st) 130314, paras. 30-32.

So, under a pure liability analysis, the various outcomes are these:

1. If the roof leaks and other CE (e.g. walls of the hallway) are damaged as a result: The hallway walls are CE. The association is responsible both for the MRR of the hallway walls and the roof which leaked. Clearly the association is responsible for the damages to its “own” property caused by the failure of the roof to do its job.

2. If the roof leaks and the perimeter walls (and/or ceiling and/or floor) of a unit (but not the finishes) are damaged as a result: The association is responsible for the MRR of the walls, floors and ceiling which are CE (that is, the walls and ceiling up through the primer coat and the floor often to the finish flooring). Again, because those walls are CE and the roof which leaked is CE, it is the association that has to bear the damages caused by the roof’s failure.

3. If the roof leaks and the finishes on the interior of the perimeter walls (and/or ceiling and floor) of a unit are damaged as a result: The finishes are usually part of the unit (Act, Section 4.1(a)(2)-although the declaration may alter that conclusion), and the unit owner is usually stated in a declaration as being responsible for the MRR of the finishes on the walls of his/her unit. But the issue is not who has the obligation for the MRR of them. The issue is who has damaged them (that is, a liability, not a maintenance analysis). After all, the unit owner is blameless in causing the damages. Thus, the roof CE having caused the damages to the finishes, the association will either be obligated for the MMR of the finishes, or the association will have to pay damages to the unit owner for the damaged finishes, measured as stated above.

4. If the roof leaks and a LCE of a unit below are damaged (such as, for this purpose-a perimeter door): The LCE may be the responsibility of the association for the MRR of that item. Or the LCE could be the responsibility of the owner for the MRR of that item (depending on the declaration). But the issue is not who has the obligation for the MRR of the item. The issue is who has damaged it (that is, a liability, not a maintenance analysis). After all, the unit owner is blameless in causing the damages. Thus, the roof CE having caused the damages to the door, the association will either be obligated for the MMR of the door (if the association has the responsibility for the MRR of the door in the first place). Or the association will have to pay damages to the unit owner for the damaged door, measured as stated above.

5. If the roof leaks and personal property (furniture, clothing, rugs) of a unit owner is damaged as a result: The unit owner’s personal property is never the obligation of the association for MRR. Here again the unit owner is blameless in causing the damages to his/her personal property. To the extent of the damage to the personal property (as measured as above) the association will be responsible to the unit owner.

D. Insurance at an Association

The association is obligated by statute to carry both property (casualty) insurance and liability insurance. Act, Section 12(a). The property insurance is required to be in the full insurable replacement cost of the property (including CE, LCE and units, up through the primer coat on the walls, subject to certain board decisions). Act, Section 12(a)(1). If a unit owner makes certain improvements to his/her unit, the increased value of the building doesn’t have to be covered by the property insurance. But if such improvements are covered, the association may bill the increased premium costs for those improvements back to the relevant unit owner. Act, Section 12(b).

The amount of any deductible under the association’s policies is a board decision, not governed by the Act.

From the unit owner’s side, insurance is more hit or miss. Most more modern declarations require an owner to carry property insurance on the unit owner’s property anywhere on the property (whether inside the unit or, for example, in a storage area). In addition, a unit owner is often required by the declaration to carry liability insurance-that is, insurance against the unit owner or the unit causing injury to a 3rd person or damage to a 3rd person’s property. The Act, at Section 12(h), allows (but does not require) an association’s declaration (or bylaws) or rules to mandate that each unit owner have liability insurance. There is no comparable statute re unit owner property insurance.

Finally, many declaration have a provision that states some variation of the following: “Each Unit Owner hereby waives and releases any and all claims which he or she may have against any other Unit Owner, the Association, its officers, members of the Board, the Declarant (developer) the managing agent of the Association and their respective employees and agents, for damages to the Common Elements, the Units or to any personal property located in the Unit or Common Elements, caused by fire or other casualty, theft, vandalism and each and all other causes to the extent that such damage is covered by fire or other form of casualty insurance.”

Note that I have seen the last few words have a number of variations, such as: “to the extent such damage is actually covered by fire…insurance”; “to the extent the unit owner has received payment, in whole or in part, from said unit owner’s fire insurance”; “to the extent that such damage is covered by fire or other form of casualty insurance or would be covered by insurance for which the unit owner is responsible to obtain under this declaration”; and other variations.

Each of these formulations can result in a different outcome. If the unit owner has insurance, makes a claim and is paid in full (less a deductible) that is the easy situation. But maybe the unit owner doesn’t want to make a claim for some reason. Or maybe the unit owner doesn’t have the insurance he/she was obligated to obtain. The exact language of the waiver/release section is important.

Note that under Act, Section 12(c), the board can determine who is responsible for damages and cause that party to have to pay the deductible of an innocent unit owner who makes a claim on his/her insurance and who gets paid (less the deductible). In that way, innocent unit owners (or, if the damages to CE are caused by action of a unit owner, then the association itself,) can be truly made whole. See Gelinas, at paras. 20-22.

E. Effect of Insurance on the Liability Analysis.

Let’s return to the 5 situations posited above:

1. If the roof leaks and the walls of the hallway (for example) are damaged as a result: The association’s property insurance is at issue here, as the property damaged is CE. The association’s liability insurance is not at issue, as the damaged party is not a 3rd person, but is the association itself.
A roof leak, not caused by an “occurrence”, may not be covered by the property insurance. If that is the case, the association will have to pay for the MRR of the hallways to the extent the association chooses to do so (after all, the hallways being CE, the association has control of how the hallways look).

2. If the roof leaks and the perimeter walls (and/or ceiling and/or floor) of a unit are damaged as a result: Here again, the property damaged is CE (up through the primer coat), so the association’s property insurance is at issue. The association may (or may not) get insurance proceeds due to the lack of an “occurrence”, but because the damaged walls are CE, the association (not the unit owner) will have to pay to restore the interior walls and ceiling, at least through the primer, and the floor, up to (depending on the definition of CE at the association) the finished flooring.

3. If the roof leaks and the finishes on the interior of the perimeter walls (and/or ceiling and floor) are damaged as a result: My analysis is that since the finishes are often deemed part of the unit (and not CE or LCE), and are on the unit side of the primer paint, the association’s property insurance will not cover the damage. Then the association liability insurance will take over, as the damaged property is being treated as a 3rd party’s (the unit owner’s) property.
The outcome is that the association (and likely its liability insurer) will be liable for the damages under the liability analysis. The only other issue is whether the unit owner’s insurance covers the damage and whether the waiver/release language of the declaration (referenced above) is applicable to mandate such waiver or release.
It could happen that the waiver/release language applies but the unit owner, for reasons of his/her own, does not wish to, or will not, make a claim on his/her property insurance. In that case, the association doesn’t have to pay for the damages, but the unit owner’s insurance hasn’t reimbursed the unit owner. The finishes could remain unrepaired, as the association can claim that, despite its liability, until the unit owner’s own insurance has paid or denied coverage, the association will not know if the unit owner’s insurance coverage will result in waiving or releasing the association’s liability.
Such a situation (finishes remaining unrepaired) is rarely acceptable. So the alternative is for the association (or its liability carrier) to repair the finishes, and then assess the unit owner for reimbursement depending on the outcome of the waiver/release issues.
And as between the association’s property insurance and the unit owner’s insurance (if both arguably cover the same damaged property), the association’s insurance is primary. Act, Section 12(f).

It has been argued that because the CE only run through the bare walls (primer coat) as a matter of MRR, the association’s liability to a unit owner is similarly limited. I do not agree with this. The issue of the extent of the association’s obligation for the MRR of the CE at a building is not the same, in my opinion, as the issue of liability for failure of the CE. In the liability context, the existence of the MRR obligation only goes to establishing who is liable if that part of the building fails to do its job, and is not a limitation on that liability.

I note that it is also possible a declaration may affirmatively make the “interior surface” of the perimeter walls, ceilings and floor LCE of that unit, and not part of the unit itself. Such a provision overrules the default provision of Act, Section 4.1(a)(2). Thus, the finished interior surface, as LCE, could be deemed covered by the association’s property insurance. The exact coverage of the association’s property insurance would have to be reviewed to determine the insurance outcome here. If the association’s property insurance does not provide coverage, the association’s liability insurance still could do so.

4. If the roof leaks and a LCE of a unit below is damaged (such as, for this purpose- a perimeter door): My analysis here is the same as per the last paragraph of no. 3 above.
But, if the doors are treated in the declaration as part of the unit, then the association liability insurance would take over, as the damaged property is being treated as a 3rd party’s property. See also para. 3 immediately above.

5. If the roof leaks and personal property (furniture, clothing, rugs) of a unit owner/occupant is damaged as a result: The association’s property insurance never covers the unit owner’s personal property. But the association’s liability insurance may be triggered. At the same time, the unit owner’s property insurance (if required of the unit owner, or if the unit owner has the same) should cover the damages. Thus, again, the association remains liable to the unit owner. The only issues are whether the association’s liability insurance covers the damage, and the extent, if any, that the unit owner’s own property insurance covers the damages (and/or the effect of the waiver/release language on the liability of the association).

Overall, issues of liability for the failure of the CE as a result of failure to properly maintain, repair and replace them are a complex combination of common law, statutory, documentary and insurance analysis. Basic liability law mandates that the association will, in almost all cases, be liable for all such damages. The Act, and the given association’s documents and insurance may result in that liability being covered by insurance and/or waived/released. But there is no basis, in my opinion, for automatically concluding that, in the ordinary course, the association’s liability for damages to the unit, LCE or the personal property of the unit owner or other occupant, is limited solely to putting the CE, up through the primer paint, back into good repair.

© 2017
Mark R. Rosenbaum

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