Condo Law Update: Condo Owners Cannot Withhold Assessments Even Based on Claims of Failure to Maintain Common Elements or Make Repairs

Attorneys: Guolee, Terrence F.

June 5, 2014

Chicago, Illinois

A sharply divided Illinois Supreme Court recently ruled in favor of condominium associations on the issue of whether condo owners may withhold making assessment payments based on claims that the condo association has failed to maintain common elements or make repairs to the condo unit. Spanish Court Two Condominium Assn. v. Carlson, 2014 IL 115342 (decided March 20, 2014). In a 4-3 decision, the majority of the court rejected the often seen argument of condo owners that they should have the same rights as tenants in rental agreements to withhold payment based on failures to maintain the property.

In the case, the unit owner failed to pay her fees for six months, claiming that a leaky roof above her unit had caused extensive water damage. She also complained that her toilet had not been repaired and that the association had failed to properly take care of the common areas of the building. The unit owner claimed these issues should allow her to avoid the association’s efforts to take possession of her condo, by way of a forcible entry and detainer action.

Spanish Court Two Condominium Association (Spanish Court), filed a complaint under the Forcible Entry and Detainer Act (Forcible Entry Act) (735 ILCS 5/9-101 et seq.), based on the owner’s failure to pay her assessments. The unit owner admitted she had not made the payments, but denied that the payments were due as a result of Spanish Court’s failure to maintain her unit and the common elements. The unit owner brought two affirmative defenses: “Breach of Covenants” and “Set-Off,” each raising the claims of the association’s alleged failure to maintain. These defenses are commonly referred to as a “nullification” defense.

In response, Spanish Court moved to strike the affirmative defenses, asserting that the claims were “not germane” to the proceeding under the Forcible Entry Act. The trial court agreed and struck the defense. The court also entered an order granting Spanish Court possession of the unit and a money judgment for the unpaid assessments. A bench trial then followed on Spanish Court’s claims for special assessments and items such as late charges, attorney fees and costs, with the court deciding in the unit owner’s favor.

Following cross-appeals, the appellate court vacated the trial court’s judgment and issued an order instructing the trial court to reinstate the unit owner’s affirmative defenses. 2012 IL App (2d) 110473. In so doing, the appellate court found a unit owner may raise issues of failure to maintain and repair the common elements and an owner’s unit, finding the obligation to pay assessments to be connected to be part of mutually exchanged contractual promises, such that an association’s failure to maintain and repair could be a material breach of the contract between the association and the unit owner. The appellate court recognized, however, that this would put Illinois in  “a small minority” of states considering the issue to approve of nullification defenses..

The Illinois Supreme Court then granted Spanish Court’s petition for leave to appeal. On reviewing the case, the majority determined that the only issue before the Court “is whether an association’s purported failure to repair or maintain the common elements is germane to a forcible entry and detainer proceeding against a unit owner based on unpaid assessments, and thus may be raised by the unit owner in defense of the forcible action.”

Following a review of various provisions of the Forcible Entry Act and, in particular, provisions of the Forcible Entry Act that limit the matters that can be raised in proceedings under the Act to “germane matters,” the majority of the justices in a 4-3 ruling said that the nullification defense asserted by the unit owner was improper, and based on an incorrect analogy to a landlord-tenant relationship.

In particular, the Court noted that a landlord failing to maintain a rental property would be breaching an implied covenant of habitability contained  in a rental agreement that is not present in a condo association arrangement under the Illinois Condominium Act. Conversely, in a condominium context, the Supreme Court majority found that a unit owner’s obligation to pay assessments is a statutory obligation that cannot be subject to contractual defenses that a rental tenant may assert, as follows:

The Condominium Act also addresses the “[s]haring of expenses” among unit owners, and establishes that: “It shall be the duty of each unit owner *** to pay his proportionate share of the common expenses.” 765 ILCS 605/9(a) [ ].  Although these duties may also be reflected in the condominium declaration and bylaws, as they are in this case, they are imposed by statute and exist independent of the association’s governing documents. Accordingly, a unit owner’s obligation to pay assessments is not akin to a tenant’s purely contractual obligation to pay rent, which may be excused or nullified because the other party failed to perform.

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 Section 9 of the Condominium Act, which establishes a unit owner’s duty to pay assessments, does not provide, expressly or impliedly, that such duty is contingent upon the repair and maintenance of the common elements. Section 9 does state, however, that “[i]f any unit owner shall fail or refuse to make any payment of the common expenses *** when due[ ] the amount thereof *** shall constitute a lien on the interest of the unit owner in the property” which may be recorded and foreclosed by the board of managers. 765 ILCS 605/9(g)(1), (h) [ ].

In so doing, the majority of the  Court recognized that a landlord/tenant scenario is contractual and distinguishable from a community living situation, and that a unit owner’s obligation to pay assessments is not contingent on a condo association’s performance. Likewise, the Court noted that condo boards and associations could face serious financial difficulties if they had no recourse to collect unpaid assessments without becoming embroiled in fact-based examinations of the management of the property. This, per the Court, would be inconsistent with the legislative intent of the Forcible Entry Act to provide a constitutionally permissible, quick method for collection of unpaid assessments.

The Spanish Court decision takes away the ability of condo unit owners to justify withholding payment of assessments based on claims of improper maintenance. That said, a unit owner should still be able to seek relief against a condo association that fails to maintain the property by way of a declaratory judgment action for injunctive relief. Depending on condo association documents, prevailing parties in such disputes may be able to shift legal fees and costs in such an action. 

However, future fights in this area should be without the oft-repeated financial burden placed on condo associations - who, generally, are other unit owners - by individual unit owners unilaterally deciding to withhold their share of assessments during extended fights about maintenance issues. Likewise, a condo association will now have a clear path to deal with unit owners who fall behind in their assessment payment, and then “create” claims of faulty maintenance as a justification.

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Terrence Guolee is a shareholder and member of the Board of Directors of Q&H. Terrence has defended several property managers, condo boards and homeowner associations in complicated injury, contractual and fiduciary duty cases over the 21+ years of his legal career. If you have any questions regarding this article, or regarding Q&H’s condominium law practice, please contact Terrence F. Guolee or 312-725-0889.

 
 
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