Leasing restrictions are a common issue in condominium associations. Associations have adopted different forms of leasing restrictions, often with the goal of maintaining a certain owner-occupancy rate. Common restrictions include restrictions on the length of leases and a limit on the number of units that may be leased at any one time. A higher owner-occupancy rate is desirable is desirable for a condominium association so that units meet FHA and conventional lender requirements for refinancing and sales.

Condominiums associations are controlled by the association’s governing documents: the condominium association declaration and bylaws which are recorded with the county recorder of deeds; and rules and regulations passed by the association’s board of managers. Leasing restrictions have often been adopted by the board as a rule and regulation rather than by an amendment to the declaration, which requires a vote of the unit owners.

On February 3, 2016, the Illinois Appellate Court for the First District in Stobe v. 842-848 W. Bradley Place Condominium Association, ruled that a condominium association board may not adopt a leasing restriction as a rule or regulation, if the declaration recognizes a unit owner’s right to lease his unit. In Stobe, the association’s declaration and bylaws did not expressly state that unit owners had a right to lease their units, but did include certain restrictions on leasing, including that no unit could be leased for hotel or transient purposes for less than six months, and limitations on the lease or sublease of parking spaces.

The Appellate Court held that the board lacked the authority to pass a rule restricting leasing because the association’s declaration expressed certain limitations on leasing and, therefore, any restriction of an owner’s right to lease their unit conflicted with the declaration’s intent and must instead be done through an amendment to the declaration. In its decision, the Court rejected the association’s reliance on Apple II Condominium Association v. Worth Bank and Trust Co., in which the Court held that an association may prohibit the leasing of units either by a board rule or amendment to the declaration. Since the Apple II case involved whether an amendment restricting leasing was valid, and not a rule adopted by the board, the Court in Stobe found that the Apple II holding with respect to leasing restrictions through a board rule was merely dicta and not controlling law.

As a result of the Stobe decision, if a condominium association’s declaration indicates an intention that owners have the right to lease their units, any leasing restriction must be done through an amendment to the association’s declaration, rather than the adoption of a board rule.

If you have any questions regarding leasing restrictions in your condominium association governing documents, or how this case may impact your association, please contact:

Kristen E. O’Neill at:

koneill@lgattorneys.com or 312-368-0100.