LEASING RESTRICTIONS AFTER STOBE v. 842-848 WEST BRADLEY PLACE CONDOMINIUM ASSOCIATION

Recently, on February 3, 2016, the Illinois First District Appellate Court, Third Division, issued a ruling in the case of Stobe v. 842-848 West Bradley Place Condominium Association (2016 IL App (1st) 141427) pertaining to certain leasing restrictions within condominium associations.  At this time, this case is binding on all condominium associations within the First Appellate District (e.g. those within Cook County, Illinois) and could be viewed as persuasive as to associations located elsewhere in Illinois.  This Article is a summary of the Stobe case.

Summary of Stobe case

In Stobe, the plaintiff owners purchased a condominium unit within the defendant condominium association for purposes of renting out the unit.  The association’s declaration did not contain any express right of owners to lease their units, but rather included restrictions on owners leasing their units such that no units could be leased for transient or hotel purposes or for terms of less than six (6) months.  The article in the association’s declaration pertaining to leasing did not include a specific right of the association board to adopt further rules pertaining to leasing.  The association’s declaration and bylaws did contain elsewhere general language regarding the board’s ability to adopt rules and some specific language regarding the board’s ability to adopt rules pertaining to other types of restrictions.

The plaintiffs in Stobe purchased their condominium unit in late 2005, and then the association board adopted rules in July 2010 that placed a cap on the number of units that could be leased at any given time of thirty percent (30%).  In 2012, the association sought to enforce its leasing cap and evict the plaintiffs’ tenants which prompted the plaintiffs to file a lawsuit against the association declaring the board adopted leasing cap invalid.

The court in Stobe decided that the board adopted rule placing a cap on leasing was invalid because it conflicted with the association’s declaration.  While the association’s declaration did not contain an express right for owners to lease their units, the court determined that owners did have a right to lease their units because the association’s declaration contained certain restrictions related to leasing (i.e. the prohibition on leasing for transient or hotel purposes or for less than six (6) months) and these restrictions would be meaningless if owners did not have the right to lease their units.  Thus, the court reasoned that because the association’s declaration granted owners the right to lease their units, a board adopted rule could not take away this right.

Additionally, the court focused on the fact that elsewhere in the association’s declaration where restrictions were enumerated there was express language included that the board could adopt rules related to those particular restrictions, but there was not similar language in the article of the declaration that included the leasing restrictions.  Thus, the court held that because “the declaration has spoken on the matter of leasing, any augmentation or diminution of plaintiffs’ right to lease their unit must be accomplished through an amendment to the declaration, not a rule promulgated by the Board.”

For the past couple of decades, the seminal case in Illinois regarding leasing restrictions adopted by associations has been Apple II Condominium Ass’n v. Worth Bank & Trust Co., 277 Ill.App.3d 345 (1995).  For our summary of this case, please visit our website at (http://www.keaycostello.com/board-operations/the-return-of-leasing-and-restrictions-at-associations).  The Stobe court discussed the Apple II case but found it inapplicable because Apple II addressed a leasing restriction adopted by an amendment to a declaration as opposed to a leasing restriction adopted by a board which, in the Stobe court’s determination, conflicted with the association’s declaration.  While the Apple II court discussed the possibility of a board adopting leasing restrictions, the Stobe court found this discussion non-binding on it since Apple II did not actually involve a leasing restriction adopted by a board rule.

The Stobe court also discussed the case of Board of Directors of 175 East Delaware Place Homeowners Ass’n v. Hinojosa, 287 Ill.App.3d 886 (1997), which dealt with a board adopted rule prohibiting owners from having additional dogs.  The Stobe court reasoned that the Hinojosa case did not apply because in Hinojosa the association’s declaration did not contain any language related to dog ownership and therefore the board’s rule to prohibit new dogs did not conflict with any language within the declaration.

Going Forward

For some associations, the Stobe case provides clear guidance going forward.  For other associations, though, the Stobe case potentially raises more questions than it does provide answers.

For those associations that have any language or restrictions related to leasing within their declaration, if the articles/sections related to leasing do not have language specifically permitting the board to adopt rules related to leasing, the Stobe case would indicate that the boards for these associations are not permitted to adopt any rules or regulations related to leasing.  Any further restrictions related to leasing would need to be adopted through an amendment to the association’s declaration.

For those associations that have language or restrictions related to leasing within their declaration, if the articles/sections related to leasing do have language specifically permitting the board to adopt rules related to leasing, the Stobe case would indicate that the boards for these associations could adopt additional rules and regulations related to leasing as long as such rules and regulations do not conflict with the terms of the declaration.

On the other hand, if an association’s declaration contains no language related to leasing, the Stobe decision would seem to indicate that associations could adopt leasing restrictions through either a declaration amendment or through rules adopted by the board as further discussed in the Apple II case.

Additionally, the Stobe case raises questions regarding whether the court’s ruling could extend beyond just leasing restrictions.  For example, if an association’s declaration contains restrictions on a particular topic (such as pets, recreational activities, parking, storage of items, etc.), and does not contain language within such sections specifically providing that the board may adopt rules on these particular topics, the Stobe decision raises the question of whether or not the board would be able to adopt any rules on such topics.  The Stobe case solely dealt with leasing restrictions, so it cannot conclusively be applied to other types of restrictions at this point, but this does nevertheless put associations on notice that future courts could expand the reasoning from Stobe to other types of restrictions besides leasing restrictions.

As we did before the Stobe case was decided, our firm continues to highly recommend that any association seeking to adopt restrictions on leasing do so through an amendment to the declaration as opposed to a rule adopted by the board.  If your association is considering adopting restrictions on leasing, or already has such restrictions in place and would like them reviewed, please feel free to contact our office and one of our attorneys would be happy to assist you.

 

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office.