Enforcing HOA Rules in Illinois: Are Unrecorded Regulations Valid?
In community associations, there is often a tension between a property owner’s desire to keep and maintain their lot in the manner that they see fit and the community’s desire, acting through a community association, to preserve a common set of community standards and expectations. In 2019, the Illinois Court of Appeals provided significant guidance to communities in Illinois in the unpublished decision Fritz v Lake Carroll Property Owners Association, Inc., 2019 IL App (2d) 180329-U, 2019 WL 647074 (Feb 13, 2019 Ill Ct App).
Background
At the time of the Court’s decision, Lake Carroll was the largest privately owned manmade lake in Illinois. Lake Carroll was also home to a residential community initially created by plat recording in 1972 referred to simply as “Lake Carroll.” Each owner w purchased a lot in Lake Carroll was subject to a recorded “Declaration of Restrictions and Covenants” (the “Restrictions”). The Restrictions provided for the creation a community association known as the “Lake Carroll Property Owners Association” (the “Association”). The Restrictions stated that the Association would “have such powers in furtherance of its purpose as are set forth in its Articles and By-Laws.” The Restrictions created a Board of Directors and an Environmental Control Committee (which later changed its name to the Architectural and Environmental Committee (the “A&E Committee”). The Restrictions and the By-Laws were both recorded and applied to all lots within Lake Carroll.
In addition, however, the Association had adopted Rules and Regulations which applied to all lots but were not recorded. One such Rule was Rule 72.20 which required that “all septic systems on private property within Lake Carroll be professionally pumped at four-year intervals regardless of their size or use.” Plaintiff Rodney Fritz (“Fritz”) had purchased his lot in 1997 and contested the Association’s authority to enforce Rule 72.20. In Fritz, supra, there was no dispute that the Plaintiff was a member of the Association nor was there any question that the Restrictions and the By-Laws had been properly recorded and applied to the lot owned by Fritz. In essence, the tension between the Association and Fritz was based on whether the Association retained the authority under Illinois to mandate compliance with an unrecorded Rule which compelled a lot owner to take certain action in regards to his property. When the Association attempted to assert this authority, Fritz filed a lawsuit seeking a judicial determination as to the extent of the Association’s power.
Court’s Decision
The trial court ruled in favor of the Association and determined that Rule 72.20 was enforceable under Illinois law. Plaintiff appealed and on appeal presented two main arguments: (1) the language of the Restrictions did not authorize Rule 72.20; and (2) since Rule 72.20 was not recorded, it could not be enforced against Plaintiff’s lot.
In rejecting the Plaintiff’s arguments, the Illinois Court of Appeals laid out several principles. The Court of Appeals recognized the framework within which its analysis would be conducted:
Because members in a voluntary association agree to abide by the rules and regulations adopted by the organization, courts generally do not interfere with the internal affairs of a voluntary association absent mistake, fraud, collusion, or arbitrariness. Associations are “ ‘left free to enforce their own rules and regulations by such means and with such penalties as they may see proper to adopt . . . .’ ”
Covenants should be interpreted according to the principles of contract interpretation, construing relevant documents together with relevant statute. Fritz, supra, at ¶ 25 (citations omitted).
The Court also interpreted several cases which discussed the scope of an association’s authority to require or prohibit activity as to an owner’s lot: Ripsch v. Goose Lake, 2013 IL App (3d) 120319; Westfield Homes, Inc. v. Herrick, 229 Ill. App. 3d 445 (1992), and Hartman v. Wells, 257 Ill. 167 (1912). Under the Court’s analysis, taken together, these cases stood for the proposition that while an unrecorded rule that regulates a community lake may, potentially, as suggested by Ripsch, supra, not be used to also limit the use of an owner’s land, an unrecorded regulation pertaining to the owner’s land, adopted in conformity with the authority granted by a recorded declaration, necessary to protect the integrity of a common lake would be enforceable. In Westfield, the covenants in question required a committee’s approval of “improvements” on private property, but as to improvements which were not specifically addressed in the recorded covenants, the committee’s authority was limited to “reasonable non-arbitrary restrictions . . . ” Hartman, supra, stands for the simple proposition that recorded restrictions will be enforced in a court of equity “where the intention of the parties is clearly manifested in the creation of the restrictions . . . .” Further, the Court also relied on the Restatement (third) of Property: Servitudes § 6.7 cmt b (2000) for the proposition that “an association has no inherent power to regulate the use of individually owned properties in the community, however except as implied by its responsibility for management of the common property.”
In the instant case, the recorded Restrictions required that all lots be “maintained in such a manner as to prevent their becoming unsightly, unsanitary or a hazard to health.” Even though the Restrictions already provided for a remedy of a violation of this provision, the restrictions also specifically provided for the adoption of recorded By-Laws and authorized the Association to establish committees and adopt written rules and regulations of general application. The By-Laws stated that the authorized purposes of the Rules and Regulations included the “general welfare of Lake Carroll” and “to protect and preserve the eco-system of Lake Carroll.” The By-Laws also specifically gave the A&E Committee the authority to review and approve proposed construction of septic systems and to recommend and enforce rules and regulations. Based on these circumstances, the Court ruled as follows:
Because the covenants allow the Association to have powers in furtherance of the purposes set forth in the bylaws, and the by-laws allow the board to adopt rules and regulations both for “the general welfare” and to “protect and serve the ecosystem of Lake Carroll,” we cannot say that rule 72.20 was improperly enacted without the necessary authority. Fritz, supra, at ¶ 28 (citation omitted).
The Court also ruled that while 765 ILCS 160/1-5 required that “community instruments” be recorded at the county recorder’s office, it did not require that all rules and regulations be recorded and appeared to specifically contemplate that “rules and regulations” may be a part of an association’s community instruments, but they may also exist outside of community instruments and, therefore, do not always need to be recorded.
Key Takeaways
There are several takeaways for an association considering adopting rules and regulations limiting or regulating the use of owners’ lots within their community. First, does the rule or regulation arise out of a properly recorded document? Second, does the rule or regulation further one of the stated purposes of the association set forth in a properly recorded document? Third, if the association is seeking to protect a common area through the rule or regulation, is there a connection between the rule or regulation and the desired protections? If an association adopts a rule or regulation that limits the use of private land but that is not anchored in a recorded restriction and does not serve a common interest, then the association risks having its actions considered arbitrary and potentially deemed invalid.
Matthew W. Heron is a Member at Hirzel Law, PLC, where he concentrates his practice in real estate, community association law, condominium law, real estate litigation, and zoning and land use. Mr. Heron also has extensive experience in a variety of litigation matters, including insurance coverage, non-compete agreements, automotive supplier disputes, and breach of contract. He may be reached at 312-552-7669 or mheron@hirzellaw.com.
