765 ILCS 160/1-50: 4 Things Every Illinois Common Interest Community Association Board Needs to Know About Developer Turnover

765 ILCS 160/1-50: 4 Things Every Illinois Common Interest Community Association Board Needs to Know About Developer Turnover

Developer turnover is a pivotal phase for any Illinois Common Interest Community Association.  765 ILCS 160/1-50 of the Illinois Common Interest Community Association Act (“CICAA”) governs the requirements for transitioning a common interest community association from developer control to homeowner control. Ensuring a smooth transition requires preparation and an understanding of the legal requirements under the Common Interest Community Association Act. Below are four critical aspects every new homeowners association board must know about developer turnover to ensure that a new volunteer board gets off to a good start!

1. Elect the Initial Board of an Illinois Common Interest Community Association

765 ILCS 160/1-5 of CICCA defines “Developer Control” as “…such control at a time prior to the election of the board of the common interest community association by a majority of the members other than the developer.”  765 ILCS 160/1-50(b) sets important deadlines for the developer to call in the initial meeting to turnover control, the developer must call a meeting to elect the initial board at one of the following deadlines, whichever occurs first:

• 60 days after conveying 75% of the units
• 3 years after the declaration is recorded

Developers are required to provide at least 21 days notice of the meeting to elect the initial board to the owners.  The developer is also required to provide any member with the name, address, and weighted vote of each member entitled to vote within 3 working days if requested by a member of the association. If the community association was established after July 14, 2015, and the board was not elected in the above timeframes, 765 ILCS 160/1-50(c) states that the developer shall remain in office for 30 days and then send written notice of their resignation from the board to the members.  As a practical matter, if a developer does not call the initial meeting in the above timeframes, and does resign from the board, the owners may need to file a lawsuit to compel an election to be held.

2. Obtain the Books and Records from the Developer

765 ILCS 160/1-50(c) requires the developer of a common interest community association to turnover the following documents within 60 days after the majority of the board is elected by members other than the developer:

• Governing Documents: Original copies of the declaration, bylaws, rules, articles of incorporation, annual reports, meeting minutes, contracts, leases, or other agreements.
• Financial Records: A detailed accounting of receipts, expenditures, any insurance policies, and a list of loans or advances, which must be segregated from any for the developer’s funds. These documents are important to ensure that the developer has fulfilled all its financial obligations to the homeowners association.
• Association Funds: The developer must turnover all the community association’s funds, which must be segregated from the developer’s accounts, as evidenced by the above-described records.
• Property and Warranties: Deeds, title policies, tax bills, and warranties for association-owned property.
• Litigation Information: A list of ongoing litigation, administrative actions, arbitrations, notices, or governmental bodies involving the community association.

If the developer fails to provide any of the above items within 60 days, the community association may send a demand letter to the developer’s last known address via registered or certified mail.  If the developer fails to provide the items within 10 days after the written demand letter is delivered, the Association can bring any action to compel turnover of the above items, and a court may award reasonable attorney’s fees and costs incurred after the demand letter.

3. Cancel Long-Term Developer Contracts

Developers often enter contracts that may not benefit the homeowners association. Under 765 ILCS 160/1-50(e), such agreements that extend more than two years from the recording of the declaration can be canceled by the community association. CICCA provides two ways that this can happen, which are as follows:

If the Board is Controlled by Members: At least 90 days before the two-year period ends, contracts, leases, or agreements may be canceled if more than 50% of the members (excluding the developer) approve the cancellation at a special meeting.

If the Developer Controls the Board: At least 60 days before the two-year period ends, the developer must notify all members of the right to cancel contracts, the list of affected contracts, and the process for terminating the agreement.

Community associations must act promptly and ensure they are aware of this timeline to avoid being locked into unfavorable agreements as part of the developer turnover.

4. Know the Statute of Limitations to File a Lawsuit against the Developer

Under 765 ILCS 160/1-50(f), the statute of limitations on claims does not begin to run until the majority of the board consists of members elected by homeowners. This provision, outlined in 765 ILCS 160/1-50(f), allows boards to investigate potential claims against the developer or other parties without being constrained by a premature statute of limitations. Common claims include construction defects, financial mismanagement, fraud, or breaches of fiduciary duty. Construction defect claims in Illinois are governed by specific statutes of limitations and a statute of repose under 735 ILCS 5/13-205 and 735 ILCS 5/13-214, which are as follows:

• 4-Year Statute of Limitations (Construction):

Lawsuits related to the “design, planning, supervision, observation or management of construction, or construction of an improvement to real property” must be filed within 4 years of when the claim was discovered or reasonably should have been discovered through investigation.

• 5-Year Statute of Limitations (Property Damage):

Claims for “damages for an injury done to property, real or personal” must be filed within 5 years of when the injury was discovered.

• 10-Year Statute of Repose:

All construction defect claims must be brought within 10 years of when the defective work was performed, regardless of when the defect was discovered.

Given that the statute of limitations for common interest community associations typically begins running at the time of turnover from the developer, new boards should ensure that they hire an attorney right away.  Developers may try to have new board members sign releases for merely fulfilling their statutory obligations. Community associations should consult legal counsel if presented with such agreements to ensure their interests are protected.

Conclusion

Developer turnover is a significant milestone for any Illinois Common Interest Community Association.  It is important for new board members to understand the process outlined in 765 ILCS 160/1-50 of the Illinois Common Interest Community Association Act. Boards must ensure compliance with statutory timelines to safeguard the community association’s interests and address any potential issues created by the developer. By staying informed and proactive, boards can lay the foundation for a well-managed and successful community. If your board is navigating the developer turnover process, the attorneys at Hirzel Law, PLC, are here to guide you and help hold your developer accountable.

 

Kevin Hirzel is the Managing Member of Hirzel Law, PLC, where he focuses his practice on community association law, condominium law, homeowners association law, real estate law, and Fair Housing Act compliance. He is a Fellow in the prestigious College of Community Association Lawyers (CCAL), an honor held by fewer than 200 attorneys nationwide. Mr. Hirzel serves on the CCAL National Board of Governors and was previously a member of the Community Associations Institute (CAI) Board of Trustees. Best Lawyers, Leading Lawyers, and Super Lawyers have recognized Mr. Hirzel. He is also the author of Hirzel’s Handbook: How to Operate an Illinois Condo or HOA, available on Amazon.com. Mr. Hirzel has been featured in major media outlets such as CBS, CNBC, Fox News, Fox Business News, NPR, Newsmax, and The Wall Street Journal. His insights have also been showcased on programs like The Dan Abrams Show (SiriusXM Radio), Dr. Drew Midday Live (KABC Radio), and the Law & Crime Network. A sought-after speaker, Mr. Hirzel frequently lectures at state and national conferences, sharing his deep knowledge of community association law. Hirzel Law, PLC, represents community associations, condominium associations, cooperatives, and homeowners associations in Michigan and Illinois. Kevin can be reached at (312) 552-7669 or kevin@hirzellaw.com.