Q–With my daughter, I bought a condominium in Chicago last fall. I describe it as a rather unusual condominium conversion.
The closing took place in November, then the renovation began and the unit was ready for occupancy 45 days later.
Assessments were set at $230 a month at the time we signed the contract. When asked if that assessment level would increase in the future, the sales agent stated that assessments would not increase. However, she neglected to inform us that we would have a separate monthly garage assessment.
At the closing, we received two surprises. The developer sent my daughter an invoice for assessments for $273 a month, and she received a separate bill of $51 for a garage assessment. The regular assessments were 20 percent more than represented to us by the broker.
Because the units have not all been sold, there is no condominium association in place. Isn’t the assessment increase fraudulent? Was the sales agent being deceptive and untruthful?
We relied on the sales price and level of assessments in deciding to purchase the unit. A 20 percent increase would have influenced our decision whether to buy the unit or take a pass.
This has created an unexpected and unwarranted hardship. Do you have any suggestions or advice?
A–My suggestion is to learn from the experience and keep the condominium. Your misunderstandings relate to information that should have been disclosed in the condominium documents and the sales contract. Your rights, if any, to cancel the contract, expired at the closing.
This was, indeed, an unusual conversion. You paid the developer the sales price before renovation of the unit. The developer used the sales proceeds to fund the renovation. Most closings for new construction or conversions take place when the unit is substantially complete and ready for occupancy.
Contrary to your understanding, the condominium association was formed when the declaration was recorded. Until a certain date, the board of directors is controlled by the developer.
Disclosure rights for purchasers of new condominiums are governed by Section 22 of the Illinois Condominium Property Act. The developer must deliver to the purchaser before execution of the contract a copy of the declaration and bylaws and a projected operating budget.
The operating budget includes full details concerning the estimated monthly assessments. No material changes or amendments can be made to the documents after execution of the contract without approval of 75 percent of the purchasers.
If the developer fails to make these disclosures, or changes, to a prospective purchaser, the buyer may rescind the contract before the closing and obtain a refund of all money paid to the developer.
The declaration and bylaws, and your sales contract, should have stated that you were purchasing a parking space with a separate percentage of ownership. By purchasing a space, you must pay a separate assessment.
You need to review the documents. You have a valid fraud claim against the developer or the broker only if there was no other means to verify the truth of representations made to you during the sales process.
While in control of the board, the developer may increase assessments. You must determine whether the assessment increase presented at the closing was approved by 75 percent of the purchasers. If you did not receive prior notice of this assessment increase, you had the opportunity to rescind the contract at the closing. Once the closing was completed, however, your rescission rights ended.
Q–We live in a modest, self-managed 21 unit condominium building that was converted 30 years ago. Six units have been rented, and two of these investor-owned units belong to the developer. Of the 15 resident owners, many are in poor health or resent giving their time to serve an association that benefits the investors.
Three years ago, we attempted to vote out the investors, but couldn’t quite make the 75 percent approval required by state law. We also considered a management company, but their fees are costly for a small association. The board would still have to work with a managing agent. How can we become a building reserved for resident owners? Is it practical to consider a management company?
A–To eliminate investor ownership, you must amend the declaration and bylaws. The required vote to eliminate leasing is based on the numerical requirement for amendments to the declaration.
While the Illinois Condominium Property Act contains a maximum percentage, your condominium documents state the exact number. Most declarations require the approval of two-thirds or three-fourths of the unit owners for any amendment.
To obtain the required votes for an amendment, you will need the support of every resident owner, plus one or two investors.
The only practical means to convince an investor owner of the merits of resident ownership is to exempt current leases or current owners.
The board should consider a managing agent. Admittedly, the size of your association won’t invite proposals from a large number of management companies. Nevertheless, contact local trade organizations such as the Community Associations Institute and the Association of Condominium Townhome and Homeowner Associations for references to a management company that might perform services for a small association on a project basis.
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Mark Pearlstein, is a Chicago attorney who specializes in condominium law. Write to him c/o Condominiums, Real Estate Section, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611. Sorry, no personal replies.
