NEW CHICAGO ORDINANCE DETERS OWNERS FROM ENTERING INTO SHORT-TERM AND VACATION LEASES IN VIOLATION OF COMMUNITY ASSOCIATION GOVERNING DOCUMENTS

Many, if not most, community association declarations prohibit owners from leasing their units for transient or hotel purposes.  While these types of restrictions have historically been uncontroversial and infrequently violated, the increasing popularity of peer-to-peer rental services such as AirBnB, VRBO, and HomeAway are quickly changing this.  These services make short-term and vacation leasing by owner very convenient and in turn created enforcement and administrative nightmares for community association boards of directors.

On June 22, 2016, the Chicago City Council passed an ordinance further regulating short-term and vacation leasing, including adding additional registration requirements for owners within community associations leasing looking to lease their units for short-term or vacation purposes.  A link to the text of the ordinance is contained here, and below is an outline of some of the changes that significantly affect community associations:

 The ordinance:

  1. Allows community associations to submit an affidavit stating that short-term and vacation leasing is prohibited within the community association. This affidavit can attest that the prohibition was established be either 1) a vote of the Board (i.e., an amendment to the rules and regulations) or 2) a restrictive covenant contained in the association’s declaration or bylaws.  Upon receipt of this affidavit, the commissioner must maintain a “Prohibited Buildings List,” which shall be posted on the City of Chicago’s website.  In the event a community association is included on this “Prohibited Buildings List,” an owner cannot obtain a license to lease his or her unit for short-term or vacation purposes.

(While it has long been our opinion that most community associations have the right to restrict leasing via a board adopted rule (see Apple II Condominium Association v. Worth Bank & Trust Co.) this provision would appear to be the City of Chicago’s recognition that short-term and vacation leasing can be prohibited by a community association’s board of directors, not soley through a restriction approved by the members.  While this acknowledgement by the City of Chicago is far from an absolute guarantee that a courts will uphold short-term and vacation leasing restrictions adopted via rule, it certainly aids a community association’s efforts to defend such a rule’s validity and enforceability.)

  1. Provides limits on the number of units within a community association building that can be leased for short-term or vacation purposes. In community association buildings with two (2) to four (4) units, only one unit per building can be rented.  In community association buildings with more than five (5) units, short-term and vacation rental leases will be limited to either six (6) units or one-quarter (1/4) of the total number of units, whichever is less.
  1. Requires that any owner seeking to list his or her unit as a short-term or vacation rental first register with the City of Chicago and pay a licensing fee. Further, this application requires the owner to attest that the 1) community association has not adopted prohibitions of vacation rentals, and that that 2) the leasing limits (discussed above) have not been reached.
  1. Prohibits on-line platform companies (i.e., Airbnb, VRBO, HomeAway, etc.) from permitting advertisements of units ineligible to be leased for short-term or vacation purposes, including, advertisements for those units within a community association on the City of Chicago’s “Prohibited Building List.” Further, the ordinance provides penalties for on-line platform companies failing to comply this prohibition on advertising ineligible units.
  1. To ensure compliance, the ordinance establishes certain penalties for those violating the ordinance., including fines of $1,500 to $3,000 per offense, with each day that a violation exists treated as a separate and distinct offense. More egregious violations, such as criminal activity or public nuisance, will be subject to a fines of $2,500 to $5,000 per offense.

The passage of this ordinance is definitely good news for community associations struggling with owners leasing units in violation of short-term and vacation leasing restrictions, as it unquestionably discourages such violations.  That being said, the restrictions created by this ordinance are only enforceable by the City of Chicago, and therefore its effectiveness will be completely dependent upon the City of Chicago’s willingness, and ability, to enforce its provisions.  While community associations located within the City of Chicago which prohibit short-term and vacation leasing should certainly take the necessary steps to be included on the City of Chicago’s “Prohibited Building List,” ultimate enforcement may still fall at the hands of the board.

If you or your community association within the City of Chicago are interested in this topic, please contact me to set up a review of your current governing documents and outline the necessary steps to allow your community association to take full advantage of this ordinance.  I can be reached at ben@keaycostello.com or 630-690-6446 x 11.