Condominium, townhome, and homeowner associations charge the homeowners within the association assessments, in an amount based on the owner’s proportionate share of the common expenses of the association. The assessments are then used by the board of directors of the community association to provide for the operation, care, upkeep, maintenance, replacement and improvement of the common elements.
It is also common that an association’s governing documents provide that if an owner fails to pay her share of the common expenses by a certain date, a late charge will be assessed to the owner’s account. Illinois law allows the imposition of late charges, so long as the amount is reasonable. A late charge is considered reasonable if the late charge is uniformly applied to all unit owners and is not a penalty.
II. WHAT IS A REASONABLE LATE CHARGE?
Section 18.4 of the Illinois Condominium Property Act (hereinafter "Condominium Act") authorizes the board of managers of an association "[t]o impose charges for late payments of a unit owner’s proportionate share of the common expenses . . .". 765 ILCS 605/18.4(l). This section of the Condominium Act goes on to authorize the board of managers to impose fines only after a hearing occurs. However, prior to imposing the late charge, the Association does not have to give the homeowner an opportunity to be heard. Board of Managers of Village Square I Condominium Ass’n v. Amalgamated Trust and Sav. Bank, 144 Ill. App. 3d 522, 494 N.E.2d 1199, 98 Ill. Dec. 872 (2d Dist. 1986).
Typically, the association’s rules and regulations state that if the unit owner fails to pay the monthly assessments by a certain date, e.g. the 20th day of the month, a late charge in a specific dollar amount will be assessed to the unit owner’s account. The late charge assessed to a unit owner’s account is included as part of the Association’s lien, which according to Section 9(g)(1) of the Condominium Act exists once a unit owner defaults in her payments, even if the lien is not recorded. 765 ILCS 605/9(g)(1) and Lake Hinsdale Village Condominium Ass’n v. Department of Public Aid, 298 Ill. App. 3d 192, 698 N.E.2d 214, 232 Ill. Dec. 376 (2d Dist. 1998). Certainly, if the late charge is not reasonable, a court will not award the association the late charges. The question then becomes what is a reasonable late charge. A review of Illinois cases indicates that a reasonable late charge is one which is not penal in nature and one which is consistently applied to all owners.
A. Hidden Grove Condominium Association v. Crooks.
The Third District Appellate court recently addressed this issue. In Hidden Grove Condominium Association v. Crooks, the plaintiff sought to recover from the defendant past due assessments and late charges, which totaled $1,696.21. 318 Ill.App.3d. 945, — N.E.2d —, — Ill. Dec. —, 2001 WL 82005 (3rd Dist. 2001). The defendant failed to make timely monthly payments from December, 1996 through January, 1998; therefore, the board of managers charged her a late fee of $25.00 for the first month the assessment was not timely paid and an additional $25.00 for each month thereafter for each late payment. 2001 WL 82005, 1. The trial court awarded the Association the full $1,696.21. The defendant appealed arguing that the late charges were an unenforceable penalty. Id. The Appellate Court agreed with the defendant.
The Hidden Grove bylaws stated that the members would be charged $25.00 for each month that the assessment payment is late. Id. at 2. The Hidden Grove court stated that the one time late charge of $25.00 was a reasonable fee. Id. On the other hand, " . . . the piling on of an additional $25 per month for each month the assessment fee goes unpaid is unreasonable" if it is done merely in an attempt to secure timely payment of assessments. Id. The Appellate Court remanded the case to the trial court to determine the amount of late charges and to reduce the judgment accordingly.
At first glance, it seems as if Hidden Grove is stating that a $25.00 late charge for each month that the assessment is unpaid is unreasonable. However, the board of managers of Hidden Grove Condominium Association was charging a $25 late charge for each payment which was delinquent, and levying such a late charge each month. A closer review of other Illinois cases indicates that levying a nominal late charge on an outstanding account balance, pursuant to the association’s governing documents, is not unreasonable.
B. 6334 North Sheridan Condominium Association v. Ruehle.
In 6334 North Sheridan Condominium Association v. Ruehle, the plaintiff filed a forcible entry and detainer action against the defendant homeowner for unpaid assessments. 157 Ill. App. 3d 829, 510 N.E.2d 975, 109 Ill. Dec. 907 (1st Dist. 1987). Judgment was entered in favor of the plaintiff and the defendant filed a motion to vacate, arguing, in part, that the interest and late charges imposed against his account were unauthorized and excessive. 510 N.E.2d at 976. The defendant argued that the plaintiff violated the Condominium Act since it imposed an unreasonable penalty, which included the late charges, and the defendant was not afforded an opportunity to be heard. Id. at 977.
The plaintiff’s bylaws allowed the association to impose a $20.00 late charge for each month that the assessment payment was not made prior to the 20th day of the month. Id. Because the plaintiff presented evidence to support the basis for the charge and the method of calculating it, the court upheld the imposition and held that the charges did not constitute a fine; hence a hearing did not have to occur. Id.
C. In re Lund
Similarly, in In re Lund, a bankruptcy action, the condominium association was a creditor. 187 B.R. 245 (N.D. Ill. 1995) The condominium association’s governing documents required the unit owners to pay their proportionate share of assessments. If the assessments were not paid by the 15th day of the month, a $25.00 late charge was imposed. Id.. The debtor contested the late charges imposed against her account. At the trial, there was testimony that the debtor failed to make the assessment payments by the 15th day of the month, so the late charges were imposed. 187 B.R. at 249.
The Lund court considered Section 9 of the Condominium Act and other case law which allowed a creditor to include in the amount of the proof of claim, those reasonable late charges which the debtor specifically agreed to pay. Id. The Lund court held that the creditor’s rules and regulations allowed for the imposition of a late charge. Id. at 253. The court went on to state that when the debtor purchased her unit she took her ownership subject to the obligations of the declaration and rules and regulations of the association. More importantly, the court held that the late charges assessed were reasonable. Id. at 253. The late charges were not excessive and were applied uniformly to all delinquent unit owners. Therefore, the amount related to the late charges was allowed to be included as part of the creditor’s secured claim. Id.
The Condominium Act allows an association to impose a reasonable late charge. The Third District’s recent decision in Hidden Grove Condominium Association v. Crooks should not be interpreted to mean that an Association cannot impose a $25.00 late charge for each assessment payment a unit owner fails to pay by a certain date. Instead, this case should be read to be consistent with other cases which have reviewed an association’s authority to impose a late charge.
In order to ensure that a court will uphold the late charge, the association should be sure that its governing documents state the exact date when the late charge will be imposed if the owner fails to pay her assessments. The association’s governing documents should also state that the exact amount of the late charge. Associations should also be sure to apply the late charges uniformly to all unit owners. Courts will not uphold the imposition of a late charge if the association exercises selective enforcement.
Gabriella R. Comstock is an Associate with The Law Offices of Knuckles & Associates. She received her Undergraduate Degree in 1993 from Loyola University of Chicago and her Law Degree in 1996 from Loyola University of Chicago School of Law
Charles M. Keough is an Associate with The Law Offices of Knuckles & Associates. He received his Undergraduate Degree in 1990 from the University of Illinois and his Law Degree in 1996 from Chicago-Kent School of Law.