Illinois Legislature Dives into the Pool of Condominium Disputes

by Bill Toliopoulos

As residential development continues to recover as a result of a reinvigorated credit market throughout the country, construction of condominium and other multi-owner real estate projects has also started to resurface in nearly all large metropolitan markets, including Chicago.   The Illinois legislature has recently passed two pieces of legislation relating to condominium associations and its unit owners that will affect new multi-owner residential projects.   These new laws are meant to provide some clarity and consistency to the multi-unit residential real estate ownership structure.   Moreover, these newly-enacted statutes may also provide a kick-start for another piece of legislation that was under consideration several years ago — the “right to repair” or “notice and opportunity to repair” law.

Appointing a Referee: The Condominium Interest Community Ombudsperson Act

Illinois House Bill 4204, sponsored by Illinois State Representative Elaine Nekritz (D-Northbrook) and State Senator Heather Steans (D-Chicago), created the Condominium Interest Community Ombudsperson Act.   (“CICO”).   At its core, the CICO creates a dispute resolution rubric within the Illinois Department of Professional Regulation as a function of the office of the Attorney General. The CICO further provides that the state’s ombudsperson shall offer training and educational materials and courses to condominium unit owners, condominium associations, and boards of managers in subjects relevant to the operation and management of condominium property and the rights and duties of a unit owner or unit owners’ association. As part of its official duties the ombudsperson is required to maintain a statewide toll-free telephone number, maintain certain information on the Attorney General’s website, provide information or assistance on matters relating to condominium property and facilitate the Attorney General’s annual report to the Illinois General Assembly.   While various portions of CICO become effective over the next several years, it is important for condominium associations and their lawyers to understand what is coming down the road.

The CICO effectively establishes a blueprint for teaching condominium association administration and takes major strides to develop a cogent methodology for disputes to be resolved in a more cost effective manner.   A major part of the CICO’s ombudsperson’s duties is intended to assist both homeowners and board members to better understand their respective rights and obligations in a communal living environment and to provide owners the necessary tools to understand their governing documents and better translate the often arcane and esoteric provisions that lawyers are notorious for preparing.   It must be noted that while the goals are admirable, the CICO’s current format has been criticized for insufficient enforcement provisions and may be difficult to effectively administer due to nondescript and possibly insufficient funding sources.   Despite these criticisms, the CICO focused attention on educating homeowners and unit owners to effectively govern themselves and resolve disputes efficiently.

Notably, the CICO was refined to address numerous concerns that eventually doomed its 2009 predecessor bill in the Illinois legislature. Illinois HB-5422, introduced as the “Condominium Ombudsperson Act” was also sponsored by Elaine Nekritz (D-Northbrook). Originally, HB-5422   proposed the creation of an ombudsperson that provided several services to condominium associations, including the creation of a structure to mediate disputes within an association or between owners; establishment of training and educational courses to assist in the operation and management of condominium property and the rights and duties of a unit owners and/or association members; and establishment of a statewide toll-free telephone number and website to provide information or assistance on matters relating to condominium property.   In 2009, HB-5422 met with significant criticism of its lack of enforcement provisions and possibly inadequate funding.   Additional criticism was focused on a perceived overregulation of the industry and the perception that the state would be intervening in private and sometimes petty disputes between condominium association boards and its unit owners. The 2009 bill was not heard in committee and eventually died at adjournment of the legislative session.

The CICO follows the lead of Colorado, Florida, Nevada and Virginia in creating a central ombudsperson to resolve conflicts between owners and associations.   In comparing these statutes, these states have had varying amounts of success.   As may be expected, the resources made available by each state seem to directly correlate to the amount of success each state has seen in achieving its primary goals: educating homeowners and boards, and cost-effectively resolving disputes among these parties.

Removing Hurdles: Section 18.8 of the Condominium Property Act

In a related piece of legislation, Illinois House Bill 4783, co-sponsored by Illinois State Representative Kelly Cassidy (D- Chicago) and Emmanuel Chris Welch (D-Westchester), was enacted into law as an amendment to the Illinois Condominium Property Act (the “ICPA”).   Specifically, the newly-minted Section 18.8 of the ICPA provides that any provision in a condominium instrument is void as against public policy and ineffective if it limits or restricts the rights of the board of managers by: (1) requiring the prior consent of the unit owners in order for the board of managers to take certain actions, including the institution of any action in court or a demand for a trial by jury; or (2) requiring the board of managers to arbitrate or mediate a dispute with any one or more of the declarants under the condominium instruments or the developer or any person not then a unit owner prior to the institution of any action by the board of managers or a demand for a trial by jury. Section 18.8 of the ICPA goes further to provide that a provision in a condominium’s declaration which would otherwise be void and ineffective under the provisions of the amendatory Act may be enforced if it is approved by a vote of not less than 75% of the unit owners at any time after the election of the first unit owner board of managers.

This amendment to the ICPA is a clear attempt by Illinois lawmakers to limit developers’ often unilateral decisions to dictate the dispute resolution process.   Section 18.8 of the ICPA allows condominium owners the immediate option of conventional litigation rather than undertaking the interim steps of mediation and/or arbitration.   While the alternate dispute resolution process has traditionally been viewed as a much more cost-effective option in resolving these types of condominium disputes — especially between condominium associations and developer-vendors, Illinois legislators have decided that condominium unit owners and their boards should have all possible options available from the outset.

Resurrecting the Phoenix: Illinois Needs to Enact A “Notice and Opportunity to Repair” Statute

In light of the strengthening residential development market and the Illinois legislature’s commendable strides in recognizing the rights of condominium unit owners, and educating them on how to resolve disputes, many proponents of additional legislative action have begun to advocate for the refinement and re-introduction of one additional piece of legislation that would significantly benefit not only condominium unit owners and their associations but also the developers, design professionals, contractors and their respective insurers.

Similar to the CICO, the Illinois General Assembly has previously considered a bill to streamline the claims process in disputes between condominium buyers and developer-sellers, but has failed to pass any such bills into law. Notably, Illinois lags behind more than half the country in not having passed any “notice and opportunity to repair” legislation.

While disagreements undoubtedly exist regarding the efficacy of the various right to cure laws in other states, condominium buyers, developers, contractors and design professionals involved in building these real estate projects likely all agree that the concept of preventing unnecessary litigation through establishment of certain statutory rules and procedures is a goal that would benefit all parties involved.   Notably, Illinois’ lawmakers have had the benefit of and opportunity to learn from the successes and failures of other statutory schemes in order to resurrect a right to cure law that could borrow the best pieces of other states’ laws and minimize the mistakes and shortcomings that have inevitably arisen under those other states’ laws.

Illinois’ original proposed “Notice and Opportunity to Repair” bill was introduced in 2003 as House Bill 3627 but failed to survive committee review.   At its core, HB-3627 followed the same basic structure of numerous other states’ “right to cure” statutes, including obligatory notice and response deadlines for condominium buyers and the developer-vendors who sold the units.   However, the ombudsmen structure established by CICO and the ADR provisions delineated in the ICPA have provided a more definite structure for Illinois lawmakers to overlay a newly revamped “Notice and Opportunity to Repair” law for passage in the upcoming legislative session.

Conclusion

The CICO and Section 18.8 of the ICPA, clearly indicate the Illinois legislature’s willingness to be involved in the administrative and dispute resolution workings of the residential condominium market.   While both statutes provide a meaningful baseline of statutory action to protect and educate various participants in the multi-owner residential development process, additional legislative action is likely necessary to further solidify and protect the rights and obligations of condominium buyers, their boards and the development team members involved in these types of projects.