Will contractor’s lien prevent sale of condo unit?

Q: Our condominium association hired a contractor to replace the roof of the building. The contractor and the association are now in a dispute over the quality of the work. The contractor was not paid in full, as the board has held back final payment. As a result, the contractor filed a lien against all of the individual units. have a closing scheduled for the sale of my unit. Will this lien prevent me from closing the sale?

A: The contractor's lien should not prevent you from closing on the sale of your unit but will likely require the association to take a few additional steps. In these situations, it is common for the association to provide a “hold harmless” letter to the title company that is handling the closing. The “hold harmless” would permit your unit to close despite the lien, because the association is agreeing to make the title company whole for any loss it may suffer.

Q. A disgruntled unit owner recently filed a lawsuit against our management company arising out of some alleged water leakage from the roof. The unit owner did not specifically name the board of directors or the association as a defendant. Our management company has requested that we indemnify and pay for their legal defense in this lawsuit. Is that typically required?

A. This comes up a lot in Illinois associations, as with any business relationships. There is no “typical” answer because each situation has to be reviewed on an individual basis. Generally, your association is not automatically required to defend the management company unless the management company specifically requests it. When a management company requests indemnification, the association often ends up doing so because of contractual indemnity and insurance obligations that are contained in the contract between the association and the management company.

Most condominium associations have a contract with their property management company. These agreements almost always include indemnification clauses that say the association will defend the management company, indemnify (cover certain types of losses) or hold harmless the management company for claims arising out of management’s work performed on behalf of the association. This type of contract provision is very common in service industries and makes sense because otherwise, there would not be very many professional management companies available to service associations — the business would simply be too risky and costly for the management companies.

If the lawsuit alleges that management was acting within the scope of its responsibilities, the association’s duty to defend and indemnify is usually triggered. Alternatively, if there is sufficient evidence that management acted with gross negligence, willful misconduct, or outside its authority, the duty to defend may not apply. It is very important for associations to notify an experienced association counsel when lawsuits arise — this is one of the common issues that needs to be legally determined.

Q. An owner in our association was evicted by the association for non-payment of assessments. The association leased the unit to a third party, without doing any sort of background check on the tenant. This tenant became a problem and moved out after only a few months. The association then inspected the unit and realized that its tenant had caused substantial damage to the appliances and decorating in the unit. Who is responsible for this damage?

A. The tenant is responsible for the damage. The association could apply the security deposit, if any, to the damage. We often suggest that an association tenant procure liability insurance, naming the association as an additional insured and provide proof of such insurance before taking possession of the unit. If this was done, the association can make a claim under the tenant’s insurance.

If the association has neither a security deposit to cover the damage, nor the insurance described above, the association does have exposure to liability for the damage caused by its tenant. The association’s liability insurance may be triggered as a result.

• Matthew Moodhe is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at condotalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.