Illinois HOA Rental Bans: Only 501(c)(3) Owners Grandfathered

Start with what the Condominium Property Act actually does about leasing, because it is the reverse of a tenant or landlord protection. Section 18(n)(i) provides that the Act, the declaration, bylaws, other condominium instruments and the rules and regulations relating to use of the individual unit or the common elements apply to any person leasing a unit, and are deemed incorporated in any lease executed or renewed on or after August 30, 1984, the effective date of Public Act 83-1271. An Illinois condominium tenant is bound by house rules the tenant never signed, and a lease cannot contract around them.

Section 18(n)(ii) adds a filing duty on the owner. For any lease entered into after July 1, 1990, the effective date of Public Act 86-991, the unit owner leasing the unit shall deliver a copy of the signed lease to the board, or a memorandum of the lease if it is oral, not later than the date of occupancy or 10 days after the lease is signed, whichever occurs first. Missing that ten day window is itself a leasing violation.

The enforcement sentence is the one that settles the question. The same subsection lets an association, by filing an action jointly against the tenant and the unit owner, seek to enjoin the tenant from occupying the unit or seek to evict the tenant under Article IX of the Code of Civil Procedure for failure of the lessor-owner to comply with the leasing requirements prescribed by this Section or by the declaration, bylaws, and rules and regulations. The General Assembly wrote leasing requirements prescribed by the declaration, bylaws and rules into the statute and attached an eviction remedy to them. That is a legislative endorsement of association leasing restrictions, not a limit on them. The board may also proceed directly against a tenant, at law or in equity or under Article IX, for any other breach of the covenants, rules, regulations or bylaws.

The one Illinois limit sits in the Common Interest Community Association Act. Section 1-20(c) applies when an association that currently permits leasing amends its declaration, bylaws or rules and regulations to prohibit leasing. In that case, a unit owner incorporated under 26 U.S.C. 501(c)(3) that is leasing a unit at the time of the prohibition may continue to do so until the owner voluntarily sells the unit, and no special fine, fee, dues or penalty may be assessed against that owner for leasing its unit. The protection is written for charitable organizations that hold units as supportive or transitional housing. It does nothing for an individual owner, a family trust, an LLC or an investor, and it does not survive a sale.

That protection stops at the Act boundary, and this is where Illinois practice diverges by association type. Section 1-20(c) is in 765 ILCS 160, which governs common interest community associations. The Condominium Property Act's own amendment section, 765 ILCS 605/17, contains nothing comparable, and no section of that Act grandfathers any owner against a newly adopted leasing prohibition. A page saying Illinois grandfathers existing rentals would be wrong for every condominium in the state.

Adopting the amendment is a recording exercise, not a statutory vote. Both 765 ILCS 605/17(a) and 765 ILCS 160/1-20(a) say only that no modification or amendment is valid unless set forth in an amendment and duly recorded, and that it takes effect on recordation unless it names a different effective date. Neither fixes the percentage of owners required to approve; that number comes from the declaration or bylaws of the individual association, commonly two thirds or three quarters of the ownership interests. Under 765 ILCS 605/17(b) and 765 ILCS 160/1-20(b) the president of the association, or another officer authorized by the board, executes and records the amendment.

Lenders get a clock rather than a veto in a common interest community. Section 1-20(e) provides that where the community instruments require approval of a mortgagee or lienholder of record and the mortgagee or lienholder receives a request to approve or consent to an amendment, it is deemed to have approved unless it delivers a negative response within 60 days after the mailing of the request, and the request must be sent by certified mail. A board pushing a leasing ban past silent lenders relies on that deemed consent.

One more Illinois wrinkle can remove even the 501(c)(3) grandfather. Under 765 ILCS 160/1-75(a), a common interest community association organized under the General Not For Profit Corporation Act of 1986 with 10 units or fewer, or with annual budgeted assessments of $100,000 or less, is exempt from the entire Common Interest Community Association Act unless a majority of its directors or members affirmatively elects coverage. In such an association Section 1-20(c) does not apply at all.

The remedies here run against the owner and the tenant, not against the association. An association enforcing a leasing restriction in an Illinois condominium may file a single action jointly against the tenant and the unit owner and ask the court to enjoin the tenant from occupying the unit, or to evict the tenant under Article IX of the Code of Civil Procedure, when the lessor-owner has not complied with the leasing requirements in Section 18(n) or in the declaration, bylaws and rules. The board may also proceed directly against the tenant for any other breach of the covenants, rules, regulations or bylaws. Separately, the ordinary fine power applies to the owner: 765 ILCS 605/18.4(l) permits reasonable fines for violations of the declaration, bylaws and rules after notice and an opportunity to be heard, and 765 ILCS 160/1-30(g) imposes the same notice and hearing condition on a common interest community association.

An owner's realistic defenses are procedural and documentary rather than statutory. Check that the amendment was actually set forth in an amendment and duly recorded as 765 ILCS 605/17(a) and 765 ILCS 160/1-20(a) require, since an unrecorded amendment is not valid. Check the effective date, which is the date of recordation unless the amendment names a different one, and compare it to the date the lease was executed or renewed. Check that the approval percentage in the association's own declaration was met, because the statute supplies none. A charitable owner in a common interest community should assert 765 ILCS 160/1-20(c) and note its second half, which bars any special fine, fee, dues or penalty for leasing.

Records support all of this and are obtainable. Under 765 ILCS 160/1-30(i) the board must make the recorded declaration, community instruments, amendments, rules and regulations and board minutes available for examination and copying, a failure to respond within 30 days is deemed a denial, and a member who prevails is entitled to reasonable attorney's fees and costs where the court finds the failure was due to the board's acts or omissions. For condominiums the parallel inspection right is in 765 ILCS 605/19. Disputes go to the circuit court of the county where the property is located; Illinois assigns no agency to review association leasing rules.