Jun 23, 2016

Appellate ruling rejects attempts to limit condominium leasing through rules

The Illinois Appellate Court recently issued its opinion in Stobe v.842-848 West Bradley Place Condominium Association, 2016 IL App (1st District) 141427 (February 3, 2016), ruling that a Condominium Association may not impose limits on leasing of units by Board-adopted rule where the Association’s Declaration provided owners the right to lease their units subject only to certain limits stated in that Declaration. This decision renders rules that restrict leasing unenforceable for Illinois Condominium Associations with Declarations that permit leasing.

In the Stobe case, the portion of the Association’s Declaration governing “sale, leasing or other alienation” of units provided certain lease limits, such as prohibiting leases for hotel purposes or leases of less than six months in duration. It did not, however, state that the Board had the authority to make further rules and regulations on leasing, though it granted authority for rulemaking with respect to a variety of other subjects. Looking to satisfy lenders’ guidelines the Board adopted a rule that no more than 30 percent of units could be rented at any one time.

The Stobes had rented out their unit ever since buying it in 2007. But in 2012, under the new rule, the Board advised them that it planned to enforce the limit against them. Shortly thereafter, the Board imposed over $6,000 in fines against the Stobes and voted to proceed with evicting their tenants. This prompted the Stobes to file suit asking the lower court to declare the rule to be in conflict with the Declaration and therefore unenforceable. The court ultimately agreed, finding that the Declaration’s intent was not to authorize leasing restrictions via rules.

The Association appealed, arguing that the portion of the Bylaws granting the Board power to adopt rules for the administration, management and operation of the Association property allowed for the leasing restrictions and did not conflict with the Declaration. The Appellate Court disagreed, however, and upheld the lower court’s decision in the plaintiff Stobes’ favor. In doing so, the Appellate Court cited sections of the Illinois Condominium Property Act allowing Boards to adopt rules, so long as they do not conflict with the First Amendment, certain portions of the State constitution, or the provisions of the Condo Act or the condominium instruments (that is, the Declaration and Bylaws).

Though the Declaration in this case did not explicitly state that members could lease their units, it included certain narrow restrictions on leasing that led the court to conclude that its intent was to provide the right to lease. Perhaps more importantly, the Declaration did not state that the right to lease was subject to further regulation by rule. The court concluded that, “[b]ecause the Declaration has spoken on the matter of leasing, any augmentation or diminution of plaintiff’s right to lease their unit must be accomplished through an amendment to the Declaration, not a rule promulgated by the Board.”

As a practical matter, the Stobe opinion generally bars Condominium Associations from restricting leasing by Board-adopted rules, though it may have left the door to such rules open a crack in the rare instance where the Declaration either fails to mention leasing at all, or grants the Board the specific authority to adopt rules and regulations governing leasing. The opinion also appears to further limit reliance on prior cases, such as Apple II Condominium Association v. Worth Bank and Trust Co., 277 Ill App. 3d 345 (1st District 1995), that suggested Boards could enact rules regarding leasing but that such rules were clearly inferior to amendments and were a second class of restriction which courts would heavily scrutinize. The Stobe court addressed and distinguished Apple II on the grounds that the restriction adopted there was in an amendment, not a rule, and that the court’s evaluation of rules’ enforceability was dicta – a non-binding statement not necessary to the court’s ruling. This recent ruling leaves far less, if any, room for Associations to attempt to restrict leasing by rule rather than amendment. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: James P. Arrigo, Principal