Illinois Ct. Throws Out HOA Rules Which Limited the Number of Units That Could be Leased to Tenants

Illinois Appellate Court decision (February 3, 2016)

This case involved a dispute between a homeowners association (“Association”) and two homeowners (“Owners”) over Owners’ right to lease their condominium unit to a non-owner tenant.

Association’s governing documents (the declaration) contained provisions stating that: (i) the declaration was “subject to rules and regulations of the Board” ; (ii) the Board or the Association may prescribe such rules and regulations” regarding a given subject as they deemed appropriate; (iii) that “no Unit shall be leased or subleased for hotel or transient purposes or for terms less than six (6) months.” Additionally, Association’s bylaws state that the Board exercises powers, duties, and authority vested in the Association by the applicable state laws, with the exception of those that are reserved by the members.

Owners purchased their unit in 2004, and continuously leased it to tenants. In 2007, other owners became concerned that a large percentage of rentals would negatively impact values of units and efforts by owners to refinance their units. After investigating mortgage and lending guidelines, in 2010, Association’s Board adopted new rules and regulations that included provisions stating that no more than 30% of the units could be leased at any one time. Thereafter, in 2012, Association took action against Owners to impose fines and evict Owners’ tenants because of Owners’ violation of the lease restriction rules that had been adopted in 2010. Owners filed suit against Association seeking a judgment that declared that the Board did not have the authority to adopt the rules that restricted the amount of units that could be leased. Owners contended that: (i) the controlling declaration allowed all unit owners to rent their units subject to certain limitations which did not include the 30% limitation, and the imposition of such a limitation would require an amendment to the declaration that had been approved by 75% of the owners.

The trial court granted a summary judgment in favor of Owners after finding that the declaration did not provide the Board with the authority to modify the provisions concerning leasing. Association then appealed the trial court decision contending that: (i) the bylaws authorized the Board to implement rules that limited leasing; and (ii) the Board’s rule did not conflict with the declaration.

The appellate court found that Association’s declaration expressed certain limitations concerning leasing which did not include a prohibition of leasing more than a certain percentage of units and which did not specify that the Board was empowered to further regulate the subject. The appellate court concluded that unit owners had the right to lease their units subject only to the specific limitations contained in the declaration and any alteration of the rights granted to owners to lease their units would have to be accomplished through an amendment to the declaration and not by a rule adopted by the Board. Accordingly, the trial court decision was affirmed.

See case decision: Stobe_v._842-848_W._Bradley_