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Withholding Assessments in Illinois Condo Associations

Assessments (or dues) are essential for condominium and common interest community associations to provide necessary services to the unit owners within the association, including the maintenance of common areas such as roads, sidewalks, parking areas, utilities, and elevators. Typically, the only source of funds for condominium associations are payments from the unit owners. Many times, when a unit owner believes that the condominium association is not performing, the unit owner withholds assessments. Or, if that unit owner expends funds on what is believed to be a condominium association expense, the thought is that those expenses can be set off the condominium assessments due and owing to the condo association. However, Illinois law is clear that a unit owner cannot unilaterally decide not to pay condominium assessments, and the failure of a condominium board to act or perform a task that it is required to do under the declaration, or the bylaws, does not constitute a basis to withhold or offset condominium assessments.

In Illinois, condo associations are governed by their declaration, bylaws, articles of incorporation and the Illinois Condominium Property Act (765 ILCS 605/1 et seq.), while common interest community associations (including most homeowners associations) are governed by their declaration, bylaws, articles of incorporation (or organization) and the Illinois Common Interest Community Association Act (765 ILCS 160/1, et seq.). Under the Illinois Condominium Property Act, it is the “duty” of each unit owner “to pay his proportionate share of the common expenses” (765 ILCS 605/9(a)), and under the Common Interest Community Association Act, a Common Interest Community is defined as “real estate other than a condominium or cooperative with respect to which any person by virtue of his or her ownership of a partial interest or a unit therein is obligated to pay for the maintenance, improvement, insurance premiums or real estate taxes of common areas described in a declaration which is administered by an association.”

If a unit owner fails to pay assessments or fines, the condominium association has a lien on the unit owner’s property for the unpaid common expenses or fine as well as interest, late fees, and the costs of collection, including attorneys’ fees. This condominium lien is provided for in Section 9(g) of the Condominium Property Act and in most bylaws that govern common interest community associations. Even further, both types of community associations are generally entitled to foreclose on that lien. If assessments are unpaid, condominium associations can also file an eviction action against the unit owner, or any tenant, in accordance with Section 9.2 of the Condominium Property Act and the Eviction Act (735 ILCS 5/9-102(a)(8)). A homeowners association is able to file an eviction action if three conditions are met: (1) the association is a not-for-profit corporation or a limited liability company; (2) the unit owners must be authorized to attend meetings of the board of directors or board of managers of the association in the same manner as provided for condominiums under the Condominium Property Act; and (3) if the declaration was recorded before 1985, the board of managers or board of directors has voted to have the provisions of the Eviction Act apply to the association and has delivered or mailed notice of such action to the unit owners.

Neither the Illinois Condominium Property Act nor the Illinois Common Interest Community Association Act contain specific provisions governing the withholding of assessments by unit owners of a condominium or homeowners association. However, the Illinois Supreme Court, in a divided 4-3 opinion, held that a unit owner may not withhold assessments, even if the association failed to repair or maintain the common elements. In Spanish Court Two Condominium Ass’n v. Carlson, 2014 IL 115342, a condominium association filed an eviction action against a unit owner for failing to pay assessments. As a defense to the action, and a counterclaim, the unit owner claimed that the condominium association failed to maintain certain common areas, resulting in water damage to the unit, and failed to repair a toilet in the unit that was inoperable due to the investigation of a water leak in an adjoining unit. These failures, according to the unit owner, allowed her to withhold the payment of assessments. The trial court held that the unit owner’s issues with the association were not “germane” to the eviction proceeding and granted possession of the unit to the condominium association and money damages. On appeal, the appellate court reversed the decision of the trial court and held that the unit owner could withhold assessments because, according to that court, the obligation to repair and maintain the common elements was a mutually exchanged promise.  Therefore, the material breach of the declaration and the bylaws by the association allowed the unit owner to withhold assessments.

The Illinois Supreme Court reversed the decision of the appellate court and held that a unit owner cannot withhold assessments even if the association failed to perform its repair or maintenance obligations. In doing so, the Court referred to Section 18 of the Condominium Property Act which provides that “a unit owner may not assign, delegate, transfer, surrender, or avoid the duties, responsibilities, and liabilities of a unit owner under this Act, the condominium instruments, or the rules and regulations of the Association; and *** such an attempted assignment, delegation, transfer, surrender, or avoidance shall be deemed void.” 765 ILCS 605/18(q) (emphasis added). In that same section, the Condominium Property Act also states that “[t]he association shall have no authority to forbear the payment of assessments by any unit owner.” 765 ILCS 605/18(o). Therefore, according to the Supreme Court’s decision, any attempt to “avoid” paying assessments is not appropriate, and the condominium association lacked authority to refrain from collection of these assessments. When those two sections are read together, the Court held that the “unit owner’s claim that its obligation to pay assessments was nullified by the association’s failure to repair and maintain the common elements is contrary to the Condominium Act and is not a viable defense.”

The Supreme Court went further and explained the reasoning for its ruling:

The association’s ability to administer the property is dependent upon the timely payment of assessments, and “any delinquency in unit owners’ payments of their proportionate share of common expenses may result in the default of the association on its obligations or the curtailment of association directed services,” impacting not only the delinquent unit owner, but all association unit owners.

Id. at ¶30, citing 1 Gary A. Poliakoff, The Law of Condominium Operations § 5:03 (1988 and Supp. 2012-13). If a unit owner is allowed to withhold assessments, according to the Court, it would “threaten the financial stability of condominium associations throughout this state.” Id. at ¶31. The Supreme Court did say that the unit owner would be entitled to assert an affirmative claim against the association for purportedly violating the declaration or the bylaws, but just not in an eviction action and only after the assessments were paid.

If a unit owner withholds assessments, it is likely that the community association will be entitled to late fees, interest, and collection costs (including attorneys’ fees). As said above, the community association may also file an eviction action or record and foreclose on a lien for the unpaid amount. Although these remedies are comprehensive, if a community association is faced with a unit owner asserting that it is not required to pay assessments because of actions or inactions of the association, association counsel should be contacted who can guide the association as to the next steps, including, but not limited to, sending a letter to the unit owner outlining how and why this practice is not allowed.

Adam Toosley is a member at Hirzel Law, PLC and focuses his practice on real estate litigation, zoning and land use, construction, and financial services litigation. Over the course of his career, he has represented property owners, landlords, condominium associations, lenders and all parties in the construction chain, handling all aspects of real estate-related disputes, including construction defect cases, payment and landlord-tenant disputes as well as real estate foreclosures, mechanic’s lien cases and fraud and business tort claims in state and federal court as well as in mediations and arbitrations throughout the United States. He is licensed in both Michigan and Illinois. He can be reached at (312) 626-4535 or at atoosley@hirzellaw.com.

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