By: Sarah Elizabeth Melendez [1]
Have you had a request for governing documents? Have you sold a condominium in the last few years? Are you currently living in one and plan to sell it in the foreseeable future? If you sold one, purchased one, or plan on selling one, and the unit is located in Illinois, you will have to deal with the Illinois Condominium Property Act, 765 ILCS 605 (“Act”), and specifically Section 22.1 of the Act. Under Section 22.1, sellers of a condominium unit are required to make available to prospective purchasers nine categories of documents and information specifically enumerated and described in the statute. They include Declarations, by-laws, statements of any liens, anticipated expenditures, status of reserves, financial condition and insurance coverages. While the documents and information are to be obtained from the Board of Managers of the condominium Unit Owners’ association, that requirement is frequently delegated by the Association and is handled by its agent, a property management company. The property management company then charges a fee, sometimes totaling hundreds of dollars, to provide those documents and information to the seller. Under Section 22.1, they can charge a “reasonable fee covering the direct out-of-pocket cost of providing such information and copying….”. Sellers pay the costs because they have no choice – they need the documents to give to the purchaser and the closing sale of their unit is contingent upon providing those documents. Failure to provide the documents to the purchaser may be a reason to cancel the sale.
In the case Harry and Dawn Channon v. Westward Management, 2021 IL App (1st) 210176, the Illinois Appellate Court recognized a new cause of action in favor of condominium sellers under Section 22.1 of the Act. Previously, Illinois courts extended such protection to buyers only and not sellers. In Channon, plaintiffs filed a class-action lawsuit against the Association’s property management company, alleging that when they sold their unit, the property management company charged excessive and unreasonable fees totaling $245 to provide them with the documents and other information they were required to provide to the prospective purchasers under the Act. The Appellate Court held that Section 22.1 of the Act is not only “for the benefit or protection of potential purchasers” but also, “protects unit owners wishing to sell (as well as owners’ associations and their board of managers)”. In reaching this determination, the Appellate Court found that “being charged an excessive fee to receive documents and information required by Section 22.1 is an injury that the statute was designed to prevent”. The Appellate Court further held that Section 22.1 of the Act provides an implied cause of action in favor of a condominium unit seller against a property manager, as agent of an Association, based on allegations that the property manager charged excessive fees for the production of information required to be disclosed to a prospective buyer. The result of the Appellate Court’s decision is critical for not only sellers of their condominium units but also for management companies and condominium boards to ensure that the fees that are being charged for the production of documents are reasonable and not in violation of Section 22.1 of the Act. At first glance, this opinion may appear a mere extension of rights from current buyers to those same buyers who will one day become sellers. However, any newly recognized cause of action will excite prospective litigants to take their grievances to court. It should also be easier to certify a class of “sellers” (past and present) within a condominium association than it would be for a group of similarly situated “buyers”. In real life, it is the seller who pays the bulk of disclosure fees. If a buyer is asked to pay a disclosure fee that buyer deems excessive, a seller may be forced to pay it with the hope of not losing the deal. The Appellate Court did not rule whether the $245 that plaintiffs paid to defendant was indeed excessive and unreasonable. Plaintiffs will still have to argue that issue back at the trial court.
For more information about this article, contact Tressler attorney Sarah Elizabeth Melendez [1] at smelendez@tresslerllp.com [2].