Q. Can a condominium association change the unit owner’s right to lease his or her unit?
—Last but Not Leased
A. “A unit owner enjoys an inherent right to lease his or her unit—subject to recorded covenants that run with the property as set forth in the specific language of the Declaration of Condominium Ownership (“Declaration”),” says attorney Charles T. VanderVennet of the Law Office of Charles T. VanderVennet, P.C., in Arlington Heights, Illinois. “The leasing of a unit must conform to any “right of first refusal” or “first option to lease” that may be vested in the condominium association by those covenants.
“In the absence of any specific prohibition or restrictions on leasing in the declaration or any amendments thereto, a unit owner can lease his or her unit. Section 18(n)(ii) of the Illinois Condominium Property Act requires the unit owner who is leasing the unit to “deliver a copy of the signed lease to the board or if the lease is oral, a memorandum of the lease, not later than the date of occupancy or 10 days after the lease is signed, whichever occurs first.” The condominium association may have rules that impose administrative requirements on the leasing process so long as those rules effectively do not impose a restriction.
“Even though a leasing prohibition or leasing restrictions can dramatically change a unit owner’s ability to use his or her unit as intended, case law supports the removal or restriction of the unit owner’s leasing right if the original covenants contain such provisions or if the leasing right is prohibited or restricted in whole or in part by means of a valid, properly-adopted and recorded declaration amendment.
“Many approaches are taken by declaration amendments to impose a leasing prohibition or restrictions. Some simply require a unit owner to occupy his or her unit. Some require a unit owner to reside in his or her unit for a certain amount of time before he or she can lease the unit. Some further restrict that unit owner to leasing for a specific amount of time before he or she must either move back into the unit, leave it vacant or sell it. Some establish a total number of years (or portions thereof) during which a unit can be leased during the totality of a unit owner’s ownership of the unit.
“As part of the approval process, some consideration generally is given to “grandfathering” those units that currently are being leased or, more broadly, the current unit owners who may want to lease their units. There may be more support for the proposed amendment if it contains expansive “grandfathering” terms but those terms would imbed the possibility of leasing some of the units for what could amount to be extended periods of time. More routinely, “grandfathering” is limited to those units currently under the lease or for a specified number of years following the recording of the Declaration amendment. That approach puts a more definite-end point on unrestricted leasing.
“To pass muster, the leasing prohibition or restrictions should be subject to a “hardship” provision that would allow the unit owner to apply to the board for an exception to the prohibition or restrictions. Such an exception most often is limited to a one-year period with a further application being required to extend that time. The board would evaluate the reasons cited by the unit owner for the hardship request for any extension of the hardship status. Typically, the board is given broad discretion to allow the exception or not.
“As a final note, those condominium associations seeking FHA approval may find that they cannot obtain or continue with FHA approval unless their governing documents explicitly allow for at least one unit to be leased at any given time. That would mean that an ironclad leasing prohibition (even if a hardship provision is included) would have to be amended to allow for that in order to qualify for FHA approval.
“An amendment that changes the fundamental “contract” affecting the unit owners and the condominium association should be taken lightly. Most often, the condominium association would be best served by involving legal counsel in the project to ensure the propriety of the proposed revised language and the correctness of the amendment procedures. The expertise provided by legal counsel should lead to amended language that conforms to the law, does not conflict with the other terms set forth in the governing documents and can be enforced.”