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SPRING 1996 VOLUME 7, ISSUE 1 Business, Education and The Trades PRACTICAL IDEAS AND GUIDELI NES FOR CON DOMIN IUM ASS OC IATIONS History of Condominiums Welcome to the first of the n ew the BEAT T n ew s l e t t e rs in 1996. We ’re going to s t a rt with basics and w o rk up to projects. Ke e p each copy of the BEAT T f o r future reference and new Board M e m b e rs . The following excerpt from the history of condominiums was written in 1990 as part of a commentary on the Illinois Condominium Property Act. The commentary was prepared by Donnie Rudd and Caryn Gardner, both condominium attorneys. Mr. Rudd’s firm had (at the time) written approximately 60% of the Illinois Condominium Property Act. Mr. Rudd currenly is retired from law. Ms. Gardner, who had specialized in condominium law in the Chicago area is currently practicing law in Florida.. re f e rred to as the Condominium P ro p e rty Act. It is re f e rred to as the Horizontal Pro p e rty Act. Condominiums are not a new concept. The form of ownership which is utilized for condominiums was used by the Romans as early as the 6th c e n t u ry B.C. In Europe, the concept has been available for many centuries. The concept has existed in South American countries for at least two centuries. Among the industrialized countries, the United States was the last to embrace the condominium concept. The first attempt in the United States or its territories to develop condominiums was the Horizontal Pro p e rty Act of Puerto Rico, passed in 1948, utilizing a model statute developed by the Federal Housing Authority. After World War II, essentially the only type of commonly owned housing that was available to the general population was the cooperative. H o w e v e r, the cooperative had several major drawbacks, chief among them being the fact that the ownership in the cooperative entity could not generally be mortgaged, thereby pre c l u ding most of the available purc h a s e r s f rom purchasing shares in the cooperCBN, Ltd. © 1996 SECTION 1 History The term “condominium” identifies a form of ownership of re a l p ro p e rt y. Pro p e rty becomes a condominium simply by re c o rding a Declaration which submits the re a l p ro p e rty to the Condominium P ro p e rty Act. Submission of real pro p e rty to the Condominium Pro p e rty Act of the State in which it is located is the only way to create a condominium. Neither the type of building nor its stru c t u re or use has any bearing on whether it is a condominium. It is simply that the Declaration subjects the pro p e rt y to the Condominium Pro p e rty Act. In most states, the statute is not Published by: Condominium Business Network, Ltd. c d i u o n om n i m Page 2 - Spring ‘96 ative. The form of ownership known as the condominium solved most of the major p roblems associated with the cooperative. although it is currently one of the half-dozen leading states in the number of condominiums and development of condominium law. By the mid-1970’s, associations One by one the various States began to complain that too many adopted various condominium p roblems existed in the operation of statutes, each based on the Federal the associations, which were not Housing Authority model. a d d ressed by the Illinois U n f o rt u n a t e l y, this approach cre a t e d Condominium Pro p e rty Act. The many serious pro b l e m s . Legislative Study It was merely a quick Commission pubTEST YOUR attempt to provide a STRENGTH lished a study in condominium concept M a rch 1975, and as a Board in order to make purMember. Get the re p o rted to the chase of condominiums House of other Board available, and little R e p resentatives and Members to thought was given to General Assembly of work together the legal structuring of the State of Illinois, as a team… condominiums. making re c o m m e nDefined in its simplest terms, a condominium contemplates that the unit owner will own air space within his unit and the real estate will be owned by all of the owners as tenants in common according to a p e rcentage of ownership set forth in the Declaration. Tenancy in common as a form of ownership has long existed in common law but little re g a rd was given to its implications when adopting the condominium laws. Thus, many problems have o c c u rred in condominium associations which could have been avoided by re f e rring to the fundamentals of real estate law when drafting the original Act. The Illinois Condominium Pro p e rt y Act was adopted by the legislature on June 20, 1963, and became eff e c t i v e July 1, 1963. Thus, Illinois is a late comer in the condominium business, CBN, Ltd. © 1996 Make informed business decisions… Your unit Owners are waiting! dations for changes in the Illinois Condominium P ro p e rty Act. In 1977, Public Acts 80-1102 through 801120 were passed and became effective on January 1, 1978. This was the first major rewrite of the Illinois Condominium P ro p e rty Act. These acts addre s s e d the major problems occurring in associations, primarily developer related, and sought to pre v e n t abuses that created other pro b l e m s for associations. Between the 1978 rewrite and the 1983 rewrite, some fifteen (15) bills w e re passed to amend the Illinois Condominium Pro p e rty Act. These legislative acts addressed part i c u l a r p roblems and needs of the industry, and in particular dealt with the pro blems created by the large number of condominium conversions cre a t e d during the economic climate at that time. « Page 3 - Spring ‘96 By 1982, it became apparent that rather than merely addressing developer cre a t e d p roblems in associations, a close look should be taken at the internal operation of associations, the administration of the board of managers, unit owner protection, and s t a t u t o ry solution of problems in order to avoid inundating the Courts with condominium litigation. Thus, the 1983 Amendments to the Condominium Pro p e rty Act contained a substantial rewrite of the Act for the first time to addressing the internal operations of associations. The 1983 amendments came after a painstaking two years analysis of the Condominium Pro p e rty Act and every lawsuit involving condominiums. The analysis and recommendations were provided by a t t o rney Donnie Rudd, and his close work with Representative Ellis Levin of the General Assembly provided the exact language which ultimately became the major revisions to the Illinois Condominium P ro p e rty Act, adopted in 1983, and generally re f e rred to as the 1984 amendments to the Illinois Condominium Pro p e rty Act, since they were not effective until 1984. Since 1984, numerous amendments have been made to the Illinois Condominium P ro p e rty Act in order to provide solutions to p roblems brought to the attention of the legi s l a t u re by condominium associations and unit owners as well as their re p re s e n t a t i v e a t t o rneys. The State’s leading condominium e x p e rts have drafted legislative language used by the State Representatives who have been responsible for almost all condominium legislation in the state since 1982. The Illinois Condominium Pro p e rty Act will continue to change. The legislature will amend the Act as necessary to meet the needs of associations. A number of states have now adopted the U n i f o rm Condominium Act as proposed by the Uniform Commissioners of State Laws. Illinois has not adopted the Uniform Condominium Act, and it appears that Illinois is unlikely to do so since it would re q u i re relinquishment of many of the important gains made by associations in the legisl a t u re during the last decade. Many states have rejected the Uniform Act, including C a l i f o rnia, Florida, and Hawaii, all leading condominium states. While states not having much condominium development seem to be able to adopt the Uniform Condominium Act without many pro b l e m s , those states having large numbers of condominiums have gone their separate ways and addressed their own specific needs with specialized legislation. Both systems work well. Although the Condominium Pro p e rty Act in Illinois is now (thirt y - t h ree) years old, it is relatively new compared to condominium legislation in other countries. Its newness means that many provisions of the Act will be reviewed and changed from time to time, in order to meet changing conditions in the development, marketing, and operation of associations. CBN, Ltd. © 1996 Page 4 - Spring ‘96 There is just one more Section of this particular Excerpt. Section 2 deals with some important Definitions in the ICPA that you - Definitions SECTION 2 should understand. Section 2 of the Condominium Pro p e rt y Act provides definitions to be used thro u g hout the Act. Most of the definitions are selfe x p l a n a t o ry. There f o re, only a few subsections will be reviewed here, these being the most commonly misunderstood sections. Paragraph (d) provides that a “ U n i t ” means a part of the pro p e rty designed and intended for any type of independent use. Paragraph (e) defines “ C o m m o n E l e m e n t s ” as all portions of the pro p e rt y except the units. There f o re, the sum total of real estate in a condominium association is the combination of the units and common elements. It is important to note that the common elements of the association includes all of the real estate, the units being essentially air space, and the real estate is owned by all of the unit owners as tenants in common. Thus, the condominium association itself does not have title to real pro p e rty unless it owns a unit or pro p e rty otherwise deeded to it. Paragraph (s) defines “ L i m i t e d Common Elements” as a portion of the common elements designated in the declaration as being re s e rved for the use of a certain unit or units to the exclusion of other units. A common mistake made in interpre ting condominium documents is to treat limited common elements as something separate from units or common elements. Limited common elements are still common elements. They are merely restricted in use. H o w e v e r, they fall within the definition of common elements for the purposes of cont rol, insurance, and re g u l a t i o n . Paragraph (w) defines a “Meeting of the B o a rd of Managers” as a gathering of a q u o rum of the members of the Board of Managers for the purpose of c o n d u c t i n g B o a rd Business. This is a commonly misint e r p reted section of the Act. For instance, a nine member Board has a quorum of five. A seven member Board has a quorum of four. A five member Board has a quorum of thre e . Many associations attempt to have committee meetings of the Board to avoid the open meetings provisions even though this paragraph (w) provides a definition which, when combined with Section (8) clearly pre v e n t s this type of activity. A major change in the Illinois Condominium P ro p e rty Act came about in 1995. As of this y e a r, per Section 2.1, the Illinois Condominium Pro p e rty Act applies to all condominium associations in the state of Illinois no matter in what year the association was formed. This is a major comprehensive consideration. s ILLINOIS CONDOMINIUM PROPERTY ACT Section 2.1 Applicability . Unless otherwise expressly provided in another Section, the provisions of this Act are applicable to all condominiums in this state. Any provisions of a condominium instrument that contains provisions inconsistent with the provisions of this Act are void as against public policy and ineffective. Published by: Condominium Business Network, Ltd. c d i u o n om n i m CBN, Ltd. © 1996