Assume the following scenario: A majority of condominium unit owners attend a monthly board meeting to discuss the current costs of maintaining the association’s common elements, specifically, the tennis courts, which have continued to be used less and less over the past few years. After balancing the costs of upkeep versus the dwindling use, the board determines it is in the association’s best interests to sell off the tennis courts. The board reviews the declaration, discovers a provision allowing all or part of the property of the association to be sold upon 75% affirmative vote of the unit owners, and decides to proceed with the sale. However, even though the sale of the tennis courts is authorized by the declaration, will the association be legally able to divide and partition its common elements? This article describes some of the pitfalls in considering only the declarations when a condominium association makes decisions about common property.
Inherent in the choice to live in a condominium association is the acceptance of communal living and majority rules.1 The condominium concept is founded on the principle that in order to promote the health, happiness, and peace of mind of the majority of the unit owners, who are living in such close proximity and using facilities in common, each owner must give up a certain degree of freedom of choice that he might otherwise enjoy in separate, privately owned property.2 Condominium unit owners comprise a little democratic sub society that is of necessity more restrictive as to the use of condominium property than may be existent outside the condominium organization.3 However, even in a "little democratic sub society," there must be some basic sources from which the principles governing the democratic sub society are derived.4
The basic sources that set forth the power and authority of the association are the Illinois Condominium and Property Act5, the Illinois Not-for-Profit Corporation Act,6 and the recorded declaration and by-laws for each individual association. So the question remains, does the association have the power and ability to sell off a portion of its common elements if authorized to do so by its declaration?
At first glance, the simple answer to the question appears to be "yes," as long as the association has complied with the requirements of the Illinois Not-for-Profit Corporation Act, the Illinois Condominium and Property Act and the association’s declaration and by-laws. The Illinois Not-for-Profit Corporation Act provides the power and authority for the association as a corporation to sell or convey a portion of its property. Section 103.10 of the Act states that each corporation shall have the power to "sell and convey, mortgage, pledge, lease as lessor, and otherwise dispose of all or any part of its property and assets."7
Furthermore, the Illinois Condominium and Property Act governs the procedure to be followed by the association in the sale of its property. Section 605/15 of the Act states as follows:
unless a greater percentage is provided for in the declaration or bylaws, and notwithstanding the provisions of Section 13 and 14 hereof, a majority of the unit owners where the property contains 2 units, or not less than 66 2/3% where the property contains three units, and not less than 75% where the property contains 4 or more units may, by affirmative vote at a meeting of unit owners duly called for such purpose, elect to sell the property." Such action shall be binding upon all unit owners, and it shall thereupon become the duty of every unit owner to execute and deliver such instruments and to perform all acts as in manner and form may be necessary to effect such sale, provided, however, that any unit owner who did not vote in favor of such action and who has filed written objection thereto with the manager or board of managers within 20 days after the date of the meeting at which such sale was approved shall be entitled to receive from the proceeds of such sale an amount equivalent to the value of his interest, as determined by a fair appraisal, less the amount of any unpaid assessments or charges due and owing from such unit owner.8
However, the "property" referred to in section 15 of the Act is defined as "all of the land, property and space comprising the parcel, all improvements and structures erected, constructed or contained therein or thereon, including the building and all easements, rights and appurtenances belonging thereto, and all fixtures and equipment intended for the mutual use, benefit or enjoyment of the unit owners."9 Therefore, it appears that this portion of the Act pertains only to the sale of the property in its entirety, rather than a portion of the common elements. However, it appears make sense to argue that because the association has the authority to sell off the entire property with the requisite number of affirmative votes, it should surely be able to sell off a portion of the property by obtaining the requisite number of votes at a meeting duly called for that purpose.
Section 105.05 of the Illinois Not-for-Profit Act states as follows:
special meetings of the members may be called by the president or by the board of directors. Special meetings of the members may also be called by such other officers or persons or number or proportion of members entitled to vote as may be provided in the articles of incorporation or the bylaws. In the absence of a provision fixing the number or proportion of members entitled to vote who are entitled to call a meeting, a special meeting of members entitled to vote may be called by such members having one-twentieth of the votes entitled to be cast at such meeting."10
However, even though the declaration authorizes the sale of part of the property and the Not-for-Profit Act sets out the procedure to be followed in order to call the special meeting, some issues still remain that may challenge the authority of the association. First of all, the association will have to secure the services of a land surveyor in order to determine the exact legal description for division of the property. A Professional Land Surveyor is a person who is qualified by education and experience, and who has passed an examination for registration as required by the State of Illinois to practice land surveying in Illinois.11 A surveyor is needed when buying or selling land, before land is divided, before a lot is conveyed from a larger tract of property, and if the location of the land is not clearly defined on the ground.12 After the property is surveyed, the association should receive plats showing all desired information and a description of the survey suitable for deed use.13
Other considerations of the condominium association contemplating the sale of property include whether or not it is appropriate for a nonprofit corporation to make a profit in the sale of its property and how the money from the sale of the common elements will be utilized. A not-for-profit corporation is a corporation that does not engage in a commercial or business enterprise for financial gain. Condominium associations are incorporated for the particular purpose of the "administration and operation of property owned on a condominium basis."14 Nevertheless, such a corporation may make incidental income or profit and thereby acquire a surplus or incidental reserves in carrying out its primary purpose. However, no dividends are to be paid and no part of the income of the corporation is to be distributed to its members, officers or directors with the exception of reasonable compensation for services rendered and distributions upon dissolution or liquidation.15 Therefore, if the sale of common elements is authorized, it is likely that the proceeds from the sale will need to be deposited into the association’s reserve account to be used to further the mission of the association in maintaining the common elements.
Even though the sale of a part of the property appears to be authorized by the declaration and the Not-for-Profit Act, is the division of common elements truly authorized by the Illinois Condominium and Property Act? Section 8 of the statute provides, in pertinent part: "As long as the property is subject to the provisions of this Act the common elements shall . . . remain undivided, and no unit owner shall bring any action for partition or division of the common elements. Any covenant or agreement to the contrary shall be void."16
As a democratic "subsociety," don’t the individual unit owners have a constitutional right to their interest in the property to do as they see fit? The property interests that condominium statutes create are surprisingly unclear. California courts have found that "ownership of a condominium constitutes a statutorily recognized estate in real property."17 Other states have not been so willing to grant condominium owners the full bundle of sticks usually associated with ownership in fee simple. A Texas court suggested that "each owner must give up some historic rights of property ownership,"18 and an Ohio court found that "individual property receives some protection in the condominium arrangement, although less than that accorded non-condominium property." 19 By way of explanation, condominium owners have fewer rights because "condominiums are a statutorily created form of real estate."20
Because condominium ownership constitutes a "statutorily created form of real estate," the existence of such property regimes is governed by the statute that created it. Does section 8 of the Act mean that associations can never determine, by even unanimous vote, to sell off a portion of their common elements? The answer seems to be "yes." Court have held that the "division" that is referred to in section 8 of the Act means an alteration of legal title in the property.21 Moreover, a standard definition of "partition" is "something that separates one part of a space from another or the division of real property held jointly or in common by two or more persons into individually owned interest."22
Therefore, since the portion of the common elements cannot be sold off without altering the legal title to the property, it is unlikely that it can be done at all. As in William Shakespeare’s Merchant of Venice, the play famous for the expression that "you can take a pound of flesh and no more, not even a drop of blood," it would be impossible to sell of a portion of the common elements without physically altering the legal title to the property. Consequently, it follows that it is unlikely that selling off the portion of common elements can be done at all.
1 Hidden Harbour Estates Inc. v. Norman, 309 So.2d 180, 182 (Fla. App. 1975).
4 Makeever v. Lyle, 609 P.2d 1084, 1087 (Ariz. App. 1980) (internal quotes omitted).
5 765 ILCS 605/1 et seq. (2000).
6 805 ILCS 105/101.01 et. seq. (2000).
7 805 ILCS 105/103.10(e) (2000).
8 765 ILCS 605/15(a) (2000).
9 765 ILCS 605/2(c) (2000).
10 805 ILCS 105/107.05(c) (2000).
11 Illinois Professional Land Surveyors Association, Securing the Services of a Land Surveyor, (visited Nov. 4, 2002) http://www.iplsa,org/ public_info.html>
14 805 ILCS 105/103.05(a)(25) (2000).
15 805 ILCS 105/106.05 (2000).
16 765 ILCS 605/8 (2000).
17 David E. Grassmick, Minding the Neighbor’s Business; Just how Far Can Condominium Owners’ Associations Go In Deciding Who Can Move Into the Building?, 2002 U. Ill. L. Rev. 185, 189 (2002), citing Laguna Royale Owners Ass’n v. Darger, 174 Cal. Rptr. 136, 143 (Cal. App. 1981).
18 Id., citing Gulf Shores Council of Co-Owners, Inc. v. Raul Cantu No. 3 Family P’ship, 985 S.W.2d 667, 670 (Tex. App. 1999).
19 Id., citing Worthinglen Condo.Unit Owners’ Ass’n. v. Brown, 566 N.E.2d 1275, 1277 (Ohio App. 1989).
20 Id., citing Shorewood West Condo. Ass’n v. Sadri, 966 P.2d 372, 373 (Wash. App. 1998).
21 Mission Hills Condo M-4 Ass’n v. Penachio, 97 Ill.App.3d 305, 422 N.E.2d 1125, 52 Ill. Dec. 916 (1st Dist. 1981).
22 Black’s Law Dictionary 1141 (7th ed. 1999).
Jody L. Malmstrom is an associate at The Law Offices of Knuckles & Associates in Naperville, Illinois, a general civil litigation law firm specializing in Condominium Law. Ms Malmstrom is a 1996 graduate of Illinois State University, where she earned a B.S.W., and a 2002 graduate of Northern Illinois University College of Law, where she earned a J.D. cum laude. She would like to thank Erin Fischer, her research assistant, for her help with this article. Ms. Fischer graduated from the University of Wisconsin-Madison in 2000 with a BA in Behavioral Sciences and Law, and earned a paralegal certificate from the Minnesota Paralegal Institute in 2002.