Arnstein & Lehr LLP > The Illinois Condominium Property Act

2008 -2009 Edition Forward

Three amendments to the Illinois Condominium Property Act (“ICPA”) became law during the 2007 Session of the Illinois General Assembly, including a new ICPA Section 18.7 that establishes minimum standards for managers of Illinois condominium and non-condominium homeowners associations, and mandates new protections for association funds controlled by a property manager. The General Assembly also created a special Condominium Advisory Council to identify issues facing Illinois condominium associations and to deliver a written report to the Governor and the General Assembly.

This Foreword highlights all of these legislative changes, and this 2008 Edition of Arnstein & Lehr LLP’s Illinois Condominium Property Act booklet includes all of the new amendments to the ICPA.

Minimum Standards For Managers; Protection of Association Funds

(Public Act 095-0318)

Due to financial and other abuses by condominium property managers in Illinois and elsewhere, legislation was once again introduced in 2007 to require mandatory licensing of Illinois property managers. Although that legislation failed, the Illinois Legislature did enact a new ICPA Section 18.7 that establishes minimum standards for all Illinois “community association managers” and new safeguards for association funds held by managers, all effective as of January 1, 2008.

Under ICPA Section 18.7, a “community association” is an association that includes residential units and meets two requirements: that membership is a condition of ownership or being a shareholder, and that the association has the authority to levy assessments and other costs that may become a lien on the units or lots of its members. The term encompasses condominium associations, homeowners associations, townhouse associations, master associations, and common interest community associations that include residential units.

A person subject to the new minimum standards is an individual who is paid to administer “the coordination of financial, administrative, maintenance, or other duties” called for in a management contract, including individuals who are direct employees of a community association. Management support personnel (such as bookkeepers, administrative assistants, secretaries, property inspectors, and customer service representatives) are not subject to the new minimum standards. By specifying that a “community association manager” is someone who is paid for his or her services, board members also do not fall within the definition.

ICPA Section 18.7(c) requires that every community association manager satisfy four requirements:

The manager must be at least 21 years old and a United States citizen (or a legal permanent U.S. resident).
The manager must not have been convicted of a financial crime (such as forgery, embezzlement, obtaining money under false pretenses, larceny, conspiracy to defraud, or similar offenses).
The manager must have “a working knowledge of the fundamentals of community association management” and be familiar with the laws pertaining to community association management.
The manager must not have failed to cooperate with any law enforcement investigation or failed to produce documents and records requested in connection with a law enforcement agency investigation.

While these minimum requirements are rather modest, people whose youthful age or criminal record makes them ill-suited to handle the financial responsibilities of being a property manager are now prohibited from doing so. Associations (and management companies) should take care to confirm that their managers meet all of these requirements.

In addition to establishing minimum standards for managers, the legislation also seeks to protect association funds from embezzlement by a property manager or management company. In many associations, the manager (or the management company that employs the manager) has exclusive control over the association’s funds, and can issue checks drawn on the association’s accounts without need of a board member’s signature. Under ICPA Section 18.7(d), a manager may not have exclusive control over a community association’s funds unless the association maintains a fidelity bond that covers all funds under the manager’s control, in addition to the manager’s own fidelity bond. Although ICPA Section 12(a)(3) already requires condominium associations (as well as to non-condominium homeowners associations) and requires various special provisions in the association’s fidelity bond insurance policy.

Consistent with the legislation’s focus on protecting association funds, ICPA 18.7 also now requires that all association funds be maintained in a segregated custodial account, in the name of the association, and separate from the manager’s own funds and from the funds of other associations that are being managed by the manager. Although most management companies have always maintained segregated custodial accounts for their client associations as a matter of good practice, segregated accounts are now mandatory for all condominium and non-condominium homeowners associations.

Associations would be well-advised to conduct an annual check-up for compliance with Section 18.7’s requirements for manager qualifications, association fidelity bonds and segregation of association funds.

Parking and Storage Units Not Counted Under 50/30 Rule

(Public Act 095-0624)

For many years, ICPA Section 18(p) has provided that when 30% or fewer of the units hold more than 50% of the total percentage ownership interests in a condominium association, each unit owner has an equal vote on all issues, and percentage ownership interests are disregarded. The purpose of Section 18(p) is to ensure that the owners of a small number of units with large percentage ownership interests do not wield undue control over a condominium association.

This provision had limited applicability until developers began to market condominium developments with numerous parking space units and/or storage space units, each with a miniscule percentage ownership interest. The inclusion of parking spaces and storage cages as “units” swelled the total number of units in some associations to the point where a relatively small number of residential units would hold more than 50% of the total percentage ownership interests in the association, resulting in the owner of a storage cage having the same voting power as the owner of a three-bedroom luxury residence.

To address this problem, effective June 1, 2008, parking and storage units are to be ignored for purposes of ICPA Section 18(p).

Conversion Condominiums – Penalties for Improper Notice

(Public Act 095-0221)

ICPA Section 30 gives tenants in apartment buildings being converted to condominiums certain rights. Section 30 also requires that condominium developers give tenants written notice of those rights, including the tenant’s right of first refusal on the purchase the unit in which the tenant resides. However, some conversion developers have attempted to speed up the conversion process by not properly notifying tenants of their rights.

To punish such abuses, ICPA Section 30 has been amended to provide that if a tenant does not receive the required written notice and vacates the building because his or her lease is not renewed, the developer must pay damages to the tenant, consisting of up to $1,500 of moving expenses, an amount equal to three months of rent, and reasonable attorneys’ fees and costs.

Condominium Advisory Council Act

(Public Act 095-0129)

Effective August 13, 2007, the legislature created a seven-member Condominium Advisory Council to identify issues facing condominium associations, condominium owners and “persons who have financial interests in condominiums”. The Council’s statutory mandate is to study the ICPA and related Acts affecting condominium ownership, and make legislative recommendations to amend those Acts in a written report to be submitted to the Governor and the General Assembly by January 31, 2008. The Advisory Council dissolves thirty days after it delivers its report, so it remains to be seen whether the recommendations of this very short-lived Advisory Council will have a major impact.

A Note About Using This Booklet

An up-to-date copy of the Illinois Condominium Property Act will not provide complete answers to all condominium law questions. Some provisions of the ICPA do not take precedence over contrary provisions in an association’s declaration or bylaws. Moreover, certain provisions of the Illinois General Not For Profit Corporation Act are applicable to Illinois condominium associations, and much of the law governing collection of assessments is set forth in the Illinois Code of Civil Procedure. The federal Bankruptcy Code contains special provisions applicable to condominium and homeowners associations, and the Fair Debt Collection Practices Act, Fair Housing Act, and other federal laws are also applicable to condominium associations, as are numerous city and county ordinances and regulations. For these reasons, an experienced condominium law professional should always be consulted when questions arise.

We are pleased to make this 2008 edition of the Illinois Condominium Property Act available to you, and hope you find it useful.

Allan Goldberg David Sugar

312.876.7133 312.876.6656

agoldberg@arnstein.com dsugar@arnstein.com

Arnstein & Lehr LLP provides a full range of high quality legal services to condominium associations, homeowners associations and residential cooperatives, including:

Guidance on condominium governance and compliance with governing instruments.
Litigation services, including prosecution of developer claims and covenant enforcement actions.
Advice on financial matters, including special assessments and financing for major projects.
Review of contracts.
Efficient and cost-effective assessment collection services, including protection of the Association’s interests in foreclosure proceedings.
Reduction of real estate taxes on units and association-owned property.
Guidance on labor and employment law Issues.

For more information or additional copies of this booklet, please contact David Sugar (dsugar@arnstein.com) or Allan Goldberg (agoldberg@arnstein.com).

An up-to-date copy of the Illinois Condominium Property Act will not provide complete answers to all condominium law questions. Some provisions of the Illinois Condominium Property Act do not take precedence over contrary provisions in an association’s declaration or bylaws. Moreover, certain provisions of the Illinois General Not For Profit Corporation Act are applicable to Illinois condominium associations, and much of the law governing collection of assessments is set forth in the Illinois Code of Civil Procedure. The federal Bankruptcy Code contains special provisions applicable to condominium and homeowners associations, and the Fair Debt Collection Practices Act, Fair Housing Act, and other federal laws are also applicable to condominium associations, as are numerous city and county ordinances and regulations. For these reasons, an experienced condominium law professional should always be consulted when questions arise.