Illinois Supreme Court Affirms Condo Owners' Rights

 

In Palm v. 2800 Lake Shore Drive Condominium Association (2013 IL 110505), Gary Palm, attorney and Emeritus of Law, University of Chicago Law School professor, sought production of his condominium association’s financial records pursuant to Chicago Municipal Code 13-72-080. The Association refused, claiming that the condo record requests in Illinois are governed by state statute (Condominium Property Act and General Not For Profit Corporation Act of 1986), rather than the City’s ordinance. The state statutes require that a unit owner state a proper purpose for obtaining association financial books and records, state that the association is only required to produce 10 years of records, and allow an association 30 days to gather and produce the records.  However, requests made pursuant to the City's ordinance do not require a proper purpose be stated, there is no limitation on the years of the records, and the association must produce the documents within three business days.

The unit owner filed suit in January of 2000 seeking to inspect the documents he requested. After motion practice and the filing of amended complaints, the City of Chicago intervened in the lawsuit, alleging that the ordinance superseded the state statutes as a valid exercise of the City’s home-rule powers. In April 2001, the trial judge found in favor of the unit owner and ordered the Association to turn over the documents pursuant to the ordinance, finding that the ordinance was a valid exercise of the City’s home rule authority. In 2008, the trial judge again ruled in favor of the unit owner with respect to attorneys’ fees as the “prevailing party.” In 2010, the Illinois Appellate Court affirmed the trial judge’s decision, holding that that the records examination provisions of the ordinance supersede those of the state statutes and that the trial court did not abuse its discretion with respect to the amount of attorneys’ fees awarded.

The Illinois Supreme Court allowed the Association’s petition for leave to appeal and, on April 25, 2013, affirmed the Appellate Court and trial judge’s rulings. 

The Association argued that the ordinance exceeds the City’s home rule authority because it conflicts with the statutory provisions and renders them unenforceable. In other words, that a municipality may not enact an ordinance that is less restrictive than a state statute. 

The unit owner and the City countered that the General Assembly may limit home rule authority to regulate in a given field by expressly reserving that power for itself or prohibiting home rule units from exercising that power and neither has occurred.

After reviewing the current state of home rule law, the Illinois Supreme Court found that the conflict between the City’s ordinance and the state statutes did not render the ordinance invalid or beyond home rule power and, therefore, the City’s ordinance is a valid exercise of its home rule power: “The legislature has not specifically denied the City’s exercise of home rule power or required its exercise of that power to be consistent with statutory provisions. If the General Assembly wishes to deny or restrict the City’s home rule authority, it may enact a statute expressly providing for that action at its next session.”

Both condo associations and unit owners must not only know the board’s obligations and responsibilities as set forth in the by-laws and declarations, but those imposed by applicable local ordinances and statutes.  Please check all applicable local ordinances and state statutes when considering requesting financial records from your condo association or responding to a request.

 

Implied Warranty of Habitability: Are Design Professionals At Risk?

 

In 1324 W. Pratt Condominium Ass'n v. Platt Const. Group, Inc., 2010 WL 3788057 (Ill.App. 1 Dist.), a condominium association sued  a construction company it retained to build an eight-unit residential condominium. The condominium association asserted that the construction was performed in a faulty manner which resulted in roof leakage and damage to personal property of condominium residents during a series of severe rainstorms in September 2008 in Chicago. The rainstorms were alleged to have substantially worsened the leaks and exacerbated the mold problem. 

The First District Appellate Court of Illinois held that the construction company’s designation as a “builder” rather than a “builder-vendor” did not protect it from the condominium association’s claim that it violated an implied warranty of habitability in the construction of the condominium building. As a result, the Appellate Court found that the trial court’s dismissal of that count was in error. However, the trial court’s dismissal of the negligence count was upheld pursuant to Moorman doctrine as the “sudden or dangerous occurrence” exception was deemed to not apply, because the storms did not cause the damage requiring repair of the building and individual units. Because the leaks and mold were present before the storms of September 2008, the First District held that the storms did not cause the damage.

What can we take away from the 1324 W. Pratt case and its analysis of the implied warranty of habitability? The First District, at least, has eliminated the limited application of the implied warranty of habitability to only those builders who are also vendors as that limitation would “defeat the warranty’s policy goals of holding builders themselves accountable for latent defects in new homes and placing the costs of repairs on the builders who created the defect.” 

The 1324 W. Pratt case may also be read to imply that the implied warranty of habitability may be applied to design professionals. As discussed in more detail here, the application of the implied warranty of habitability against design professionals is unclear at best. The warranty, as defined in the opinion, applies against a lessor or builder of a residential unit where latent defects thereabout interfere with the inhabitant’s reasonable expectation that the unit will be suitable for habitation. This definition would seem to absolve design professionals. However, the doctrine seeks to assign liability for the damage upon the entity responsible for that latent defect. Certainly, a design professional is in the cross-hairs for damages attributable to a latent defect (i.e., a fault in the property that could not have been discovered by a reasonably thorough inspection before the sale) resulting in damage. Design professionals’ contributions are often subtle and hidden by the builder’s construction. 

 

The Unanswered Question Regarding A Correct Property Description In A Mechanic's Lien Against A Condominium - Cordeck v. Construction Systems, Inc. II - Part 1

Back in April of 2008 we wrote about a lengthy opinion delivered by the 1st District Appellate Court concerning a mechanic’s lien dispute over the property shown below:


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Since the Appellate Court delivered that opinion some of the parties were apparently able to settle their disputes and some of the parties found new issues to appeal. On September 9, 2009, the Court issued a second appellate opinion in this matter addressing several issues surrounding mechanic’s liens. Over the next few days, we will be addressing these decisions.

The full set of facts is available in the opinions. In short, Cordeck was subcontracted to Construction Systems, Inc. (CSI) to supply and install structural steel for a condominium project in Chicago. On January 23, 2003, Cordeck filed this lien stating it was owed $1,003,489.70 for work on the project and filed suit to foreclose on that lien in April 2003. In August of 2003, the condominium declaration was filed (if you want to read it, you’ll have to go to the Cook Count Recorder of Deeds office – it’s document 0324110024). On September 25, 2003, CSI filed this lien claiming it was due $1,979,412.00 and filed an answer and amended counterclaim in the Cordeck case alleging as much.

A bank holding a mortgage on the property, First Midwest Bank (FMB) challenged the validity of the liens filed by both Cordeck and CSI, the challenges and the Court’s decisions are the subject of our posts on this case.

The first challenge raised by FMB to the lien filed by CSI was that the lien failed to sufficiently describe the property encumbered by the lien. Here is the appellate brief filed, you will see that it contains arguments regarding the sufficiency of the description under Section 7 of the mechanic’s lien act, but also that it asks the court to consider the issue of Section 9.1 of the Illinois Condominium Property Act which arguably requires apportionment of a mechanic’s lien on a condominium property once a unit has been conveyed to a purchaser.

Here are the briefs in response to the appellate brief and the reply brief filed. You will see that the argument made in contravention of applying the apportionment rule of 9.1 centers around the fact that no unit had yet been transferred to a purchaser when CSI filed its lien and arguably then, CSI was not required to apportion the lien.

The reason we’re attaching the briefs and discussing the argument is that the appellate opinion didn’t address the issue. While we don’t know why the Court did not want to finally wade into the waters of Section 9.1, we can see from the briefs that a decent argument was advanced in contravention of applying the apportionment requirement to the CSI lien which may be the reason it wasn’t included in the opinion.

FMB also argued that even if Section 9.1 did not apply, the fact that a more recent and particular property description had been filed prior the recording of the CSI lien meant that the CSI lien was invalid if it did not include the most recent and more particular description. The Court addressed the description included in the CSI lien in accordance with the terms of Section 7(a) which requires that the claim for lien include:

a sufficiently correct description of the lot, lots or tracts of land to identify the same”

The court found that the description of the CSI lien met the requirement that “the description be sufficient to identify the affected land” – adequate under the standard of the Act – and rejected the request to invalidate the lien on the basis of the description.

As you can see from the lien, it used the plat of survey description, included the common address of the property and also had the property identification numbers for the parcels that had existed prior to the apparent merger of the property into a different number. It is also interesting that there was testimony from an employee of the recorder’s office who testified that a lien recorded on the property as a whole would appear in a search of the chain of title of each unit included in the condominium declaration. (This is perhaps true of searching at the actual recorder’s office, but searching online with the PINs for the condominium units shows none of the liens filed by Cordeck or CSI. The first condominium unit PIN can be found on this map from the Assessor’s Office).

There are more than a few parties that would have appreciated a discussion of the application of Section 9.1, but the facts appear to have been against the treatment of the issue. For now, we have another case that offers some welcome guidance regarding the sufficiency of a property description under the Act. 

Tomorrow we will discuss the issue of timeliness in filing the lien raised in this case.

Another Attempt At Alleging Consumer Fraud In A Condominium Purchase is Dismissed

 

In Burke v. 401 N. Wabash Venture, LLC (N.D. Ill, Doc No. 08 C 5330) a prospective purchaser of a condominium at the new Trump Tower brought an action against the LLC selling the units when they kept his earnest money deposit after he failed to close on the unit.

Reading the opinion, its apparent that the alleged reason for failing to close on the unit, with a purchase price of over $2 Million, was that an additional floor of parking was added after the initial earnest money deposit was tendered. The plaintiff’s argument was that the addition of parking made the price he had paid for his parking spot unfair given that the additional parking reduced the value of the spots. He also alleged that the additional floor of parking increased the maintenance fees for the association.

The plaintiff brought a class action lawsuit against the LLC alleging that a liquidated damages provision in the sale agreement violated the Illinois Consumer Fraud and Deceptive Trade Practices Act (815 ILCS 505) because it gave the LLC the choice between liquidated damages or actual damages.

The provision at issue read:

“In the event of a default or breach of this Purchase Agreement by Purchaser, Seller shall notify Purchaser of such breach or default and of the opportunity, which shall be given the Purchaser, to remedy such breach or default within twenty (20) days after the date such notice was received. If Purchaser fails to remedy such breach or default within twenty (20) days after receipt of Seller's notice, then, subject to the limitations set forth below, Seller may terminate this Purchase Agreement and, as its sole and exclusive remedy upon termination, retain as liquidated damages from Purchaser an amount equal to the sum of (i) the amount set forth in Paragraph 1(b) hereof required to be paid as an Earnest Money deposit and (ii) all amounts paid or to be paid by Purchaser to Seller for any other services or work performed or to be performed by Seller. In collecting such liquidated damages, subject to the limitations set forth below, Seller shall be entitled to retain all monies paid by Purchaser to Seller hereunder; to keep, retain, or take any security or other instrument either evidencing Purchaser's obligation to pay any sums hereunder Or given by Purchaser to Seller to secure payment of such sums; and· to pursue any other appropriate lawful process. In accordance with Section 1703(d) of the Interstate Land Sales Full Disclosure Act, if Seller is otherwise entitled to the liquidated damages described above, Seller shall return to Purchaser amounts paid to Seller (excluding interest paid under the Purchase Agreement) in excess of: (x) 15% of the Purchase Price (excluding any interest owed under the Purchase Agreement) or (y) the amount of Seller's actual damages, whichever is greater.”

The court’s opinion is instructive to anyone faced with contractual situations including multiple remedies that include liquidated and actual damages. Here, because the provision at issue included language that the Interstate Land Sales Full Disclosure Act authorizes and even encourages developers to include in the contracts, the express exceptions of the Consumer Fraud Act allowed the provision. Because the provision was allowed, the Court dismissed that count in the complaint with prejudice.

In recent years a large portion of suits brought on behalf of plaintiffs against developers and even others involved in the construction process have begun to include counts for Consumer Fraud. It is best to make sure your contracts comport with the act in order to eliminate the possibility that a class action could be brought by individuals for a simple error in contracting.

 

Court Rules That The Implied Warranty of Habitability Does Not Apply to Design Professionals

 

For those of you faced with any attempt by a plaintiff to claim that the implied warranty of habitability can be extended to a design professional, relief has been afforded.   This recent order authored by The Honorable Dennis J. Burke offers some profound insight regarding such a fallible argument.

In the opinion, Judge Burke addresses the contention that an exception to the judicially created doctrine of the implied warranty of habitability can involve design professionals. The exception, briefly stated, is that the case of Minton v. Richards, 116 Ill.App.3d 852, allowed a cause of action against a subcontractor who built part of the structure once, when the builder-developer was insolvent, and that this should create an exception which would allow for a suit against design professionals when no relief can be had against a builder-developer.

The opinion obliterates the argument and correctly holds that the doctrine cannot be extended in such a manner.

Obviously, other courts may disagree with the conclusion but they are unlikely to given the unassailable reasoning.

 

Linhart v. Bridgveiw Creek Development, Inc., et al. - Disclosure Is Important

In Linhart, (1st Dist. Doc. No. 1-07-2712) the plaintiffs were the purchasers of four connected townhomes, pictured via satellite from Google at the left. The townhomes shared a common foundation and adjoining walls. Plaintiffs sued the developer individually, his construction company, and two other entities for fraud, breach of the implied warranty of habitability, and consumer fraud.

The evidence showed that the developer was aware of cracks in the foundation of the homes prior to their sale, that a village inspector had told the developer about the cracks and the need for an engineer and the developer did nothing about the problems, that there had been no follow-up soil testing on the property after the engineering company recommended it to the developer, and that developer and his son had denied that the cracks were a problem when asked by the plaintiff’s prior to purchasing. The developer’s son told the plaintiffs that the cracks were normal and the natural result of settling and even made the comment, “it’s not like the house is going to sink or anything.”… which was before the house started to sink.

Faced with this evidence, the jury found the defendants guilty of fraud for making the false statements about what they knew to the purchasers. The appellate court found that this determination was reasonable and upheld the verdict noting:

The jury heard evidence sufficient to conclude that defendants knew these statements were false at the time they were made because a village inspector informed them that the foundation was sinking and they should consult an engineer. C.J. Johnson testified that he was aware of the cracks prior to October 1997. Preconstruction soil testing was conducted in the area and revealed significant water content. The company retained by Carriageway to conduct the preconstruction soil testing recommended further testing, especially in the lower areas of the subdivision. C.J. Johnson testified that when construction on the foundation began at the property in question he added stone to the soil because of the soil conditions, but never ordered soil testing at that specific location. A rational jury could find that defendants' statements to plaintiffs were to reassure them and assuage their concerns so that they would proceed with the purchase of the townhomes.

Plaintiffs each testified that they relied on those statements and purchased the homes. The damage to the foundation and the structure of the building was established by plaintiffs' testimony regarding all of the defects now prevalent in their homes. Plaintiffs had three experts testify to the damage and the cost of repairs. Moreover, defendants did not contest that the structure is damaged, but provided their own expert to estimate the cost of repairs.

The jury also found for the plaintiff’s on the implied warranty of habitability. The defendants objected to the fact that the term “latent” had not been included in the jury instruction, however, because the trial court had noted that the defects were latent, the appellate court found that the failure to include the term “latent” with the term “defect” in the jury instruction was harmless error and did not merit reversal of the jury’s verdict.

The jury also awarded $1,380,781 in damages based on the testimony of plaintiff’s expert that the homes were uninhabitable and would need to be demolished and rebuilt at that cost. Defendants objected to this valuation method and argued that the proper method for such a catastrophic loss would be the difference in value rather than the cost of repair, but the appellate court found that the defendants failed to introduce proper evidence of the diminution in value and could not raise the issue on appeal when they had failed to present evidence of the loss at trial.

The jury’s verdict was affirmed.

 

New Suit Fridays - 4-24-09

It’s Friday, so you know what that means, we bring you a collection of the complaints in some of the latest suits filed regarding matters touching on the industry:

  • Sure to be of interest to Chicago White Sox fans, Pacific Construction has brought a  breach of contract claim against Maverick Pools. The complaint alleges that Maverick breached the contract by “refusing to unload and install” two pre-manufactured pools and to construct a thermal pool. The damages sought are in excess of $107,496.00.
  • The complaints and allegations regarding the current mortgage crisis and the industry are likely just beginning. In this suit, a class action suit for federal securities violations is brought against Corus Bank and several others. The allegations are that Corus failed to tell investors that it was buying condominiums at prices that were inflated in developments financed by Corus and that the purchases caused inflated appraisals which led to inflated values on Corus’ books… So the bank allegedly didn’t actualize the proper losses on the loans it had made for the condominiums.
  • In one of the weirder suits we’ve seen over the past year, some owners allege that a building was built on their land without their knowledge. Gavric v. Brosna Construction alleges that the defendants owning a parcel adjacent to the plaintiffs’ constructed “a three story, sub-standard, apartment building” on their property illegally. The complaint alleges trespass, conversion, negligence, seeks termination of a lien placed on their land by the contractor who built the project, a count for slander of title, and seeks remedy under Illinois Forcible Entry and Detainer Act. (735 ILCS 5/9-101 et seq.)
  • In a home defect case, Rangel v. Jumic, et al, alleges that defendants failed to disclose material defects that they were aware of prior to the sale of a home to plaintiffs. The defects complained of include problems with the heat distribution system, water infiltrating through the masonry, cracks in portions of the home and problems with the hardwood floors. The suit contains counts for breach of contract, breach of the implied warranty of habitability and fitness for a particular purpose and violations of the Illinois Residential Real Property Disclosure Act. (765 ILCS 77/1 et seq.)
  • Finally, a condominium association has brought a suit against the developer of its property at 1255 South State Street as well as the owner of the garage in which residents of the condominium park. The complaint alleges that the developers deal with the owner of the garage and the effect of forcing a fee for parking in the garage that a recorded Declaration had on the plaintiffs was not disclosed to the plaintiffs. Prior to November of 2007, the residents had access to the garage and their parking spaces by use of “a remote clicker” provided by the garage owner and that in November of 2007, the garage owner installed a parking “toll system” that restricted the residents ability to come and go from their parking spaces.  There are several problems with the transponders alleged in the complaint among them, that the new parking system is not a benefit to the users of the property, that the residents were not properly informed of its installation, and that the owner has improperly requested that the residents pay for a portion of the new system. The residents seek a declaratory judgment regarding the new parking system and their rights granted by easement, and allege breach of fiduciary duty, fraud and consumer fraud.

Condo Associations' Standing Can Be Challenged By Defendants

 

Apparently defendants in an action brought against them by a condominium association can now challenge the ability of the board to bring the action even if the entity named in the suit is just the association.

We haven’t seen the pleadings, and the opinion only states that the “complaint was filed by the Association’s board of directors.” However, the named plaintiff in the caption is the association and not the board of directors on behalf of the association and the trial court docket reflects the association as the party as well.

In River Plaza Homeowner’s Association v. Healey et al. (1st Dist. Doc. No. 1-07-1281), The suit was brought to stop the proposed construction of a multi-unit condominium by an existing multi-unit condominium building next door to the construction site. As we said, the opinion states that the named plaintiff is the association for the existing condominium, but the board of directors brought the suit. The defendants challenged the standing of the board of directors to bring the suit because the board had not gotten the 2/3’s vote of the association’s members required by the condo’s by-laws for the board to bring suit on behalf of the association. The trial court dismissed the case and all the parties apparently agreed that the suit could be brought if the vote were taken and 2/3 majority voted to sue. The plaintiff appealed the issue. (other issues were also raised by defendants on appeal based on the trial court’s dismissal, but they are not the topic of the opinion nor the topic we are addressing).

The opinion is about the standing of the board to bring the suit, but another word is used once in the opinion to describe the case. On page 12 of the opinion the court says “In the case at bar, the trial court dismissed the complaint due to the board’s legal incapacity to bring this suit on behalf of the Association.” (our emphasis). Again, this leads us to believe there was something in the pleadings that led to this result, but the Association is the only named entity and the board is not implicated by the caption.

In addressing the issue of whether or not defendants had the ability to challenge the standing of the board, the court cited a case about the exclusive authority of the board to bring a suit in a case where unit owners had attempted to intervene and bring their own suit when a condo board was already bringing a suit on behalf of an association. Board of Directors of Kennelly Square Condominium Ass'n v. MOB Ventures, LLC, 359 Ill.App.3d 991, 836 N.E.2d 115 (1 Dist. 2005).

However, in Kennelly, the matter raised by defendants was the impropriety of the unit owners individual suits when Section 9.1(b) of the Illinois Condominium Property Act (765 ILCS 605/1 et seq.) gave the Association the right to bring the action and the ability to enforce the rights of the unit owners exclusive of the unit owners individual suits. The court reasoned that this was proper given the language of 9.1(b) and the public policy result that no defendant should be made to defend piecemeal litigation if suits could be maintained by every unit owner and the Association.

There appears to be no such implication in this suit, rather, the court has allowed defendants who are neither parties to a contract (the condo declaration and its by-laws), third-party beneficiaries of a contract or who have been given a statutory right, to enforce the terms of the agreement. 

This doesn’t seem right. If ABC corporation’s rights have been infringed and a suit is brought in which ABC is the named plaintiff against a defendant -- would the defendant in such a case have a right to say that because ABC’s corporate by-laws contain a provision that requires that before a suit be brought in the name of ABC a 2/3 vote of the shareholders must be obtained and the 2/3 vote has not been obtained therefore a suit cannot be filed against the defendant? Aren’t the shareholders of ABC the only parties who have the ability to challenge whether or not the conditions of the by-laws have been met. How could a third-party, without any stake in ABC contest whether or not ABC followed the by-laws.

Again, the use of the term “incapacity” on page 12 is interesting. Black’s law dictionary defines “representative capacity” as The position of one standing or acting for another, esp. through delegated authority.” The laws give the condo association the status of a not-for-profit entity and it must be registered as such, it has the ability to sue and be sued, but the court here looks to the fact that the board of the association seems to have directed that the association bring suit without attaining a 2/3 vote. It appears that what the court is doing is stating that because the authority was not given, the association has no capacity to bring suit... but standing is the doctrine that they invoke when the board apparently directed that suit be brought and even though the association has standing and it is the named entity, not the board.  Perhaps some strange application of the ultra vires doctrine is being applied stating that unlike other corporations, a condo association must show that it complied with its by-laws before asserting the rights that any other corporation would have... but that's not addressed in the opinion.

Apart from the idea that we do not know what was in the pleading that brought the issue of the board bringing the suit on behalf of the association into question, or why, when the association is the named party, a capacity/authority/standing issue can be raised about the board not achieving a 2/3 vote, some real issues arise from this opinion:

  • Does it only apply to associations or will defendants be allowed to challenge the standing of a corporation if the corporation has a rule in its charter or operating agreement that contains a clause stating that before an action can be brought on behalf of the corporation, a vote of the shareholders must be taken? 
  • Does this mean that in pleadings both corporations and associations must state that authority has been granted to bring the suit or that no such clause requiring authority exists or does the burden first fall to the defendants to discover such a provision and attempt to enforce it? – if so, is Illinois at odds with Federal Rule 9(a)(1) which specifically addresses the capacity/authority argument apart from rules regarding standing.

The lack of information in the opinion leads us to the narrow conclusion that from now on in condominium cases it may be best to plead that the condo association’s by-laws for bringing suit have been met or to challenge standing based on such a requirement if you are defending against such an association

 

Don't Forget to Apportion a Lien Filed Against a Condo Association

Pepper Construction Company is being sued for its work constructing the high-rise condo building over at 720-726 Randolph in Chicago.  The complaint alleges multiple counts including:

  • Delays on the project
  • Faulty workmanship
  • Slandering the title to the land
  • Breach of warranty
  • Breach of their contract with the owner
  • And fraudulent concealment of defective work

This may be the first in a series of suits over this property, the City View Tower. 

Starting on page 23 of the complaint, you’ll see an interesting claim regarding the mechanic’s lien and its something worth noting if you’re either involved in the construction of condominium projects (high-rise or not) or if you’re developing them.  There are multiple cases presently before the courts regarding this issue.  The Condominium Property Act requires that mechanic’s liens be apportioned – Section 9.1.  So, in addition to making sure the strict timing requirements of the Mechanic’s Lien Act are followed, anyone seeking to file their lien against a condominium property (any property where the condominium declaration has been recorded) should familiarize themselves with Section 9.1 before filing.

 

News and Divis v. Woods Edge Homeowners' Association

The Skyline is reporting that Sunday’s anticipated capping of the Trump Tower has been postponed, indefinitely.

 

Chicago Real Estate Daily is reporting on the new mortgage foreclosure rates and figures for October.

 

For those of you involved in contracting for snow and ice removal on residential properties:  In a case from the First District, Divis v. Woods Edge Homeowners’ Association (Doc. No. 1-08-0411), the court has held that the Snow and Ice Removal Act (745 ILCS 75/1) applies to a company that contracted with the condominium homeowners association for the removal of ice and snow and that the company could assert the act as an affirmative defense to a suit brought by a condominium resident against the association, the management entity and the company that was contracted to remove the ice and snow for a fall that he suffered when he slipped after exiting his unit.

Kilpatrick v. Strosberg - The Court has Modified its Opinon

The background and facts of this matter can be found at our previously reported entry on the Kirkpatrick v. Strosberg opinion when it was handed down in April.  On August 8, the Appellate Court released a modified opinion in the matter and withdrew the previous opinion.

Of note, the new opinion adds an issue previously unaddressed by the court and changes the appellate court's ruling on a previous decision about punitive damages in the case.

1)       Upholding the trial court’s finding that the difference between the square footage depicted in their sales contracts and the square footage of the units as built did not amount to a breach of contract.   Contract language indicating that the floor plan measurements were approximations was included in a rider to the sales contracts that stated:

“All dimensions on the attached marked-up floor plan dated __ are approximate and subject o adjustments due to the actual location of piping, electrical, studs, steel bar joists, and other building components.”

The court also found that the architect’s construction drawings were incorporated into the contracts another provision in the agreement and used that fact to bolster the determination that the plans attached to the sales contracts were approximations.

2)       The Appellate court reversed its previous opinion that the plaintiffs were not entitled to the trial court’s award of $300,000 in punitive damages where the plaintiffs did not establish a basis for computing compensatory or actual damages.  The court revised its opinion and stated that where the trial court expressly found that the plaintiff’s proved actual damages punitive damages would be allowed.  It then addressed the issue of the excessive nature of the $300,000 in punitive damages where no compensatory damages were awarded and held that the damages were not excessive and cited several cases including the Illinois Supreme Court’s Lowe decision (225 Ill.2d 456, 870 N.E.2d 303) encouraging courts to keep the ratio of punitive damages in the single digits.  Although the court had no compensatory damages to create a ration, the court found that an award of $83,000 in attorney’s fees in this matter compared in a 3.5 to 1 ration with the damages and was not excessive.

 

The court then affirmed the rest of the trial court’s determinations thus modifying its previous opinion to a full affirmation of the trial court’s findings by changing its decision about the award of punitive damages.

 

Update on Bills Altering the Condominium Property Act

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The two bills we've been tracking regarding the Condominium Property Act have had some modifications in the past few weeks.

 

On April 28, 2008, HB 5037 had a second amendment introduced which modifies the proposed changes to grant greater rights for notice regarding the owners of the condominium properties found to be in "distress."  The first amendment to the bill updated and clarified different provisions regarding the nature of distressed properties and elaborated on findings regarding "distress."

 

On April 18, 2008, HB 5189 was completely modified by a second amendment that modifies the rules concerning governing boards clarifying the rules on leasing units and also inserts a grandfather clause for unit owners who may be leasing at the time the governing board may enact rules regarding leasing.  The clause would allow the leasing unit owner to continue leasing until they sell the unit.

Kirkpatrick v. Strosberg

Illinois is certainly no stranger to the Condo Craze, a quick Google search for blogs on the topic in Illinois should put to rest any notions to the contrary.   There are plenty of interesting and responsible resources on the topic... and the law regarding the issues involved in condominium matters continues to grow.

A case touching on those matters and construction and development as well as architecture is the feature today.  Kirkpatrick v. Strosberg, Doc. Nos. 2-06-0724 and 02-06-0731 consolidated (April 16, 2008, 2nd Dist.)

The plaintiffs were individuals who contracted to purchase luxury condominium units in Glen Ellyn.  The developer built the units and the plaintiff's moved in.

Some of the measurements of the completed luxury units did not turn out to comport exactly with the finished condos.  For example, depending upon the method in which one measures the square footage of the units, the units did not meet the advertised square footage, additionally, because alterations were necessary towards the end of the project, the ceilings on the top floor units measured eight feet, six inches and not nine feet as advertised in the original brochures.  One of the unit owners spent extra money having his bathroom reconfigured after the initial plans failed to put the pipes in the right places, and another owner measured his cabinetry installation in accordance with the nine foot specs and not the eight feet, six inch specifications.

The owners sued the developer for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, common-law fraud, and breach of contract.

There was a bench-trial on the matter and the trial court made findings in favor of the plaintiffs for the breach of contract claims, the common-law fraud and the consumer fraud claims involving the ceiling heights, but not the square footage issues.  The court also found that due to the nature of the contracts and the evidence presented by the plaintiffs there was damage, but the plaintiffs' evidence was insufficient and thus awarded only nominal damages of $100 each.  For the plaintiff with the bathroom plans, the court found fault at 50% with the plaintiff's architect, who was the plaintiff's agent, and at 50% with the developer, and thus reduced the damage award of $31,730 by half.  The court found the cabinet plaintiff's claims were barred by language in a rider to the contract by which the seller eschewed liability for improvements made by the buyer:

  • "Seller shall not be required to review Buyer's architectural plans for the Buyer's improvements, and Seller shall not oversee Buyer's work on the premises. Seller makes no warranty whatsoever to Buyer that the premises and its components are complete or compatible with the Buyer's improvements. Buyers understand that all dimensions on the Seller's plans and specifications are approximate and subject to modification for actual field conditions. Field measurement is required to conform dimensions prior to ordering materials."

The trial court also awarded $83,000 to the plaintiffs in attorneys fees and $300,000 in punitive damages.

The appellate court upheld the trial court's determination that the square footage of the units, when measured properly, was not contradicted by any of the plaintiffs' evidence.  The court also upheld the $100 damage award finding that the plaintiffs' expert appraiser had taken cost approximations regarding damages from housing prices as they existed seven years after the actual date of sale for the units.

The court's statement of the black-letter law regarding the proper calculation of damages in a dispute over the breach of contract for the sale of real estate is familiar:

  • "Damages, in a breach of contract for the sale of real estate, are calculated by the difference between the fair market value of the real estate on the day of the breach and the sale price contracted for by the purchasers."

The appellate then upheld the nominal damages award, finding again that there was no credible evidence on the matter given the appraiser's failure to estimate from the time of the sale and not the market value at the time of the case.  The court struck the $300,000 in punitive damages, citing a 1st District opinion holding that nominal damages cannot provide a basis for awarding punitive damages.  The court also upheld the trial court's determination that the plaintiff and the defendants were 50% mutually responsible for the cost of the repair to the bathroom; affirmed the cabinetry decision; and awarded the attorneys fees.

Of additional note to appellate practitioners is the court's enforcement of Rule 341(e)(7) granting the defendants' motion to strike portions of the plaintiffs' reply brief, where the brief raised arguments in the reply that were not raised in their initial brief.

For designers: the court stood by the Architect's method of measuring the square footage of the condominiums as the distance from the outside wall to half of the demising wall rather than the plaintiffs' appraiser's "paint-to-paint" method of measuring from the inside wall to the inside wall.

The actual relief in this case would likely have been substantial had the appraiser computed comparable sales in accordance with the proper measure for damages.

Mechanic's Liens, Mechanic's Liens

    It's not often that we get a 97 page opinion from an appellate court, even more rare is the occasion that any such opinion would be of interest to the industry.  This week, we were happy to find both in Cordeck Sales, Inc., v. Construction Systems, Inc., et al., (Doc. No. 1-06-3702, 1st Dist).

    In Cordeck, a developer had gone belly-up on a multi-million dollar condo development.  Multiple mechanics liens were filed by the various entities involved in the construction for work performed, the lender filed a claim to foreclose its mortgage, and a receiver had been appointed to sell the individual units and collect the proceeds into a pot from which the resolved disputes would be compensated.  The opinion doesn't go too far in creating any substantively new nuances to the statute that Representative George Scully has called "a patchwork of quilts...of patches put on this quilt over the past hundred years" (Slip op. at 44).  Some clarifications and holdings are still important.  Of interest are:

  • A reminder that the dates of the contracts are the attachment dates for the liens of contractors and subs.  They will be instrumental in establishing the priority of liens against third parties and other claimants.
  • The date of recordation for a mortgage will establish the date of a mortgage for the determination of priority in the scheme of liens and claims against third parties.
  • Construction Managers can have liens, even on contracts prior to the 2004 and 2006 amendments to the Act.
  • Amendments to a recorded lien for amounts of work done over time past the date of the first recorded lien can still affect the assertions of rights against the owner, but may not have affect as to the right in priority or assertions against third parties.
  • Fees earned on a project are not inherently "unalienable."

Of note to many practitioners:

  • If a deponent is claiming a fifth-amendment right against self incrimination in answer to questions, the determination regarding the propriety of such an assertion will be made on a question by question basis in the trial court.

Proposed Amendments to the Condominium Property Act

Two new bills have been introduced to change the Condominium Property Act.


  • HB 5037 - Will allow municipalities the ability to appoint receivers for distressed condominium properties and eventually have the properties sold.  Of interest is the definition of  "distressed condominium property":

"Distressed condominium property" means a parcel containing condominium units which are operated in a manner or have conditions which may constitute a danger, blight, or nuisance to the surrounding community or to the general public, including but not limited to one or more of the  following conditions:  

(A) the building is substantially unoccupied, or  has serious violations of any applicable local building code;  

(B) 60% or more of the condominium units are in foreclosure or are units against which a judgment of foreclosure was entered within the last 18 months;

(C) there has been a recording of more condominium units on the parcel than physically exist;

(D) any of the essential utilities to the parcel or condominium units is either terminated or threatened with termination;

(E) there is a delinquency on the property taxes for at least 60% of the condominium units; or

(F) the board of managers has not met within the last 12 months or is otherwise not functioning."

While the act gives the receiver the power to enter into a sales contract for the property with court approval, it appears to be silent regarding any applicable standards for pricing the sale, or achieving any form of FMV.   

  • HB 5189 - In a possible response to a fluctuating real estate market, the bill would amend the act to statutorily provide that owners can rent up to 20% of the properties and that no condo board can enact rules to the contrary.