Can condo owners stop paying assessments on units damaged in fire?
Q: Our condominium building recently experienced a fire that destroyed many units in our condominium; thankfully no one was injured. Some of the affected owners told the board that they will stop paying regular monthly assessments until they are able to live in their units again. Can owners stop paying regular monthly assessments in this situation?
A: Sorry to hear about the building fire and I’m glad nobody was injured. Unfortunately, the law requires the owners to continue to pay their regular monthly assessments. Moreover, the board is legally obligated to continue imposing and collecting monthly assessments from the affected owners. The legal reasoning is that assessments pay for all the various items that support their ownership and maintain the overall value of the property, regardless of whether their unit is habitable. This includes maintenance, repair, and replacement of all of the common elements, and the payment for things like insurance to cover losses from fire and other forms of casualty losses.
Additionally, Section 18.4(o) of the Illinois Condominium Property Act expressly provides that "(t)he association shall have no authority to forbear the payment of assessments by any unit owner.” The typical declaration of condominium includes language to the effect that “no owner may waive or otherwise escape liability for the assessments or other charge or payment provided herein by nonuse, abandonment or transfer of his unit.” This all means owners cannot be excused from paying assessments and other charges, and the board must proceed to collect unpaid assessments, even if the unit is currently uninhabitable due to a fire. The affected owners should contact their individual condominium owner’s insurance carrier to see if they have coverage for ongoing assessment obligations. Hopefully, the various insurance carriers whose policies are triggered by this unfortunate situation will work diligently, so that damaged property can be restored and owners can return home and get back to their lives.
Q: I serve on a board for a condominium association. How do we know if our board is obtaining a sufficient amount of property damage insurance under the law?
A: Under the Illinois Condominium Property Act, the association generally must maintain property insurance covering the common elements and, depending on the declaration, portions of the units. The act establishes minimum insurance obligations, but it does not guarantee that the policy limits are sufficient to fully rebuild the property after a catastrophic loss. The best measure is whether the policy limit equals the estimated replacement cost of the insured property. Boards should periodically obtain a replacement cost appraisal from a qualified insurance valuation company. This appraisal estimates the current cost to reconstruct the buildings, taking into account costs such as labor, material, demolition, code upgrades and inflation. Many associations are discovering that construction and other costs have risen dramatically over the last several years, causing them to be underinsured.
A major concern, especially for older condominium buildings, is code compliance after a loss. Following a fire or major casualty, the municipality may require fire sprinkler upgrades, accessibility improvements, electrical upgrades and structural alterations. Standard property insurance may not cover these costs unless the association carries adequate Ordinance or Law coverage.
The best practice is for the board to annually ask their insurance professional questions, such as: What is the current estimated full-replacement cost of our buildings? Are we insured to full replacement cost? Is there an inflation guard endorsement? Do we have adequate Ordinance and Law coverage? What deductible applies? Has the insurer recommended higher limits?
The most reliable approach is to obtain a professional replacement-cost appraisal every three to five years (or more frequently in volatile construction markets) and review insurance limits annually with the association's broker.
• 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.