Q–Our new 60-unit condominium in the north suburbs is supposed to be taken over by the association’s board of directors shortly, but unit owners still have a long list of concerns and complaints.
Many items have not been completed in the common areas, nor has the work been done on individual unit punch lists of problems. Owners have sent notices to the builder regarding these items, with no success.
It appears that the builder was seriously remiss in paying assessments. Consequently, our reserves are low.
We learned that many builders keep assessments low because they have to pay assessments on unsold units after the first unit is sold. This tactic forces associations to raise assessments once the unit owners obtain control of the building.
The low level of assessments constituted one of the key factors in our decision to purchase this condominium. In fact, to entice buyers, the builder offered one year’s free assessments.
At the closings, owners were required to pay three months’ assessments in advance, to establish the association reserve fund. Is that money refundable to an owner if the unit is later resold?
The management company says that the assessments are the builder’s obligation. Once we become an association, how do we get any of these monthly assessments from the builder in a timely fashion?
The builder also has left unpaid several outstanding gas and electric bills.
Meanwhile, the builder still is using a small room in our lobby as a sales office, and is also using two large common area storage rooms for construction materials. Can we charge the builder rent for using these three rooms?
A–The problems you describe are not uncommon, but certain aspects of your situation are not so much legal questions as basic realities of buying a condominium.
A builder or developer must pay assessments on unsold units, commencing with the first sale. If the builder has failed to pay these assessments, the association may file a lien against the remaining unsold units.
The association also shouldn’t issue a paid assessment letter for future closings until the delinquency for the unit is paid in full.
Based on the 1995 case of Maercker Point Villas Condominium Association vs.
Syzmski, the developer is liable to the association for reserve fund shortages arising from failure to pay assessments.
However, it is a common practice for builders or developers to keep assessments at a minimum level during the sales period. Minimizing assessments serves to make the development more attractive in the marketplace.
Unit owners typically raise assessments when they take control of the board of directors. Every condominium purchaser must assume that assessments will increase when the owners take over the board.
The multi-assessment payments you made at closing for the reserve fund are not refundable to an owner on resale.
Typically, a developer will require the first buyers of units to pay two to three months’ assessments to either establish a reserve fund or operating account.
As for the offer of one year’s free assessments, the new directors must remember that the unit owners are responsible for these assessments. Individual unit purchasers may seek reimbursement from the builder for these one-year deals. The association was actually formed by the builder/developer, so the new directors do not have an obligation to chase the builder for reimbursement.
Unit owners must pay these charges to the association.
With a shortage of funds, it is not surprising that several important utility bills were left unpaid. The association cannot have delinquent utility charges; they are association obligations that must be paid with available funds.
If the association is short of cash, the directors have two choices: either pursue the builder aggressively for unpaid assessments or raise assessments to cover operating expenses.
While the builder is selling units, the company has an easement under the declaration to use portions of the property for marketing and construction.
You cannot charge the builder rent for using any portion of the association property so long as one unit remains unsold. After the sale of the last unit, the new board can empty the rooms and make them suitable for association purposes.
Upon taking control of the board of directors from the builder or developer, the unit owners should take several steps.
First of all, obtain documentation from the developer, which must be delivered under the Illinois Condominium Property Act.
The most important items are bank statements and association funds, an accounting of income and expenses during the period of developer control, and construction plans and specifications.
Retain an accountant to determine whether the developer has paid assessments on unsold units, or used assessment funds for development purposes. File liens against any unsold units where the developer has not paid assessments. File a claim against the title company for units that were sold without full assessment payments.
Pursue the developer for completion of punch list items. The board has the authority to require the developer to repair or complete defects in the common areas and to take care of unit owner punch list items.
If the developer refuses to comply with your demands, use the services of your local village to force the developer to complete these items, before filing suit.
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Mark Pearlstein is a Chicago lawyer who specializes in condominium law. Write to him c/o Condominiums, Real Estate Section, Chicago Tribune, 435 N. Michigan Ave., Chicago, IL 60611. Sorry, he can’t make personal replies.
