For condominium association boards looking for ways to enhance property values and market their community to potential new buyers, having the condominium association approved for FHA-backed loans is potentially one of the most effective ways a board can go about this.  In order for a buyer using an FHA-backed loan to purchase a unit within a condominium, the condominium association first needs to be approved by HUD.  HUD’s initial approval is good for a two (2) year period, and must be renewed every two (2) years or else it will expire.  With required down payments as low as 3.5%, some estimates show that more than half of all first-time home purchasers use FHA-backed loans.  Thus, condominium associations that are not FHA approved are potentially losing out on a significant pool of potential home buyers. 

Initially, to clarify some common misconceptions regarding FHA-backed loans, these are not related to Section 8 or any type of low-income government subsidized housing program.  Rather, an FHA-backed loan is a loan given by a private lender that is insured by the federal government.  In some cases, FHA-backed loans can be used to purchase condominium units with a purchase price of over $400,000, and therefore these loans could potentially be used to purchase a high percentage of the condominium units available within the Chicagoland area. 

From a marketing standpoint, there are a number of potential benefits for a condominium association that come with being approved for FHA-backed loans.  FHA approval for condominium associations is only granted for a two (2) year period and must be renewed after that.  In determining whether or not to grant FHA approval to an association, HUD reviews certain association financial documents, delinquency information, owner occupancy rates, reserve contributions, and insurance information (among other items), and determines whether or not the association meets HUD’s minimum requirements for each of these items.  Associations that desire to remain FHA approved must go through this process every two (2) years.  Thus, receiving FHA approval can allow an association to market itself as having gone through HUD’s review process and having met HUD’s requirements.  This can also allow the association to potentially distinguish itself from neighboring associations that either have not gone through this process or have been deemed by HUD to not meet all of HUD’s requirements for FHA approval.

Another potential marketing benefit of being FHA approved is that this could allow an association to attract more buyers desiring to live within the community as opposed to investor owners.  FHA-backed loans are designed for home buyers who are looking to purchase the home as their primary residence.  In most cases, FHA-backed loans are not available for buyers desiring to purchase the home as an investment property.  Thus, being FHA approved may open an association up to a potential pool of buyers that are for the most part looking to buy a home to live in instead of rent out.

Furthermore, having an association approved for FHA-backed loans is a requirement for an owner within the association to obtain a FHA reverse mortgage (HECM).  Reverse mortgages have become a popular financial tool for some retirement-age home owners.  Therefore, whether or not an association is FHA approved could be a major factor for prospective buyers considering this reverse mortgage option in the future.

There are potentially other benefits to a condominium association being FHA approved as well, which is why many condominium association boards explore this option for their associations.  If your condominium association is considering applying for FHA approval or renewal of a current FHA approval and would like assistance with this process, 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. 

 

Election of Association Board Members and Officers—What’s the Difference?

A common scenario I see with some associations when it comes to elections is the following:  ballots and proxies are distributed to owners for the annual election meeting asking owners to vote for who they want to be the association president, who they want to be the association secretary, who they want to be the association treasurer, etc.  The problem with this scenario, for most associations, is that this does not comply with the associations’ governing documents.

Instead of calling for a direct election by owners of individuals to fill specific officer roles for the association, association governing documents (either in the declaration or bylaws) typically provide for a two-step process.  Step one is the election of a board of directors by the owners, where owners vote for individuals to serve on the board of directors.  Step two then follows where the elected board members, amongst themselves, vote on which of them will serve in which officer position for the association.  Thus, who fills what officer position is a decision of the elected board of directors and not a decision made by the owners.

This two-step process is also consistent with the default provisions provided in the Illinois statutes applicable to many associations.  Both the Condominium Property Act (765 ILCS 605/18(a)(1)) and the Illinois Common Interest Community Association Act (765 ILCS 160/1-25(a)) specify that the board members will be elected from among the owners in the association.  These statutes then provide for an election of a president, treasurer and secretary from among the members of the board of directors (765 ILCS 605/18(c), (d), and (e) and 765 ILCS 160/1-25(f)).

For those associations that are established as not-for-profit corporations, the Illinois General Not For Profit Corporation Act of 1986 (805 ILCS 105/101.01 et. seq.) applies as well.  Section 108.50(a) of that Act provides that, “Officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the board of directors or chosen in such other manner as may be prescribed by the bylaws”.  Therefore, while this Act would permit officers to be elected in some other manner if an association’s bylaws so provide, the default is that officers are chosen by the board of directors.

The key for any association in filling board and officer positions is to follow what the association’s declaration and bylaws provide.  For the majority of associations, this will be the two-step process where owners first elect the board members and then the board members vote for who among them will fill the officer positions for the association.  If your association has questions about the election process and how you should be filling these board and officer positions, 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. 

 

 

TIME TO UPDATE RULES AND REGULATIONS REGARDING

CONDOMINIUM ASSOCIATION RECORD REQUESTS AND USES FOR COMMERCIAL PURPOSES

With the adoption of Public Act 100-0292, which will take effect on January 1, 2018, several significant changes will take place with respect to the rights of owners within condominium associations to inspect and copy records of a condominium association as outlined in the Condominium Property Act (765 ILCS 605/19).  One significant change that will occur is that owners will be entitled to obtain from their condominium association the e-mail addresses and telephone numbers of their fellow owners, in addition to those owners’ names and addresses.  Accordingly, it is important for condominium association boards to review their procedures for handling such requests.

An owner requesting the names, addresses, e-mail addresses and telephone numbers of their fellow owners, as well as requesting to see copies of ballots and proxies from recent owner votes, may only make such a request for a purpose that relates to the association.  To help make sure that owners are not requesting this information for purposes unrelated to the association, Section 19(e) of the Condominium Property Act provides that a condominium association may require an owner requesting this information to certify in writing that the information contained in the records will not be used by the owner for any commercial purpose or any other purpose that does not relate to the association.  Additionally, condominium association boards of directors are authorized to establish and impose a fine against any owner that makes a false certification.

Therefore, in anticipation of these statutory changes that will take effect on January 1, 2018, condominium association boards may want to consider taking a couple of steps before then.  The first step a condominium association board should consider taking is establishing a standard written certification form they will require any owner requesting the aforementioned information to fill out.

The second step a condominium association board should consider is adopting a fine structure that they will impose on any owner that make a false certification and uses the information provided by the condominium association for commercial purposes or other purposes unrelated to the association.  While the Condominium Property Act permits an association board to fine owners for making such a false certification, in order to impose a fine a board must first take the steps necessary to vote to establish and adopt a fine for this purpose.  While the statutory changes will not take effect until January 1, 2018, boards can act now to put a fine structure in place prior to January 1, 2018.

If your condominium association has questions about the changes that will take effect on January 1, 2018 and/or would like assistance in preparing a certification form and/or fine structure as outlined in this article, 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. 

 

COMMON AREA ISSUES

Most associations have common areas.  These can range from simply a detention pond or two and/or maybe a few subdivision entry signs for a large detached single-family home community on one end of the scale to recreational facilities (such as a clubhouse, pool, tennis courts, etc.), parking lots and lakes used for recreational activities (such as boating, fishing, and swimming) on the other end of the scale.  While the type of common area an association has will largely dictate the maintenance, insurance and potentially staffing responsibilities of the association, there are several common issues we have come across that all associations with common areas need to consider which this article will address.

What are the Common Areas?

The first issue with common areas that an association, and the board members running the association, need to address is what are the specific common areas for the association.  While this may at first seem like a simple question, the answer is not always straight-forward.  What constitutes the common areas of an association is typically identified within the association’s declaration.  These could be defined by reference to a specific set of lots (e.g. lots A, B and C on the plat of subdivision), or could instead refer to all areas identified on the plat of subdivision as common areas.  Either way, the association will likely need to refer to the recorded plat(s) of subdivision to determine what area(s) are legally part of the common areas that the association is responsible for.

Where I have seen this particular question cause issues for associations is where an association assumes it knows what the common areas are without referring to the declaration.  For example, this could occur with a partially developed community where the association assumes that certain open areas are part of the common area the association is responsible for when, in fact, the developer that created the association never made those open areas part of the common area for the association in the declaration.  Therefore, if an association has not already done so, it would be a good idea to verify via the association’s declaration what all of the common areas for the association are.

Who Owns the Common Area?

According to most declarations, the association should own the common area.  Many declarations even specifically set a date or deadline by when the developer will transfer title to the common areas to the association via deed that is recorded with the county recorder of deeds, with the date/deadline often being by the turnover date or some period of time shortly thereafter.

However, a common issue we have found with a number of associations is that while the declaration states that the association is to receive a deed for title to the common areas, this does not always occur.  In these cases, for some reason, the developer fails to prepare a deed transferring title to the common areas to the association.  When this occurs, the official ownership of the common areas remains in the name of the developer, even if the developer has gone out of business or otherwise moved on.  If this failure is not discovered promptly and while the developer is still involved with the association, this can create problems for the association in correcting this which may ultimately require the association to file a lawsuit to obtain a judicial deed for the common areas.

Having recorded title to the common areas in the association’s name is important for a number of reasons.  Amongst these is that having title in the association’s name may be necessary to properly insure the common areas, and that without being the recorded title holder, the association likely will not receive relevant notices pertaining to the common areas such as property tax notices.

Thus, if an association does not have a deed showing the association as the recorded owner for the common areas, or is not sure if it has such a deed, the association would be prudent to verify that it has been given this title to the common areas by a deed which is recorded with the applicable county recorder of deeds.  If no such deed exists, the association would be wise to consult with its attorney to attempt to obtain this deed to make sure the association is shown as the official owner of the common areas.

Are the Common Areas Being Properly Taxed?

According to the Property Tax Code of the Illinois Revenue Act (35 ILCS 200/10-35), association common areas that are used for recreational and other similar residential purposes are to be assessed at a value of $1.00 each year, meaning that the association should not have to pay any property taxes on the common areas.  However, we are aware of several associations where the applicable taxing authority incorrectly assessed the common areas at a higher value which resulted in property taxes being charged to the association.  While each county handles this issue in a slightly different manner, what is common amongst all of the counties we have worked with on this issue is that time is of the essence to correct this issue and delays can be costly for associations.  Some counties have a short window of time when assessed value appeals can be filed and if an association misses that window of time it can be out of luck and forced to pay the property taxes that were levied at the incorrect assessed value rate.

Another significant issue that may arise is that common area property taxes, like property taxes for residences, can be sold if they are not paid by the owner on time.  Further, if the sold property taxes are not redeemed by the owner within the allotted time, a tax sale can occur which means that the person that purchased the unpaid property taxes can then become the owner of the property.  In other words, if an association’s common areas are improperly charged property taxes and the association fails to pay these and they are sold to a tax sale buyer, the association could eventually lose ownership of the common areas.

Therefore, it is important for an association to verify that its common areas are being properly assessed at a $1.00 value by the applicable taxing authority.  Additionally, an association should make sure that the applicable taxing authority has tax bills being sent to the association at a current address for the association.  This is important so that the association will be notified should the common area assessed value change in the future.

Conclusion:

Regardless of whether an association has significant common areas with multiple recreational facilities or merely one or two open space common areas, it is important for the association to verify that it has legal, recorded title to these common areas and that they are being properly assessed for property tax purposes.  If your association is not sure about the answer to any of the questions raised in this article about your common areas, or is aware of an issue with your common areas that you need legal guidance with, 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. 

 

HUD ANNOUNCES NEW FHA OWNER OCCUPANCY REQUIREMENTS

The U.S. Department of Housing and Urban Development (“HUD”), recently published Mortgagee Letter 2016-15, which modified the owner occupancy requirements for condominium associations seeking Federal Housing Administration (“FHA”) approval.  Prior to the adoption of Mortgagee Letter 2016-15, a condominium association with an owner occupancy rate of under fifty percent (50%) could not be granted FHA approval.  With the adoption of Mortgagee Letter 2016-15, however, condominium associations with owner occupancy rates as low as thirty-five percent (35%) may be eligible for FHA approval, provided they meet certain additional requirements.

Specifically, a condominium association with an owner occupancy rate between thirty-five percent (35%) and fifty percent (50%) may be eligible for FHA approval if it meets the following additional requirements:

 1.  The association’s financial documents (i.e. budget, balance sheet, and income and expense statement) provide for the funding of replacement reserves for capital expenditures and deferred maintenance at a level of at least twenty percent (20%) of the total annual budget for the association.

     For condominium associations with an owner occupancy rate of at least fifty percent (50%), the reserve contribution requirement is ten percent (10%) of the annual budget.  So, HUD’s minimum reserve contribution requirement for associations with under fifty percent (50%) owner occupancy rates is double the minimum reserve contribution requirement for associations with at least fifty percent (50%) owner occupancy rates.

2.  No more than ten percent (10%) of the total units in the association may be delinquent by more than sixty (60) days on assessment payments to the association.

     For condominium associations with an owner occupancy rate of at least fifty percent (50%), the delinquency requirement is that no more than fifteen percent (15%) of the total units in the association may be delinquent by more than sixty (60) days on assessment payments to the association.  So, HUD is requiring associations with under fifty percent (50%) owner occupancy rates to have significantly fewer units delinquent by more than sixty (60) days on assessment payments to the association then it requires for associations with at least fifty percent (50%) owner occupancy rates.

3.   The association must provide financial documents (i.e. budget, balance sheet, and income and expense statement) for the previous three (3) years.

      For condominium associations with an owner occupancy rate of at least fifty percent (50%), HUD requires only the current year budget, a balance sheet that is no more than ninety (90) days old, and an income and expense statement from the prior fiscal year end as well as one that is no more than ninety (90) days old.  Thus, HUD is requiring associations with under fifty percent (50%) owner occupancy rates to provide financial documents for two (2) additional prior fiscal years as compared to what it requires for associations with at least fifty percent (50%) owner occupancy rates.

4.   The association must apply for FHA approval through the HRAP process.

The HRAP process means the association submits its application directly to a HUD office for review.  Associations with at least fifty percent (50%) owner occupancy rates also have the ability to apply for FHA approval through the DELRAP process, whereby an authorized lender has the ability to grant the association FHA approval.  It would appear that the DELRAP process is not available for associations with under fifty percent (50%) owner occupancy rates.

 

These new owner occupancy requirements announced by HUD should permit additional condominium associations to obtain FHA approval, provided that an association with an owner occupancy rate between thirty-five percent (35%) and fifty percent (50%) can also meet the new financial requirements set forth by HUD.  If your condominium association is considering applying for FHA approval and would like assistance with this process, 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. 

 

Public Act 099-0567 was signed into law by Governor Rauner on July 15, 2016.  This Public Act made a few significant changes to both the Illinois Condominium Property Act (765 ILCS 605/1 et. seq. and herein referred to as the “Condo Act”) and the Illinois Common Interest Community Association Act (765 ILCS 160/1-1 et. seq. and herein referred to as the “CICAA”) related to the closed portion of board meetings, often referred to as the executive session portion of board meetings.  These changes will take effect on January 1, 2017.

Currently, Section 18(a)(9) of the Condo Act provides that those matters which can be discussed by a board of a condominium association within executive session are limited to discussion of litigation, either then pending or that the board finds to be probable or imminent, discussion of the appointment, employment or dismissal of an employee, the violation of the association’s rules and an owner’s unpaid assessments.  Similarly, Section 1-40(b)(5) of the CICAA currently contains these same limits on what can be discussed within executive session by a board of a common interest community association subject to CICAA, with the addition of permitting a board to consider third party contracts within executive session as well.

Beginning January 1, 2017, Section 18(a)(9) of the Condo Act, as amended by Public Act 099-0567, will permit the board of a condominium association to meet in executive session for the following matters:

(1)      Discussion of litigation that is either pending or that the board finds to be probable or imminent;

(2)      Discussion of the appointment, employment, engagement or dismissal of an employee, independent contractor, agent or other provider of goods and services;

(3)      To interview a potential employee, independent contractor, agent or other provider of goods and services;

(4)      Discussion of violations of the association’s rules and regulations;

(5)      Discussion of an owner’s unpaid assessments; and

(6)      To consult with the association’s attorney.

So, for condominium associations, this new language creates the right of a board to discuss within executive session matters related to retaining or dismissing contractors and agents, such as property management companies, landscape contractors, maintenance contractors, etc., and not just employees of the association as the Condo Act currently provides.  This new language also permits the board to interview potential employees, property management companies and other contractors outside of an open meeting.  Additionally, the changes grant a board the specific right to have discussions with the association’s attorney outside of an open meeting.

Furthermore, the changes that will take effect on January 1, 2017 will also permit a board executive session to take place during an open board meeting, which is already permitted, but also separately outside of an open board meeting.  Thus, if a board solely wants to engage in those types of discussions that may take place during executive session, as of January 1, 2017 it will no longer be necessary to call an open board meeting, with all required notice of same provided to owners, and then call the open board meeting to order and then immediately adjourn into executive session, which is what is required now if a board solely wants to hold an executive session.

However, as a reminder, all votes of the board must take place at an open board meeting, notice of which has been provided to the owners.  This requirement is not changed by Public Act 099-0567, so all of the additional matters which may as of January 1, 2017 be discussed within executive session by a board still need to be voted upon by the board at an open board meeting.  Therefore, if a board elects to forego an open board meeting and hold just an executive session without notice to owners, as boards will be permitted to do beginning on January 1, 2017, no votes of the board will be able to be taken at such executive sessions.  If a board wants to vote on a matter that is discussed at an executive session, it will then either need to call a subsequent open board meeting with the required notice, or else continue to hold executive sessions during a portion of open board meetings as is currently required.

Beginning January 1, 2017, Section 1-40(b)(5) of the CICAA will also include all of the items listed above for condominium associations which may then be discussed within executive session, and will also still include the ability of a board of a common interest community association subject to CICAA to discuss third party contracts within executive session.  As with condominium association boards, the board of common interest community associations subject to CICAA will also, beginning on January 1, 2017, be able to meet in executive session that is held separate from an open meeting.  However, all votes by such association boards will still need to be taken at an open board meeting with the required notice provided to owners.

Therefore, as of January 1, 2017, Public Act 099-0567 will give boards of associations subject to either the Condo Act or CICAA several additional topics that they may discuss within an executive board session.  Moreover, these boards will also have the option of meeting for purposes of discussing matters that may be discussed within executive session without the requirement of holding an open board meeting with notice to owners.  This should provide such boards greater flexibility to meet to discuss such items and potentially result in a cost savings for those associations who have previously been holding open meetings, and incurring the costs of providing notice for same, solely for the purpose of then adjourning into executive session.  Additionally, the new changes expressly provide that a board may meet and have discussions with the association’s legal counsel during executive session, which eliminates a potential grey area under the current open meeting language within the Condo Act and CICAA.  However, these new changes do not give boards the right to hold general “workshops” on all matters that the board may want to discuss; rather, the items that may be discussed by the board outside of an open portion of board meetings are limited to only those items that will specifically be included within the Condo Act and CICAA as amended by Public Act 099-0567, as outlined above.  Board discussion of items not specifically included within these statutes, as amended, must continue to be held at open board meetings.

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. 

July 22, 2016

 

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. 

 

DISPLAY OF AMERICAN FLAG and MILITARY FLAG BY OWNERS

An issue that comes up every now and again in associations is the display of flags by owners. Some association declarations contain complete prohibitions on the display of any flags by owners, while other declarations may be wholly silent on the issue of flags. Fortunately for associations, there is statutory guidance regarding the display of some of the most commonly displayed types of flags, namely the American flag and military flags. The display of other types of flags is not addressed by this article, and will likely depend upon the specific terms of a particular association’s declaration.

For condominium associations, the Illinois Condominium Property Act (765 ILCS 605/18.6(a) and referred to as “Condo Act”) provides, and for associations subject to the Illinois Common Interest Community Association Act (765 ILCS 160/1-70(a) and referred to as “CICAA”) that act provides, that regardless of what other language may be within an association’s declaration, bylaws or rules, the association board “may not prohibit the display of the American flag or a military flag, or both, on or within the limited common areas and facilities of a unit owner or on the immediately adjacent exterior of the building in which the unit of a unit owner is located.” However, while a board may not prohibit the display of the American flag or a military flag by an owner, it may “adopt reasonable rules and regulations, consistent with Sections 4 through 10 of Chapter 1 of Title 4 of the United States Code, regarding the placement and manner of display of the American flag” and “may adopt reasonable rules and regulations regarding the placement and manner of display of a military flag.” Thus, owners within associations governed by either of these statutes are given the right to display an American flag and military flag, but the board may adopt reasonable rules and regulations regarding how such flags are displayed and placed.

Similarly, for any homeowner, property owner or townhome association that is incorporated as an Illinois Not-For-Profit Corporation, the Illinois Not-For-Profit Corporation Act (805 ILCS 105/103.30(a) and referred to as “NFP Act”) contains language permitting owners in such associations, regardless of what language may be contained in the applicable declaration, bylaws or rules of the association, to display the American flag and military flag on the owner’s property. The manner and placement in which such flags may be displayed by owners can be regulated by the Board through reasonable rules and regulations.

In addition to granting owners within associations the right to display the American flag and military flag, the aforementioned statutes also grant owners the right to install flagpoles for the display of the American flag and a military flag. Both the Condo Act (765 ILCS 605/18.6(a)) and the CICAA (765 ILCS 160/1-70(a)) provide that an association board “may not prohibit the installation of a flagpole for the display of the American flag or a military flag, or both, on or within the limited common areas and facilities of a unit owner or on the immediately adjacent exterior of the building in which the unit of a unit owner is located, but a board may adopt reasonable rules and regulations regarding the location and size of flagpoles.” Likewise, the NFP Act (805 ILCS 105/103.30(a)) states that a property owner, townhome or homeowner association that is incorporated as an Illinois Not-For-Profit Corporation may not prohibit the installation of a flagpole by an owner for the purpose of displaying the American flag and a military flag, but the association may adopt reasonable rules and regulations regarding the size and location of such flagpoles. Therefore, each of these statutes grant owners the rights to install flagpoles for the purpose of displaying the American flag and a military flag, but an association may regulate the size and location of such flag poles.

With respect to what flags are covered by the aforementioned statutes, the “American flag” is the flag of the United States of America. As for what constitutes a “military flag”, this means “a flag of any branch of the United States armed forces or the Illinois National Guard” according to the Condo Act (765 ILCS 605/18.6(b)), the CICAA (765 ILCS 160/1-70(b)), and the NFP Act (805 ILCS 105/103.30(b)).

Going into more detail as to what constitutes a “flag”, each of the aforementioned statutes provides that for purposes of this right granted to owners, a flag includes any American flag or military flag “made of fabric, cloth, or paper displayed from a staff or flagpole or in a window, but…does not include a depiction or emblem of [the American flag or a military flag] made of lights, paint, roofing, siding, paving materials, flora, or balloons, or any other similar building, landscaping, or decorative component.” (765 ILCS 605/18.6(b), 765 ILCS 160/1-70(b), and 805 ILCS 105/103.30(b)). So, in short, the right is granted to owners to display actual flags, but not necessarily a decorative depiction of an American flag or military flag painted onto a building or otherwise created out of materials not typically thought of as a “flag”.

In summary, owners within associations are reserved the right by statute to display the American flag and a military flag, and to install flagpoles for the display of such flags. However, association boards may adopt reasonable rules and regulations regarding the display and placement of these flags, and the size and location of flagpoles. With respect to any rules and regulations adopted regarding the display of the American flag, these should be consistent with the United States Code provisions regarding the display of the American flag. The United States Code contains a number of detailed provisions regarding the display of the American flag which I have not included in this article for the sake of brevity. An association considering adopting restrictions on the display of the American flag and military flags would be prudent to consult with its attorney regarding what types of restrictions might be considered reasonable as well as what restrictions would be consistent with the United States Code. If your association is considering adopting restrictions on the display of the American flag and military flags, 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.

 

THE DISH ON SATELLITE DISHES AND TELEVISION ANTENNAS IN ASSOCIATIONS

A frequent topic that arises in all types of associations is the placement of satellite dishes and television (“TV”) antennas by owners. Many associations simply have in place a blanket requirement prohibiting owners from installing these items without the prior approval of the board. While such prior approval requirements are common, and typically enforceable, for most exterior additions and changes in associations, federal law governs what types of restrictions associations may place on satellite dishes and TV antennas.

Specifically, the federal Telecommunications Act of 1996 empowered the Federal Communications Commission (“FCC”) to adopt rules regarding what types of restrictions associations may place on satellite dishes and TV antennas, which prompted the FCC to adopt the Over-the-Air Reception Devices (“OTARD”) rule, which has been in place since 1996 and amended several times since then. This rule applies for all TV antennas designed to receive local channels and all satellite dishes that are one (1) meter in diameter or less.

In general, the OTARD rule prohibits restrictions adopted by associations that: 1) unreasonably delay or prevent the installation, maintenance or use of a satellite dish or TV antenna; 2) unreasonably increases the cost of installation, maintenance or use of a satellite dish or TV antenna; or 3) preclude reception by an owner of an acceptable quality signal from a satellite dish or TV antenna.

The OTARD rule does not necessarily apply to all areas governed by an association, however. Specifically, the OTARD rule does not apply to common areas owned by an association or to common elements owned collectively by owners within a condominium association, except in areas where an owner has the exclusive use and control of the area. Therefore, in a townhome or homeowner association community, an association’s rules related to satellite dishes and TV antennas on the common area would not be restricted by the OTARD rule. In a condominium association, the association’s rules related to satellite dishes and TV antennas on the common elements would not be restricted by the OTARD rule. But, the OTARD rule restrictions would apply for any areas an owner owns (such as the owner’s home or townhome in a homeowner or townhome community) or that the owner has exclusive use and control over (such as a balcony or patio in many condominium associations). Restrictions related to these portions of the property must not conflict with the OTARD rule. Any association with a question about whether or not an area is, or is not, subject to the OTARD rule should consult with the association’s attorney as this will likely be dictated by the association’s particular governing documents.

With respect to an association that wishes to require prior approval by the board before an owner installs a satellite dish or TV antenna, the FCC has ruled that such prior approval requirements are generally not enforceable unless the prior approval is required for a legitimate, written, safety or historical preservation purpose. If an association establishes a prior approval requirement and asserts this is for a safety and/or historical preservation purpose, if challenged the burden will be on the association to prove that its requirement does not violate the OTARD rule.

Now almost twenty (20) years old, the OTARD rule has been the subject of a number of FCC rulings. Fortunately for association boards and property managers, the FCC has established a summary guide related to this rule with some frequently asked questions that are quite informative. These can be found at https://www.fcc.gov/guides/over-air-reception-devices-rule.

While the FCC guide and frequently asked questions can offer a good summary and outline on a number of topics related to association restrictions on satellite dishes and TV antennas, an association would be prudent to consult with its attorney regarding how to draft restrictions within a declaration and/or rules and regulations governing satellite dishes and TV antennas in the association’s community. If your association is considering adopting restrictions on satellite dishes and antennas, or already has these in place and would like them reviewed for any conflicts with the OTARD rule, 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.

A FEW SIGNIFICANT ISSUES TO FOCUS ON IN CONDOMINIUM, HOA and TOWNHOME ASSOCIATION PROPERTY MANAGEMENT AGREEMENTS

One of the most important individuals involved in keeping many condominium, homeowner and townhome associations going on a day-to-day basis is the property manager. Professional property managers often provide invaluable service to these associations, whose boards of directors are primarily made up of volunteers from all types of backgrounds and professional experiences. In most cases, property managers are not employees of the association they manage but rather the relationship between the property management company and the association is typically created by contract (i.e. the management agreement).

Due to the variety of services a property management company may provide to an association – which can range from having a full time property manager on site that works exclusively for the association to having a property management company serve a very limited role such as solely being responsible for sending notices to owners and collecting assessments – it is essential for an association to review and understand exactly what a management agreement contains before entering into the agreement. Therefore it is a prudent step for any association to have its attorney review a management agreement before the association enters into it as there can be a significant number of items that can be included within a management agreement that could affect the association’s rights. A few of these items that could arise in a management agreement are:

  1. Access to Association Funds:

Management agreements often identify what individuals have access to association funds. This can be as specific as listing within the agreement the individuals, by name, who will be able to write checks or otherwise withdraw checks from the association’s account on behalf of the management company. The association should be aware of who will be able to access its funds under the management agreement.

Additionally, management agreements often will detail where association funds will be deposited. For example, a common provision would provide that the funds will be deposited in a bank with branches in Illinois, will be deposited in a bank of management’s choosing, or will be deposited in a bank of the association board’s choosing.

  1. Insurance/Indemnity Provisions:

Management agreements also often contain language providing that the association will indemnify the management company and property manager in actions related to the property manager’s services performed on behalf of the association. It is crucial for the association to understand what indemnification it will be providing to the management company, and what limitations, if any, there are on that indemnification. It is also important for the association to understand what indemnification the management company may be providing to the association.

  1. Non-Compete Provisions:

Some management agreements will contain a non-compete clause. For example, this type of clause may provide that after the management agreement ends and the management company no longer provides property management services to the association, then for a period of time thereafter (such as twelve (12) months) the association may not have any former employees of the management company provide property management services to the association. It is critical for an association to understand such restrictive covenants as violation of such clauses may impose steep penalties for an association.

  1. Fees:

Management agreements often provide that the association pays a fixed amount to the management company each month in exchange for property management services. However, additional fees can also arise that are not included within that fixed monthly amount. These can be fees related to mailings, attendance at meetings, attendance in court for collections, note taking, etc. Associations should understand all of the potential fees that they could be charged under a management agreement.

  1. Termination:

While many associations enjoy long lasting relationships with their management companies, inevitably there are some associations that desire to terminate the services of their management company while the management agreement is in place. Before an association enters into a management agreement, the association should be aware of how, if at all, it could terminate the management agreement early. For example, is termination possible only for cause, meaning the association would likely have to identify a reason for wanting to terminate early? Or, is early termination available “without cause”, meaning no reason must be given. Further, does the management agreement contain any penalties for early termination?

As an additional note on this topic, some association declarations and/or bylaws contain specific provisions that must be included within any management agreement the association enters into. For example, some governing documents may require that any such management agreement contain a provision permitting the association to terminate the agreement upon sixty (60) days’ notice without cause. Prior to entering into a management agreement, an association should therefore make sure that the management agreement it plans on entering into complies with any such provisions in the association’s governing documents.

Conclusion:

Having a professional property manager can greatly enhance the effectiveness and efficiency of an association. Considering the vital role that professional property managers can play for an association, associations may want to verify that the management agreement is consistent with the role and services the association desires from the property management company it wants to retain. Since management agreements are contracts, a prudent association may also want to have its attorney review any management agreement prior to signing it.

 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.