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Is your Condo Assocation Charging Too Much?

| November 19, 2015

By:  Evan Sauer
       evan@rdlawyers.com
       877-809-4567 x3

Consider this set of facts.  During the development of residential properties, several separate and distinct condominium associations were created by the developer.  There were six condominium associations with 260 homes.  A separate master association controlled and administered the common elements of the six condominium associations.

A dispute ensued  when the master association charged one of the condo associations (“Plaintiff”) more for the use of certain common elements, namely the maintenance and repair of a roadway, detention/retention bond, and landscaping. The levying of assessments for the common elements was not based upon a percentage of ownership of each unit owner, but rather the master association believed it could assess one particular association differently than it assessed other associations if that particular association predominately used a certain common element.  In believing it could do so, the master association adopted the following provision in its declaration:

"The amount of Association Expenses assessed against all Owners of Dwelling units shall be calculated on a pro rate basis, with the Owner of each Dwelling Unit being obligated to pay its pro-rata fraction of the association and expenses, which fraction shall have as the numerator one (1) and as the denominator the total number of dwelling units (260). Notwithstanding the foregoing, to the extent any portion of the community areas or limited community area is utilized predominantly for the benefit of any of the Homeowner association, the Association shall have the right to equitably assess such Homeowner Association for the specific costs of maintaining such portion of the community area or limited community areas."

We represented the Plaintiff who filed suit against the master association alleging that this provision violated the Illinois Condominium Act in that it allowed the master association to impose greater financial burden upon some unit owner without any clear direction or authority.  More specifically, the master association could not charge the Plaintiff higher assessments for maintenance and repair of a roadway, landscaping, and a detention/retention pond based upon the determination that it utilized portions of those common elements more predominately than the other associations.  In its defense, the master association filed a motion to dismiss arguing that it could disproportionately charge Plaintiff for maintenance of those common elements because as a master association it was exempt from the provisions of the Act.

Although this was a case of first impression in Illinois, the Court looked to the relevant provisions of the Act to make its ruling:

765 ILCS 605/4(e) provides:

The percentage of ownership interest in the common elements allocated to each unit. Such percentages shall be computed by taking as a basis the value of each unit in relation to the value of the property as a whole, and having once been determined and set forth as herein provided, such percentages shall remain constant unless otherwise provided in this Act or thereafter changed by agreement of all unit owners.

Further, 765 ILCS 605/9 provides:

All common expenses incurred or accrued prior to the first conveyance of a unit shall be paid by the developer, and during this period no common expense assessment shall be payable to the association. It shall be the duty of each unit owner including the developer to pay his proportionate share of the common expenses commencing with the first conveyance. The proportionate share shall be in the same ratio as his percentage of ownership in the common elements set forth in the declaration.

625 ILCS 605/18.5, Master Associations, provides:

(a) If the declaration, other condominium instrument, or other duly recorded covenants provide that any of the powers of the unit owners associations are to be exercised by or may be delegated to a nonprofit corporation or unincorporated association that exercises those or other powers on behalf of one or more condominiums, or for the benefit of the unit owners of one or more condominiums, such corporation or association shall be a master association.

(b) There shall be included in the declaration, other condominium instruments, or other duly recorded covenants establishing the powers and duties of the master association the provisions set forth in subsections (c) through (h).  

In interpreting subsections (c) through (h), the courts should interpret these provisions so that they are interpreted consistently with the similar parallel provisions found in other parts of this Act.

While there is no specific provision in Section 18.5 of the Illinois Condominium Act that delineates how assessments shall be calculated, it is clear that all provisions of Section 18.5 shall be read consistently with the rest of the Act.  It is also clear from Section 18.5 that powers of a master association can only be delegated from a unit owner’s association.  Thus, if a unit owner’s association does not have a power to act in a certain manner, a master association cannot be delegated a power that does not exist. One power a unit owner association does not have under the Act is to disproportionately allocate charges for common elements. Section 605/4(e) of the Act requires the “the percentage of ownership interest in the common elements allocated to each unit” to be included in the declaration. 765 ILCS 605/4(e). “Such percentages shall be computed by taking as a basis the value of each unit in relation to the value of the property as a whole”. Id. Thus, a unit owner’s share of the common elements is fixed.

Common interest ownership goes to the essence of an owner's property interest in a condominium. Huskey v. Board of Managers of Condos., 297 Ill. App. 3d 292, 295-296 (1st Dist. 1998). The percentage of common interest ownership impacts the unit owner's property taxes, the amount of annual and special assessments, as well as the resale price of the unit. Id. This is why unit owner associations, and master associations do not have the power to disproportionately allocate charges for common elements.

The Court denied the master association’s motion to dismiss, holding that each of the associations in this matter may only assess each unit owner based upon the unit owner’s pro rata share of the entire association. Under that guiding principle, the master association can only levy assessments for common elements based upon the share of ownership of each unit owner or each association.  If the facts of this case were such that the assessments were based upon a common element that was within the exclusive control or exclusive use of Plaintiff, such as a locked swimming pool, tennis court or club house, the outcome may have been different.  

We were able to settle the matter for the Plaintiff.  The master association agreed to amend the relevant provision of its declaration and reimburse Plaintiff for overcharged assessments.

If your condo association is being disproportionately charged, we can help.

Evan Sauer is a Chicago real estate and business attorney at Reda & Des Jardins, LLC, a forward-thinking, technologically savvy law firm providing top-notch legal services to clients ranging from startups to large companies in a variety of industries. 

R&D's practice includes businessreal estatelitigation and estate planning

 

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