Association Restrictions on Leasing
The Illinois Condominium Property Act (the “Act”) does contain a limited leasing requirement. Specifically, Section 18(n) of the Act requires an owner to deliver a lease not later than the date of occupancy or 10 days after the lease is signed, whichever occurs first. In the event the lease is oral, the owner must provide the board with a “memorandum of the lease” prior to occupancy.
If an association intends to create a leasing restriction, it is preferable that the restriction be created by an amendment to the declaration rather than by a board rule. Section 18.4(h) of the Act permits boards to create rules of the association. However these rules passed by a majority of the board can change from year-to-year, and be reversed by subsequent boards. An amendment to the declaration is more permanent as it is voted on by a supermajority of the unit owners, and must be recorded with the county recorder’s office. Most importantly lllinois courts give greater deference to condominium amendments than board rules, and they are presumed valid unless deemed arbitrary or discriminatory.
The most straightforward restriction is an outright ban on all leasing. However, association boards are often unable to secure enough votes of the ownership to pass such a strict restriction by amendment. More “reasonable” restrictions are a percentage quota on the number of units that may be rented at any given time, or a limitation on the number of times an owner can lease his or her unit during a certain period of years.
If the association is to create a new leasing restriction, it is often advisable to include a “grandfather” clause, which permits owners with existing leases to continue to rent. Another common exception is to permit owners to lease their units to immediate family members such as mother, daughter, sister and brother. Boards should also consider drafting a hardship exception which gives the board discretion to make an exception for an owner that makes a showing of a financial hardship or other hardship.
A hardship exception can be very beneficial as it is in the best interest of the association to avoid vacant units, and it gives the board flexibility based on the circumstances. However, a determination of financial hardship is often very subjective. For instance, is an owner’s inability to sell his/her unit over a one year period enough to prove hardship? If so, than given the present market for condominium sales, a significant percentage of owners would qualify for a hardship exception. In order to reduce its exposure to liability, a board should maintain a consistent standard and process when evaluating hardship.