Anyone who has ever purchased or sold a condo in Illinois understands that there are certain disclosures about the condominium and the condominium association that must be made by the seller. Section 22.1 of the Illinois Condominium Property Act outlines the manner in which these disclosures are to be made. Importantly, these disclosures are a supplement to, and not in lieu of, other mandatory disclosures that go along with the sale of property generally, including those required by the Illinois Residential Real Property Disclosure Act. It is critical if you are purchasing or selling a condo (or a member of a condo board of directors) that you understand the responsibilities and requirements of Section 22.1.
Under the Condominium Property Act, all condo purchase and sale transactions (unless the sale is the original sale from the developer) are covered by Section 22.1. Section 22.1 disclosures provide prospective purchasers with information about the unit and the building generally. Courts in Illinois have held that the legislature designed Section 22.1 to ensure that “a prospective purchaser is fully informed and satisfied with matters affecting the condominium unit.” D’Attomo v. Baumbeck, 36 N.E.3d 892, 907 (2nd Dist. 2015); see also Mikulecky v. Bart, 825 N.E.2d 266, 271 (1st Dist. 2004) (A “plain reading” of the Condominium Property Act reveals that the Act encourages “disclosure by the seller of a condominium unit for the protection of the prospective purchaser.”).
Although Section 22.1 of the Condominium Property Act states that the purchaser must demand the information outlined below, in practice, it is demanded (and provided) in virtually every arm’s-length condo sale transaction as attorneys, title companies and lenders include this in their normal diligence process. Even further, the standard condo purchase and sale agreements for the Chicago area (https://chicagorealtor.com/wp-content/uploads/2016/03/Condominium-Real-Estate-Purchase-and-Sale-Contract.pdf) require the production of the information mandated by Section 22.1 (it is in Paragraph 11 of that standard contract). The Chicago Association of Realtors has also created a rider (Rider 15) which mirrors the requirements of Section 22.1 of the Condominium Property Act and provides an avenue for the seller to back out of a transaction based on the information disclosed (or not disclosed) by the seller.
A disclosure under Section 22.1 of the Condominium Act must include the following information:
(1) A copy of the Declaration, by-laws, other condominium instruments, and any rules and regulations;
(2) A statement of any liens, including a statement of the account of the unit setting forth the amounts of unpaid assessments and other charges due and owing as authorized and limited by the provisions of Section 9 of this Act or the condominium instruments;
(3) A statement of any capital expenditures anticipated by the unit owner’s association within the current or succeeding 2 fiscal years;
(4) A statement of the status and amount of any reserve for replacement fund and any portion of such fund earmarked for any specified project by the Board of Managers;
(5) A copy of the statement of financial condition of the unit owner’s association for the last fiscal year for which such statement is available;
(6) A statement of the status of any pending suits or judgments in which the unit owner’s association is a party;
(7) A statement setting forth what insurance coverage is provided for all unit owners by the unit owner’s association;
(8) A statement that any improvements or alterations made to the unit, or the limited common elements assigned thereto, by the prior unit owner are in good faith believed to be in compliance with the condominium instruments; and
(9) The identity and mailing address of the principal officer of the unit owner’s association or of the other officer or agent as is specifically designated to receive notices.
The condo unit owner does not have to provide any additional information about the condo other than the information listed above, but additional documentation or information can be requested in the purchase agreement from a prospective purchaser.
A Section 22.1 disclosure can provide invaluable information to a purchaser not only about the current state of the association, but also, as to what rules, regulations and restrictions apply to the unit. For example, if a potential purchaser plans on purchasing a unit to rent it out, it is important to know what sort of rental restrictions are in place. Or, if the purchaser has 4 dogs, it is important to know what pet restrictions are in place before purchasing the unit. Additionally, if the board has been sued by unit owners claiming that the condo association was not run properly, this is an important fact when deciding to buy into that condo.
How Are Section 22.1 Disclosures Provided?
The way in which the process is supposed to happen is that, when a unit owner is selling his or her unit, a request is immediately made to the condominium association to provide all the information required by Section 22.1. This can, and probably should, be done before a contract is even entered into because, under the former version of Section 22.1, the condo association had 30 days to provide the information. Under an amendment to Section 22.1 that went into effect on January 1, 2023, the association now only has 10 business days to provide the required information and documents to the unit owner. Regardless, many times the turnaround time in the agreement may be less than even this 10 business day period.
Once the information is obtained from the condo association (or typically the property manager), the unit owner is obligated to provide it to the prospective purchaser. Here, again, the Condominium Property Act and the typical purchase and sale agreement differ. The Act requires that the information be made available for inspection, while most purchase and sale agreements will require that they be physically provided to the buyer.
Section 22.1 also allows a condo association to charge for producing the information required to be provided. However, the practice of charging more than just the actual out-of-pocket costs for this information went unchecked for years and multiple lawsuits were filed over the charges. In 2022, the State of Illinois amended Section 22.1 of the Condominium Act, and now limits the ability of the association to charge for the production of the disclosures to $375, subject to an increase in the consumer price index or a fee for an expedited production:
A reasonable fee, not to exceed $375, covering the direct out-of-pocket cost of providing such information and copying may be charged by the association or its Board of Managers to the unit seller for providing such information. Beginning one year after the effective date of this amendatory Act of the 102nd General Assembly, the $375 fee shall be increased or decreased, as applicable, by a percentage equal to the percentage change in the consumer price index-u during the preceding 12-month calendar year. “Consumer price index-u” means the index published by the Bureau of Labor Statistics of the United States Department of Labor that measures the average change in prices of goods and services purchased by all urban consumers, United States city average, all items, 1982-84 = 100. An association may charge an additional $100 for rush service completed within 72 hours.
The condo’s board must make good faith efforts to comply with the 22.1 Disclosure requirements, but some of the items requested may create confusion for the board or the property manager. What constitutes a “capital expenditure” anticipated in the “current or succeeding 2 fiscal years”? What is a “statement of financial condition” of the association? How much information is needed to be provided about lawsuits in which the association is a party, especially if the lawsuits are simply over collection of assessments? How will the condo association know if any improvements or alterations to the unit are in compliance with the condo instruments if it has not inspected the unit? In many instances, the property manager will have its own form for the condo association to use and that form has probably been tailored to comply with the specific provisions in Section 22.1, but if the association does not use a property manager, or uses a property manager without a specific form, it is probably worthwhile to discuss the responses to these questions and the potential consequences of providing incomplete or inaccurate information with an attorney.
Understanding the responsibilities of unit owners and condominium associations under Section 22.1 of the Condominium Property Act is a critical component of all condo sale transactions in Illinois. These disclosures provide invaluable information, and the failure to provide the information (or accurate information) can have a negative impact on the ability of the unit owners to sell their units and could open up the seller to a lawsuit by a unit buyer.
As an aside, and in addition to Section 22.1, many condo associations are asked to provide certain answers to questionnaires submitted by prospective purchasers’ lenders, and those questionnaires do not typically match up with the requirements of Section 22.1. Although answering these questionnaires is not mandated by Illinois law, the failure to provide this information will more than likely result in the transaction not being consummated. When faced with both the request for the information to be provided under Section 22.1 and lender questionnaires, a board should be careful in its responses and, as said above, the retention of an attorney may be required if there are any questions or concerns about the answers to be provided.
The attorneys of Hirzel Law, PLC focus their practice on condominium and homeowners association law in addition to real estate law. Our attorneys have extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. We stand by our clients, offering quality legal representation and promptly responding to our clients’ needs. Contact Hirzel Law online or call 312-552-7669 to learn how our Illinois attorneys can help.