Developer-Condo Association Disputes Face ADR Hurdles as Illinois House and Senate Bills Loom

Illinois House Bill 4783 seeks to amend the Illinois Condominium Property Act (the “Act”) by voiding any provision in a condominium instrument if it limits or restricts the rights of the board of managers by: (1) requiring a condominium board to resolve disputes against the developer first through mediation and arbitration rather than a court of law, and (2) requiring the prior consent of the unit owners in order for the board to take any action in court.  Senate Bill 2892 is an extension of the House Bill and creates a new Section 18.8 in the Act that voids any condition in condominium instruments which restrict the board’s right to represent the association in legal matters affecting the common elements or more than one unit by requiring consent of a percentage of unit owners, or requiring arbitration or mediation prior to the filing of an action in court.

The Act currently empowers a condominium association to sue the developer for any alleged construction defects or face individual liability themselves.  Condominium developers often draft declarations and by-laws that require the unit-owner controlled board to use ADR procedures to pursue claims against the developer.   The pending Illinois legislation allows for ADR procedures to be included in the declaration of the condominium covenants, but only with the prior approval of not less than seventy-five percent of the unit owners.  Neither bill preserves any dispute resolution provisions currently in condominium declarations, so the proposed bills could open the door to developer-unit owner litigation even if mediation or arbitration were previously agreed upon.

Should the proposed legislation pass, the bills may nonetheless be invalid if they are found contradictory to other state law like the Illinois Arbitration Act, and to the extent they conflict with federal law like the Federal Arbitration Act.  The Illinois Senate and Illinois House approved each bill in early March and early April, respectively.  The bills face additional consideration by other committees in the coming months.

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