Q–Our large development in the northwest suburbs was faced with a jumble of associations. Prior to a recent merger, our association had a master association, a townhome association and six condominium associations.
Two years ago, five of the six condominium associations merged, leaving a townhome association and two condominium associations for the 246 units in the complex. The plan of merger was approved and filed with the Illinois Secretary of State.
New elections were held last fall for the directors of the master association.
The master association declaration and bylaws state that directors are elected by delegates. Three delegates are elected from each member association, and the delegates may cast votes equal to the number of units in their particular association.
Of the 246 units, 102 are townhomes, and the remaining 144 units are condominiums.
At the election of the master board, four representatives for condominiums and one for townhomes were elected to the board by the delegates.
Now the townhome association has protested the election. The townhome board contends that the election result was not consistent with the votes allocated to each association; and the plan of merger was not effective because each individual condominium declaration for the five former associations was not amended.
The townhome association also complains that the master association declaration should have been amended to reflect the new condominium association that resulted from the merger.
The master board believes that the merger of the multiple condominium associations automatically terminated the existence of the four associations that were merged into one.
Do the master association’s declaration and bylaws need to be changed to reflect the merger? Does the townhome association have a legitimate claim to contest the election?
A — Notwithstanding the technicalities of the amendment process, the election results do not appear to be consistent with the number of votes given to each association.
If the delegates from each association cast votes equal to the number of units they represent, 40 percent of the master board, or two directors, should come from the townhome association.
The results of the election you describe gave the townhome board only one representative from among the five board members. No wonder the townhome residents are upset.
If the master association declaration references the individual associations who are members of the group, that document should be amended to reflect the “surviving” condominium associations from the merger. That issue, however, does not affect the election results.
The declarations of each of the merged associations should also have been amended. The declaration amendments should reflect the merger and, in four cases, dissolution of their individual not-for-profit corporations.
The associations are not dissolved automatically, but, rather, their legal status is terminated by an amendment to the declaration and a certificate of dissolution issued by the Illinois Secretary of State.
Q — I live in a 50-unit building where I share a common kitchen wall with my neighbor. She has done plumbing work on her kitchen faucet and I believe it is affecting mine, because my kitchen faucet is now vibrating and noisy.
In the case of water damage, who is, or who should be responsible?
A — Under Section 9.1 of the Illinois Condominium Property Act, a unit owner is responsible for any damage that originates from his or her unit. Or to put it another way, liability goes from where it flows.
Q — Our 12-unit condominium building has three rental units. These owners have no intention of selling in the future. A fourth unit owner will probably rent his unit as soon as he can afford to buy a house.
Therefore, it would appear that it will be difficult to change the rental policy of our association, because we need a two-thirds majority to amend the declaration and bylaws.
My concern is that other owners may have a difficult time selling their condominiums if our owner occupancy rate is reduced to two-thirds of the units.
What is the current safe margin for the number of rental units in a condominium association? Is there anything we can do to protect our investment?
A — For condominium leasing, there is a legal guideline and a market guideline.
The legal guideline is reflected in the requirements of the Federal National Mortgage Association, or Fannie Mae. Its guidelines state that an owner occupancy rate of less than 60 percent exceeds the maximum leasing requirements for this organization to purchase unit mortgages in the secondary market.
The market guideline depends on leasing in your particular locale. A qualified real estate professional can advise you whether the number of leased units will have a negative impact on your ability to sell your unit.
The best solution for your association is a leasing amendment that will exempt current owners. Because you will need investor support to obtain the required two-thirds approval for an amendment, you will have to convince these owners of rental units that their long-term interests are better served by a high rate of residential occupancy.
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Mark Pearlstein is a Chicago lawyer who specializes in condominium law. Write to him c/o Condominiums, Real Estate News Section, 4th floor, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611. Sorry, he can’t make personal replies.
