Cornered: Out of Court

Cornered: Condominium Law with Kenneth Michaels, Jr.

• IICLE® • Season 2 • Episode 11

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Many wonder if condominium ownership is right for them. Kenneth Michaels, Jr., of Bauch & Michaels LLC, writes the Condominium Law FLASHPOINTS available at IICLE.com and, in this episode of Cornered: Out of Court, provides some key considerations for purchasers and associations.

IICLE® is a 501(c)(3) not-for-profit based in Springfield, Illinois. We produce a wide range of practice guidance for Illinois attorneys and other legal professionals in all areas of law with the generous contributions of time and expertise from volunteer attorneys, judges, and other legal professionals.

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Oh, you're an attorney?
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I have a friend who...
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I've been meaning to update my will, but I just bought a new house…
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I want to start a business…
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My brother was fired…
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Hey, my friend got divorced a while back, and
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I just don't understand how her ex...
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You've been there.
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At a social function, meeting friends of friends.
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Word gets out that you're an attorney and suddenly your night is filled with partygoers asking you quote-unquote simple legal questions.
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The questions are seldom in your area.
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Some of the stuff you haven't thought about since law school.
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You're being cornered out of court.
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In the Cornered Out of Court podcast from IICLE, you'll hear from fellow attorneys about the questions they get and the responses they give to escape being cornered.
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Especially in the Chicago area, many people may wonder if condominium ownership is right for them.
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Kenneth Michaels Jr.
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of Bauch and Michaels writes the condominium law flashpoints available at IICLE.com and in this episode of Cornered Out of Court provides some key considerations for purchasers and associations.
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I'm Ken Michaels and I am a practicing Illinois lawyer who undertook his first condominium association representation in 1985 and have done
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quite a few cases since then and created condominium associations, represented associations, unit owners, so on and so forth.
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I also engaged in commercial litigation, a great deal involving real estate and other matters, including antitrusts and such.
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We also have been engaged in transactional work representing lenders as well as real estate matters.
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What are purchasers actually investing in when they own a unit?
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The real estate brokers will hate me on this one.
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I'm going to begin by reminding us all why we buy a home.
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And when we buy a home, when we pare it all down, what we're buying is the security and protection of ourselves and our family members.
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We are buying an
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a century of fortress in which we can be secure at night from the weather and elements, natural elements, as well as from other people and such with ill intent.
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It's also a great storage place for all the personal property we accumulate and so on and so forth.
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Having given that background, maybe the real estate brokers will be a little bit more forgiving when I describe a condominium purchase as a great idea if you're willing to invest
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a substantial part of your current wealth as well as future earnings stream into a not-for-profit corporation managed by a few people that you don't know of unknown skills and abilities for the purpose of managing a property where you and a large number of other people will live together in a collective environment.
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If you're happy with that, condominiums are the way to go.
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You're actually buying, imagine a cube of space, because that's what you're buying is that space.
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Perimeters of this cube are defined by the interior of the perimeter walls of your condominium unit and the surface of the ceiling and floor.
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That is your space.
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You are also buying
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A percentage ownership is a tenant in common with all the other people who have purchased space in this space.
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and you're also included in that as part of your common elements, but somewhat differentiated as you're a percentage ownership of the land.
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But again, you own all this as a collective body, not as
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not individually.
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And so many people moving into a condominium association from the suburbs or such have to go through a psychological adjustment that this is no longer going out and walking the perimeter of your estate on Saturday morning to make sure there's been no intrusions, because that's not what you're purchasing.
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The common elements of the space are the building, everything that's included within the walls,
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of that perimeter walls of that building, and all the plumbing, electrical, and other utility fixtures within that building that serve more than one unit.
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Within the definition of common elements, you may have some of the plumbing and electrical that once it demarcates into serving just that unit under most declarations, then that would become part of the unit.
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And that's that question is important for the purpose of who's responsible for maintenance, repairs and replacement.
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Also, there is in common elements.
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What about the patio on the outside of the building?
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Where is that?
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Well, that is a common element.
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It's owned by everybody, but not everybody has a right to come up on your patio on a Saturday night to start partying.
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It's a limited common element if it's designed to just serve your unit.
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you have exclusive use of it.
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But you do not own anything more than your percentage ownership of that patio space.
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That patio is actually owned by all your neighbors in you.
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The ex that's important to understand, because you there's case law that
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establishes just because you have exclusive use of space doesn't mean you get to go build out all over that space or do something on that space that could deprive others from their ownership rights in that space.
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It's a nuance, but there's plenty of case law on that point.
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The land, of course, is owned by all the owners.
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Now, a lot of the the condo work I do is primarily Chicago.
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And a lot of your condominiums are all along Lakeshore Drive, Marine Drive, and so forth, and all in the shoot throughout the Chicagoland and the suburbs.
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You will have parking spaces.
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Many times the condo association itself owns the parking lot, much as a corporation owning a parking lot, and you do not own that parking space.
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Instead, you may have a limited common element right to use that space, and that's where the association doesn't own it, but all the unit owners own it as common elements.
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But there's also buildings where the association purchased rights to parking spaces and such and another facility or so.
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And there, the association is renting them out, just as any corporation would.
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There is also another class of parking spaces which is deeded, and that is always problem.
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You will actually own that parking space.
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Just it's an and it is a unit, so to speak, and by definition within
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the condo declaration.
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The problem there is many times the mortgage companies through the years haven't, when they have their servicing, don't realize that they need to pay a separate tax bill in Cook County for that parking space as well as the tax bill for the unit you live in.
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And there's been throughout my career
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Many times when you find people who did not realize that they lost their parking unit space because they failed to pay taxes on it and somebody came in, swept in and bought it.
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What are some key elements to consider when purchasing a unit?
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Let me begin with who's responsible for administering the condo association?
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This actually ties into the last part of what I was talking about.
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The Condo Association has all the powers and it's run by the board of directors.
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And it has all the powers of a corporate not-for-profit corporation.
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And those powers are established in not only the Condominium Property Act, but also in the Not-for-Profit Corporation Act under Illinois law.
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You may have the same in a homeowner's association, which may come under the Common Interest Community Property Act.
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They're very similar, but there are differences.
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But in any event, we'll focus on condo associations right now.
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They are usually incorporated under the not-for-profit act as well as having the powers and rights and responsibilities of a not-for-profit.
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And the corporation
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itself is responsible.
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In itself, it doesn't own the condominium property, but the board of directors through the association are responsible for administering the property.
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Each unit owner is a member by virtue of his or her ownership of the association.
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They vote for the directors, just if I can use by analogy, shareholders voting for the officers and directors of a corporation.
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It would happen in a not-for-profit corporation environment here.
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And ultimately, if the questions involve the administration of more than one unit, making claims for more than one unit,
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anything involving more than one unit, then it is up to the condo board to administer the property and they have all the rights and responsibilities.
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They have the rights and responsibilities on the board of directors typically to maintain all the common elements and limited common elements.
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Most declarations also provide that if it's maintenance or repair or replacement of a limited common element,
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the board may then pass through the cost back to the unit owner who has the exclusive use of that common element.
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So your common elements and limited common elements do include the doorway into your unit.
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That's actually a limited common element.
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The windows in your units are all limited common elements, which means ultimately you're bearing the cost of those things, but they are maintained by the association.
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Often lawyers who get involved in condominium matters and think that this is just dealing with another form of real property.
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It is real property in a sense, but it's not like normal real property.
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Condominium associations, they're administering a not-for-profit corporation, and we have to bear in mind that that's what their purpose is.
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They raise money through passing
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annual budgets, and then imposing assessments against each unit owner based on the percentage ownership.
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They also have other rights, such as passing special assessments for special purposes and such.
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So when someone comes to me and wants to buy a condominium unit, after I've given my beginning speech about owning cubes of space and investing in not-for-profit corporations,
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If they haven't hung up on me at that point, I tell them that we need to look at four central concerns.
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Overall, what we want to do as a purchaser, we need to review the declaration and bylaws.
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That we're entitled to get under Section 22.1 of the Condominium Property Act.
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But you've got to do your homework when you're looking at a condo association.
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Some of the best things that can happen is if a purchaser or somebody contemplating the purchasing in a building actually talks to some of the neighbors to find out what the condition of the building.
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The Condo Act 22.1 does not give us as purchasers rights to the meeting minutes, but we really want to most associations will provide two or
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sellers will provide two or three years worth of meeting minutes.
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You want to see what has the board of directors been doing and managing the association.
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Now, I'm going to tell you, there's a lot of associations out of there, especially post COVID, that have engaged in a prolonged act of deferred maintenance is the euphemism we are using for it.
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One of the problems with condominium associations is most of the unit owners do not want to invest a lot of money in maintenance because their notion is short-termism.
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I'm only going to live here three or four years, or I'm only renting the property out, so I don't want to maintain it like it would be my own home.
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The short-termism leads to a lot of deference.
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There's also just the aging of the infrastructure of the buildings.
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The four areas that I always focus on with my purchasing clients are the roof.
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When was it last replaced?
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Did they do a full replacement or are they just doing patchwork?
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And this includes the soffits around the roof because of roofing costs have become astronomical.
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The same with tuck pointing.
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We have a lot of buildings that are masonry buildings in Chicago.
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And then between the bricks, that cement isn't there forever.
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And you have to go in with the concrete and do tuck pointing, cut out all the bad and the failing concrete and put in new concrete.
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So if the buildings aren't being tuck pointed from time to time for maintenance, you may be sitting on a huge bill to come.
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Window replacement, especially if you're in a high rise, can get extremely expensive.
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as we have aging skyscrapers along North Marine Drive in Chicago and such.
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The plumbing these large buildings has developed all kinds of
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Debris, calcification, oxidation, I've heard many descriptions of it, but basically the plumbing, like our bodies, is clogging up as we get older and older.
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Same with the building.
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Sometimes you just gotta take out the plumbing and replace it.
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And that is an extraordinarily expensive endeavor.
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And there's been a number of buildings that have found necessary.
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One of the indicia of that is if you are buying into a building where you find out that there's been a lot of plumbing breaks,
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and a lot of water infiltration problems between units and such and the walls and such.
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Then you've got the attendant mode issues that invariably grow out of that.
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Be cautious.
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That might be a signal to run away.
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You also want to look at the reserves.
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You want to make sure that this building is building up adequate reserves for future projects.
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If you can, if there's been some sort of plan done by a contractor or a professional organization as to the useful life of the roof, the windows, so on and so forth, that would be very helpful.
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Many associations, however, my experience, most do not spend the money for those types of plans, but they are extraordinarily helpful.
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And by the way, under 22.1, you now have a right to a copy of that plan.
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if it's been done.
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What should we know about the process for collecting past due assessments?
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The Illinois Condominium Act Property Act provides that the board of directors may not forbear the collection of assessments.
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Assessments are now
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It's silent as to late fees or interest.
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So if there's any flexibility in negotiating, it might be along those lines.
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And by the way, in most instances, the attorney's fees incurred in trying to collect assessments become part of your assessments.
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So if you're seriously in arrears in ignoring the Dunning letters or a 30-day demand for possession from the lawyer,
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you may be increasing the amount of assessment owed by ignoring that situation rather than setting up a payment plan or dealing with it.
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But generally, the assessments are not, the board can, by its fiduciary responsibilities, may not forbear the collection.
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The board of directors has fiduciary responsibilities to the entire association.
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The reference in the statute is owing a duty of care.
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The Illinois case law has greatly, and especially in recent years, expanded to incorporate in fiduciary duties owed by the board of directors references without any statutory basis, just, and I think it's judges just broadly reading the notion of fiduciary duties.
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They have referenced duties that would've evolved over a trustee's duties or agency duties.
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into the duties of fiduciary duties of the directors.
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The board of directors needs to be cautious.
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because there's also the unresolved conflict inherent in all this of having the duty to all the unit owners
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concurrent with having a duty to an individual unit owner.
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Generally, I would say that the duty to all the unit owners supersedes the duty owed to any individual unit owner.
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But if we're the individual, the duties to individuals have typically arisen in case law I've seen is where the board of directors undertakes to do certain repairs in a unit, and then
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tells the premier cases on it.
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They tell the unit owners, all right, you got to move out of your unit while we do the repairs.
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And then they don't do the repairs.
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For a long period, I think the LaSale case was like a year and a half or something like that.
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They left the unit unrepaired with the unit owner waiting to move back in.
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It seemed to, it sounded in an opinion like they almost was glad that she moved out and didn't want her to move back.
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And that might have been the problem, that there were personality issues involved, but I'm not sure of that at all.
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We need to be careful about exercising our fiduciary duties on the board of directors here.
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With everything you've explained, it sounds like whether representing owners or associations, this area of law presents unique challenges.
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More often than not, when I'm getting a call from a unit owner about a problem with his or her condo association and I start digging into it, what underlies much of the problem or exacerbates that problem is the fact that that unit owner has engaged in so much uncivil conduct with the manager or the members of the board or such.
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Now, it may be that the association created a problem.
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I'm not saying that it's the unit owner's fault, but by the time they are actually calling a lawyer, the situation has degenerated so far that it's not going to be something readily resolved outside of litigation.
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The next thing is the cost of litigation is so extraordinary.
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Unit owners, when you start telling them how much it's gonna cost for a lawsuit,
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and what they can expect for discovery cost, for motions, for summary judgment, for trials.
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After that discussion, the next thing you're going to hear out of the unit owner's mouth calling you is, oh, but we won't need any of that because I know if you just write a letter,
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The magical letter.
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I still haven't found the right stationery for this, but the magical letter that's going to fix all the world's problems just by writing a letter from a lawyer to the condo association, that's going to change everything.
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Hasn't happened in my lifetime, but maybe some lawyers have that experience, but I'm still looking for the magical letter.
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And I have to then explain to them that letters are, one or letters, two letters even, are not going to fix this problem.
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Another problem is very often the unit owners don't understand condominium at law at all.
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I think it was Judge Posner who acknowledged in a court opinion who really reads their mortgage.
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And the fact is that rarely have I ever met a unit owner that read his or her condo deck, much less understood what they were reading.
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They don't even know what their rights are and responsibilities are.
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until somebody sits down and starts explaining all that to them.
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I also encounter that problem with the board of directors.
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It's not just the unit owners.
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Directors, remember, are just unit owners that were actually willing to step up and volunteer their time in managing the association, an uncompensated position.
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They're heavily relying on the managers to lead them through this.
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Many of the management companies are all getting bought up now by subsidiaries of investment companies and financial institutions.
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And essentially, they understand the practice of collecting rent very well.
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They can send out notices with the best of them and invoices with the best of them.
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But as far as the actual management of the associations, that's where it's more of an art form and you're
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seeing more and more people put in those positions by the management companies who really don't have any management background or skills for the property management.
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And remember, this is also about corporate governance.
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It's not just about real estate management, and you need a manager that understands the nuances of corporate governance as well.
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Managing expectations of the clients is a huge problem because the
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unit owners, they just want this resolved as quickly and cheaply as possible.
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And that may, it may not be a situation that can be readily resolved.
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Too often, the general perception is that condominiums are just a different form of property, real property.
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I know about property.
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I own a house in the suburbs.
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I know all about property law.
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I took it in law school first year, first semester.
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Even though we never discussed condominiums throughout the course, well, there's nuances in condominium law you need to understand as I began in our discussion today, talking about common elements, units, and so on and so forth.
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Thank you, Kenneth.
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Kenneth Michaels Jr.
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of Bausch and Michaels has over 4 decades of experience in commercial litigation, transactions, and corporate governance.
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You can read his insights on condominium law in the free monthly flashpoints available at iicle.com.
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If you have an idea for a topic you would like to hear discussed on the IICLE podcast, we welcome your suggestions by e-mail.
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Thank you for joining us for another edition of Cornered Out of Court, brought to you by the Illinois Institute for Continuing Legal Education.