When buying into a condominium in Illinois, one thing that should be reviewed is whether the condo association where the unit is being purchased is part of a “master” or “umbrella” association. Master associations are a statutory creature whereby multiple condos are run by one entity or where certain aspects of multiple condos are run by one entity. The concept of a master association is permitted under Illinois’ Condominium Property Act, and the way the master association is governed will be set out in various recorded documents, including a declaration for that master association. In other words, when buying a condo unit, the purchaser may be buying into two separate levels of governance (the condo association and the master association), and this should be part of the diligence performed before buying such a unit.
What is a Master Association and Why Would My Association Be Part of One?
The Illinois Condominium Property Act simply defines a “master association” as “an organization described in Section 18.5 [of the Condominium Property Act].” Therefore, Section 18.5 of the Act (in conjunction with the recorded documents) dictates both the formation and the operation of a master association. More specifically, Section 18.5(a) of the Condominium Act states the following:
If the declaration, other condominium instrument, or other duly recorded covenants provide that any of the powers of the unit owners associations are to be exercised by or may be delegated to a nonprofit corporation or unincorporated association that exercises those or other powers on behalf of one or more condominiums, or for the benefit of the unit owners of one or more condominiums, such corporation or association shall be a master association.
There are many reasons why multiple condos could be set up as part of a master association. Many developers, when creating a condo project, decide to set up the buildings individually as separate condos. If that happens, and there exist common elements that will be shared between the various condos, a master association can be created to set out the specific rules and regulations as well as the maintenance and assessment responsibilities related to those common elements. Another reason would be to maintain consistency between various condo buildings. Some master association documents allow for architectural control and the enforcement of restrictions to be had by the master to make sure that individual condo associations do not decide to make changes that would not conform with the remaining project.
What Rules Govern A Master Association?
Section 18.5 of the Condominium Act states that the declaration, condo instruments or a recorded covenant must provide the powers and duties of a master association. More specifically, those documents should provide that:
- Each unit owner subject to the master association be provided with an annual budget at least 30 days prior to it being adopted by the board for the master association;
- The board for the master association must provide an itemized accounting to each unit owner annually showing an excess or deficit of income over expenditures plus reserves;
- Notice of the meeting whereby the board votes on the annual budget must be provided to each unit owner at least 10, but not more than 30, days before the meeting;
- Board meetings must be open to unit owners except for a handful of situations where the meeting (or portions of the meeting) can be closed for items such as litigation, rules violations, and issues related to employees;
- Board meetings can be recorded by unit owners;
- The Board has the authority to establish a system of a master metering of public utility services for the master association;
- The Board has the authority to levy fines after giving notice and an opportunity to be heard;
- Property management fees for collecting assessments and fines cannot be added to the amount due and owing unless the fees are set forth in a contract between the agent and the master association and the authority is in the declaration or bylaws for the association;
- The board for the master association must maintain and keep certain records and make them available for inspection upon request by unit owners, agents, attorneys and mortgagees and the failure to make these documents available can open up the board to a claim being asserted and attorneys’ fees being awarded to the requesting party;
- The board for the master association has standing and capacity to act in a representative capacity if the issue relates to the common areas or more than one unit;
- There can be a mechanism for turning over the master association from the original developer to the unit owners and that the developer must turn over certain documents to the unit owner run board;
- If a unit within a master association is sold by a unit owner other than the developer, the owner must obtain certain documents to provide to prospective purchasers, including statements related to the financial condition of the master association and all governing documents;
- Errors and omissions can be corrected by an amendment passed by a two-thirds’ majority of the board or a majority of unit owners at a meeting unless the declaration provides for a different procedure or a greater majority; and
- Amendments to the documents that materially or adversely affect unit owners cannot be passed by the board without a unit owner vote.
Obviously, the operative documents for the master association will include more provisions than just those on the list above so it is critical that all documents be reviewed by current and prospective unit owners in a master association, as well as members of master association boards or individual condo association boards subject to a larger master association. As long as those provisions do not contradict with the provisions above, they will govern the master association.
What Disputes Can Arise in a Master Association?
Just about any dispute that can arise in a condo association can also arise in a master association (payment of dues fines, claimed failure to maintain common elements, breach of duties owed by the board, election, and meeting issues, etc.), with one significant addition: who has the responsibility to maintain the common areas in the association. This additional type of dispute came to a head as shown by a 2014 unreported decision by the Court of Appeals: Groves of Hidden Creek Condo. II Ass’n v. Groves of Hidden Creek Cmty. Ass’n, 2014 IL App (1st) 132395-U, ¶ 27.
In the Groves of Hidden Creek case, there were two condo associations and a master association created in the 1970s. From the inception, the master association maintained the “walks, roads, streets, paths, playgrounds, landscaping, recreational facilities, open spaces, and parking areas.” For at least the last 15 years before the lawsuit was filed, the master association also maintained a pond called “Shadow Lake.” The unit owners in one association (Groves I) paid 70% of the overall maintenance costs and the owners in the other association (Groves II) paid 30%.
In 2011, the Village of Palatine determined that the banks of Shadow Lake were eroding to a point where the local code was being violated. Thereafter, the master association commissioned an engineering study, and it was determined that there was a threat to the public and a new sea wall needed to be constructed at a cost of between $569,558 and $1,536,200.
When reviewing the documents that created the three associations, it was discovered that Shadow Lake was fully within the legal description for the Groves II condo and not part of what was designated as a common element to be maintained by the master association. Therefore, the master association and Groves I asserted that the unit owners in Groves II had to pay the full amount of the cost to perform the work on Shadow Lake. The condo association for Groves II objected and claimed that it should only be responsible for 30% because the intent of the developer was to include Shadow Lake as part of the master association or, alternatively, that the master association and Groves I waived this claim by maintaining Shadow Lake for this 15-year period. An important fact that went against Groves II is that there are waterways fully within the Groves I condominium that were being paid for solely by Groves I and that if the owners within Groves I had to pay for 70% of Shadow Lake solely within Groves II, it would be paying for 100% of its waterways and 70% of the pond that was only within Groves II.
As part of the case, both the trial court and the Court of Appeals rejected the claims of Groves II and held that it was responsible for the entire cost of the Shadow Lake repairs. In rejecting Groves II’s waiver argument, the Court of Appeals stated:
Once the parties realized the pond would need costly repairs, Condo I and the master association researched their liability for Shadow Lake, discovered that none of the three associations was the legal owner, and allied against Condo II’s insistence that the master association take responsibility for the repairs. The fact that the master association historically paid for minor maintenance while it was ignorant of its true obligations is not indicative of waiver. As soon as the master association knew it did not hold title, the master association asserted its right as a non-owner to refuse to pay for repairs to Shadow Lake and it opposed Condo II’s declaratory judgment action to vest title in the master association. The master association’s conduct during the years that all the parties were ignorant of the title problem could not be construed as the voluntarily and intentional relinquishment of its right to dispute ownership of the pond.
Id. at ¶ 29. The Court of Appeals also stated that the intent of the developer was to be derived from the documents themselves, and because, here, the developer clearly identified certain elements in both Groves I and Groves II as part of the master association and not others, the intent was clear that Shadow Lake was not to be part of the master association.
The main takeaway from the Groves of Hidden Creek case is that it is not always as straightforward as one might expect when deciding the responsibilities to maintain (and repair) certain items within a master association. And there, the unit owners in Groves I had been paying 70% towards the maintenance of an element that was technically only within Groves II for which it had no actual legal responsibility to pay. Especially as it relates to older master associations, it is a worthwhile endeavor to have an attorney review performed so that issues are dealt with before they ripen into a lawsuit that could last over 3 years (as this case did).
Owning a condo and being on a condo board of directors can be a confusing proposition for most people. There are multiple documents that must be analyzed, and the provisions of the Condominium Property Act known before any actions are taken. When your condo belongs to a master association, there may exist an additional level of complexity and confusion that may require the assistance of an attorney. As the Groves of Hidden Creek case showed, the fact that the association(s) have been run a particular way for a long period of time is not a dispositive fact, either.
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.