HOA Restriction on Leases & Rentals

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Latest post 12-11-2012 11:07 AM by Drew. 13 replies.
  • 12-10-2012 4:33 PM

    • icetum
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    Question [=?] HOA Restriction on Leases & Rentals

    I am trying to figure out whether I can lease my unit in Illinois (Cook County) or not. The declaration seems to be contradictory on this issue.  First, it says plainly:

    "No Unit Owners my lease or sublease their Units."

    Seems to answer the question.  BUT, in a later section, it says:

    "The Declarant [defined as the bank-owned trust through which the builder originally sold the Units after they were built] and its successors and assigns shall have the right to rent any or all Units."

    My deed provides that "Grantor [same entity as 'Declarant'] also hereby grants to the Grantee, its successors and assigns . . . the rights and easements for the benefit of said unit set forth in the declaration of condominium . . ."

    So, one conclusion is that based on the latter statement I (and any other owner with similar language going back to the Declarant) have the same rights under the Declaration that the Declarant had: the right to rent my unit out if I choose.  Am I mistaken?  What is the effect of the two contradictory statments?  If I wanted to interpret it to allow me to rent, I would say that purely as a "Unit Owner," I don't have the right to do this, but as a successor/assign of the original declarant, I do have the right to rent.  Any thoughts?

  • 12-10-2012 5:20 PM In reply to

    Re: HOA Restriction on Leases & Rentals

    icetum:
    I would say that purely as a "Unit Owner," I don't have the right to do this, but as a successor/assign of the original declarant, I do have the right to rent.

    Seems to me that the conclusion rests with determining whether a unitowner is a "successor" or "assign" of the declarant.

    I think that the "successor" or "assign" is the HOA itself and not the individual unit owner. At least definitely not the individual unit owner.

    I found case law for Illinois that explains how a "successor" or an "assign" occurs. The case involves a builder, some financial institutions, and the HOA but appears to make it clear that unit owners do not fall into the definition of "successor" or "assign."

    • Rights as a successor accrue when there is a consolidation or
      merger of two or more entities, and the purchaser is merely a
      continuation of that entity. Fairways, 113 Ill. App. 3d at 937, 447
      N.E.2d at 1370; Johnson v. Marshall & Huschart Machinery Co., 66
      Ill. App. 3d 766, 384 N.E.2d 141 (1978).  An assignee's rights are
      established when the assignor transfers an identifiable property,
      right, or claim to the assignee. In re Estate of Martinek, 140 Ill.
      App. 3d 621, 488 N.E.2d 1332 (1986).
           An assignment of a right is a manifestation of the assignor's
      intention to transfer a particular right by which the assignor's
      right to performance is terminated in whole or in part, and the
      assignee acquires the right. Restatement (Second) of Contracts 
      317(1)(1981); Season Comfort Corp. v. Ben A. Borenstein Co., 281
      Ill. App. 3d 648, 655 N.E.2d 1065 (1995).  The creation and
      existence of an assignment is determined by the intent of the
      parties. Service Adjustment Co., Inc. v. Underwriters at Lloyd's of
      London, 205 Ill. App. 3d 329, 562 N.E.2d 1046 (1990).  In the
      absence of an applicable statute, the manifestation of intent
      necessary for a valid assignment need not be in writing. 4 Corbin,
      Contracts  879 (1963).  When the assignment has not been reduced
      to writing, the parties' intentions must be determined based upon
      the instruments executed as well as the surrounding circumstances.
      Rivan Die Mold Corp. v. Stewart-Warner Corp., 26 Ill. App. 3d 637,
      325 N.E.2d 357 (1975).  Once established, an assignment places the
      assignee into the shoes of the assignor. Martinek, 140 Ill. App. 3d
      at 629-30, 488 N.E.2d at 1337.

    http://www.state.il.us/court/opinions/appellatecourt/1998/3rddistrict/march/html/3970230.txt

    I think that pretty much covers it.

    My interpretation of that is that, unless there is something in your deed that specifically gives you the right to rent out your property, you don't have that right.

    The initial prohibition against unit owners renting out their units is what counts.

     

     

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 12-10-2012 5:42 PM In reply to

    • icetum
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    Re: HOA Restriction on Leases & Rentals

    Thanks for the thorough and quick reply. 

    Sounds like we are mostly seeing this the same way:

    1.) As an initial position, a “Unit Owner” can’t rent unless there is some sort of assignment of that right from the Declarant.  So...

    2) Only if the deed qualifies as an assignment of the right to rent under IL law does the grantee of that deed enjoy the right to rent as the Declarant’s assignee.  


    It appears based on the definition in the Rivan Die Mold case, though, the HOA is definitely not the "assign," there being no evidence of a manifestation of an intent to assign the right to rent to the HOA, written or otherwise.  

    However, I'm not convinced that the rental right isn't included within the plenary grant of all “rights and easements for the benefit of said unit set forth in the declaration.”

    Looking at Rivan Die Mold , the situation here seems to be a pretty spot-on assignment of rights.  The intent on what is being transferred doesn’t seem unclear--all rights with respect to that unit which the Declarant previously had--including the rental right.

    Again, thanks for the point of view and time to respond.  This is mostly academic and I’m sure I haven’t covered every possibly pertinent deed or declaration provision.  I don’t expect to be renting in the foreseeable future.

  • 12-10-2012 6:49 PM In reply to

    Re: HOA Restriction on Leases & Rentals

    icetum:

    However, I'm not convinced that the rental right isn't included within the plenary grant of all “rights and easements for the benefit of said unit set forth in the declaration.”

    Yes, you have all of the rights and easements "set forth in the declaration" except for those rights that are specifically excluded.

    And since the right to rent out your unit is specifically prohibited, then there is no right to rent.

    icetum:
    The intent on what is being transferred doesn’t seem unclear--all rights with respect to that unit which the Declarant previously had--including the rental right.

    Except that a unit owner is not a successor or assign so all you get are the rights enumerated in the declaration and you don't get the right to rent because it says you don't get the right to rent.

    Think of it like an insurance policy that covers "all risk of loss except earthquake." It doesn't follow that earthquake is covered because it says "all risk of loss." There's an exception just like there is an exception in the declarations.

    icetum:
     I don’t expect to be renting in the foreseeable future.

    Good.

    I had 20 years of it.

    There are ways of investing your money that won't give you the kind of grief that being a landlord will give you.

    :-)

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 12-10-2012 9:52 PM In reply to

    Re: HOA Restriction on Leases & Rentals

    icetum:
    . . . the rights and easements for the benefit of said unit set forth in the declaration of condominium . . ."

    When you read the declaration of condominium, is the right to rent the unit mentioned as one of the "rights and easements for the benefit of said unit"?

     

  • 12-11-2012 9:18 AM In reply to

    • Drew
      Consumer
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    Re: HOA Restriction on Leases & Rentals

    Laymans take:

    Not clear at all if the chain of title does contain an affirmative right to rent it if the HOA can pass a rule that trumps or limits a deeded right --and might depend on if the  HOA rule was a new one or in place at time of purchase.

    Bears further study?

     



  • 12-11-2012 10:01 AM In reply to

    • icetum
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    Re: HOA Restriction on Leases & Rentals

    karen2222:

    icetum:
    . . . the rights and easements for the benefit of said unit set forth in the declaration of condominium . . ."

    When you read the declaration of condominium, is the right to rent the unit mentioned as one of the "rights and easements for the benefit of said unit"?

     

    Yes--see above.  The declarant specifically is granted the right to rent any or all units.

     

  • 12-11-2012 10:13 AM In reply to

    • icetum
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    Re: HOA Restriction on Leases & Rentals

    adjuster jack:

    Yes, you have all of the rights and easements "set forth in the declaration" except for those rights that are specifically excluded.

     

    Not sure I agree with that.  An assignment gives you the right to stand in the assignor's shoes.  Here, that gives the assignee (me) the right to rent, when otherwise I would not.  Just like the Declarant had the right to rent, when otherwise the Declarant would not.

     

    adjuster jack:

    Except that a unit owner is not a successor or assign so all you get are the rights enumerated in the declaration and you don't get the right to rent because it says you don't get the right to rent.

    That's really the central question, isn't it?  Am I an assign?  If yes, then I stand in Declarant's shoes with respect to any of Declarant's rights with respect to my unit, including right to rent.  If no, then all I have is the rights that go along with being a Unit Owner, which doesn't include the right to rent. 

    adjuster jack:

    Think of it like an insurance policy that covers "all risk of loss except earthquake." It doesn't follow that earthquake is covered because it says "all risk of loss." There's an exception just like there is an exception in the declarations.

    I understand your analogy but I dont' think it is apt here.  After all, it cannot be true that mere status as a Unit Owner destroys the rights I received from Declarant.  It's more like if an insurance policy said:

    1.) Albert is insured against all risk of loss.

    2.) Bernie is insured against all risk of loss except earthquake. 

    Albert then separately assigns his coverage to Bernie.  Bernie is then covered against earthquake by virtue of the assignment he got from Albert, even though he wouldn't be covered under the part that covers him in the original policy.

    Think of it this way: Declarant was a Unit Owner at one time, and it had the right to rent notwithstanding that status.  So you couldn't say "Yes, declarant, you have the right to rent under that one section, but you also own some units, so you can't rent because you're a Unit Owner."  It would destroy the essence of the Declarant's rental right.  To be an assignee is to stand in the assignor's shoes.  

     

     

  • 12-11-2012 10:26 AM In reply to

    • icetum
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    Re: HOA Restriction on Leases & Rentals

    Drew:

    Laymans take:

    Not clear at all if the chain of title does contain an affirmative right to rent it if the HOA can pass a rule that trumps or limits a deeded right --and might depend on if the  HOA rule was a new one or in place at time of purchase.

    That's an angle I had not considered.  Could the HOA say "Fine, we agree.  You were assigned the rental right by virtue of your deed, congratulations.  Now we're passing a rule that says no one, not even the Declarant's assigns, can rent out a unit."  ?

    I don't know the answer here.  Maybe they could, but if I already signed a lease, that lease might be grandfathered in.  If I already had a tenant in and they tried to force me to evict based on a rule change, they would have to be liable for damages for the breach of lease to both me and the tenant.  Not a position I think they would want to be in.

  • 12-11-2012 10:34 AM In reply to

    Re: HOA Restriction on Leases & Rentals

    icetum:
    Yes--see above.  The declarant specifically is granted the right to rent any or all units.

    The problem is, you are a Grantee, not a successor or assign of the Declarant.  A successor or assign of the Declarant would be for example his lender, if he were to default on his loan(s) before selling all the units, or another developer to whom he might sell the development (before he sells off all the individual units) - NOT the individual purchasers of units.

    You don't seem to believe us, so feel free to ask a lawyer whether we are right about that or not.

  • 12-11-2012 10:36 AM In reply to

    Re: HOA Restriction on Leases & Rentals

    icetum:
    I don't know the answer here.  Maybe they could, but if I already signed a lease, that lease might be grandfathered in.  If I already had a tenant in and they tried to force me to evict based on a rule change, they would have to be liable for damages for the breach of lease to both me and the tenant.  Not a position I think they would want to be in.

    Except as far as you have told us, the rule already exists and you haven't yet signed a lease.

  • 12-11-2012 10:46 AM In reply to

    • icetum
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    Re: HOA Restriction on Leases & Rentals

    First, thanks for all the replies.

    karen2222:

    The problem is, you are a Grantee, not a successor or assign of the Declarant. 

    I'm not aware of any basis in law or in the applicable documents here for making this distincition.  Probably not a "successor" because that deals with mergers and acquisitions.  But one can be an "assing" even if the relevant language of the assignment uses equivlanet language like "grant."
    karen2222:

    A successor or assign of the Declarant would be for example his lender, if he were to default on his loan(s) before selling all the units, or another developer to whom he might sell the development (before he sells off all the individual units) - NOT the individual purchasers of units.

    Actually, the Declarant here is the lender, since the Units were held in trust by the lender before the sale.  But yes, if that bank mereged with another bank, or went belly up and were acquired by an investor, (all before sale of units) those entities would also be successors or assigns (probably successors).  I don't see a basis, though, for saying that because those entities can meet the definition of successors or assigns, the Unit Owners can't.

    karen2222:

    You don't seem to believe us, so feel free to ask a lawyer whether we are right about that or not.

    I hope I've made clear that I'm looking to look critically at this situation.  It (and no situation in the law) is about "believing" you or anyone else.  It is about backing up assertions with logic and citations to law.  I hope I haven't given the impression that I'm not giving due consideration to any statements based on either.

    Your last point is excellent advice.  If I ever need to do a lease based on this argument, I will certainly get a written opinion on the matter from retained counsel.  If a judge ultimately disagrees with my pov, I don't want to be in a position of saying "well, I thought I was right, and a few people who I don't know on a message board partially agreed with me." :-)

  • 12-11-2012 10:50 AM In reply to

    • icetum
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    Re: HOA Restriction on Leases & Rentals

    karen2222:

    Except as far as you have told us, the rule already exists and you haven't yet signed a lease.

    Not quite. That "rule" exists in the original rules, same as the "rule" saying Declarant can rent.  That is, it clearly contemplates that the general "no rental" rule is limited by the Declarant's (and its assigns) exception.  The hypothetical rule I set out was along the lines of rescinding the Declarant's right to rent, which obviously is not contained in the present version of the rules.  Currently, no rule already exists that circumcribes the right of the Declarant's assigns to rent any or all units.

  • 12-11-2012 11:07 AM In reply to

    • Drew
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    Re: HOA Restriction on Leases & Rentals

    I can forever grant a right to do X in my deed --it sort of depends on next holder to extinguish that right or not.

    I may have a right to paint my unit pink but if I participate in an HOA or the town code says only blue  we need to sort out which rule trumps what.

    I frankly see a lot of merit to a no rental rule but that was not the question OP posed.



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