765 ILCS 605/22.2: Illinois Condo Act Amended to Prohibit Discrimination in Exercising a Right of First Refusal
A new year will bring changes to the Illinois Condominium Property Act. On July 19, 2024, the Illinois state legislature enacted IL HB5502 which amends both the Illinois Conveyances Act and the Illinois Condominium Property Act. The amendments will take effect on January 1, 2025. This article will only discuss the changes to the Illinois Condominium Property Act.
Currently, 765 ILCS 605/22.2 reads as follows:
In the event of a sale of a condominium unit by a unit owner, no condominium association shall exercise any right of refusal, option to purchase, or right to disapprove the sale, on the basis that the purchaser’s financing is guaranteed by the Federal Housing Administration.
IL HB5502 will change 765 ILCS 605/22.2 to read as follows (changes in bold and underline):
In the event of a sale of a condominium unit by a unit owner, no condominium association shall exercise any right of refusal, option to purchase, or right to disapprove the sale: (a) on the basis that the purchaser’s financing is guaranteed by the Federal Housing Administration; or (b) for a discriminatory or otherwise unlawful purpose. Any person aggrieved by a violation of this Section shall have a right of action in a State circuit court against the offending condominium association.
Most condominium associations have a provision in their governing documents which provides a right of first refusal to the condominium association when a unit owner decides to sell their unit. Although most condominium associations rarely exercise this right, this provision provides the association with the opportunity to purchase a unit within their association. Furthermore, generally, condominium associations have a right to disapprove a sale.
Currently, pursuant to 765 ILCS 605/22.2, condominium associations may not exercise a right of first refusal, option to purchase or right to disapprove on the basis that the purchaser’s financing is guaranteed by the Federal Housing Administration (FHA). An FHA loan is a loan that is backed by the FHA meaning that the mortgagees are protected against loss if the mortgagor defaults on the loan. FHA loans may be a viable option for prospective buyers who are in debt or have a lower credit score. Furthermore, FHA loans are attractive to prospective buyers as the loans do not require a large downpayment. However, given these lenient loan requirements, some associations were wary of these prospective buyers purchasing units within their association. As such, 765 ILCS 605/22.2 prohibited condominium associations from blocking a sale because a purchaser received an FHA loan.
The amendment to 765 ILCS 605/22.2 provides that condominium associations may not exercise a right of first refusal, option to purchase or right to disapprove for a discriminatory or unlawful purpose. Furthermore, the amendment now provides a cause of action to the aggrieved person against the offending condominium association. Given these changes, any condominium association who is contemplating exercising a right of first refusal, option to purchase or right to disapprove a sale within their association should first discuss the situation with the association’s attorney prior to making any decision. The inclusion of “otherwise unlawful purpose” is broad and can subject the association to liability even if the association is unaware that they are breaking a law by preventing a sale. Accordingly, in a resale within a condominium association, the association should always seek the advice of counsel if the association is considering exercising a right of first refusal, option to purchase or right to disapprove.
Conclusion
Prior to the enactment of IL HB5502, a condominium association could not exercise a right of first refusal, option to purchase or right to disapprove because a prospective purchaser had received a FHA loan. Effective January 1, 2025, condominium associations now may not exercise a right of first refusal, option to purchase or right to disapprove for any discriminatory or unlawful purpose. Additionally, an aggrieved person now has a cause of action against the offending condominium association should the association halt a sale on the basis that the purchaser’s financing is guaranteed by the FHA; or (b) for a discriminatory or otherwise unlawful purpose. To avoid any potential legal troubles, condominium associations who are contemplating exercising a right of first refusal, option to purchase or right to disapprove should contact an experienced condominium association attorney to advise if such an exercise would break the law. We generally do not recommend inserting a right of first refusal provision in an association’s governing documents as such provisions can lead to Fair Housing Act claims. If an association has such a provision in their governing documents, the association should review the provision with their attorney and may want to consider removing the provision given the changes to 765 ILCS 605/22.2. The attorneys at Hirzel Law, PLC are experienced community association attorneys who can assist and advise condominium associations who may be seeking to exercise a right of first refusal or who wish to amend their governing documents to remove a right of first refusal.
Jeremy Fernando is an Associate Attorney at Hirzel Law, PLC. Mr. Fernando is licensed to practice law in the State of Illinois. He concentrates his practice on community association law, condominium law, homeowners association law, and real estate law. Mr. Fernando’s legal career includes serving in corporate practice where he represented insurance companies and institutional investors in U.S. and cross-border private placements of securities, including transactions in the Netherlands, England, Ireland, Australia, and Germany. Mr. Fernando earned his Juris Doctor from Marquette University Law School, where he graduated with honors and ranked in the top 15% of his class. He also served as an Associate Editor of the Marquette Law Review. Mr. Fernando is committed to providing effective legal representation to his clients and is passionate about helping communities navigate complex legal challenges. He may be reached at 312-552-7669 or jfernando@hirzellaw.com.
