April 2009 Vol. 2, No. 4
 

Claims Corner

Condominiums

Common Condominium Questions and Problems

Claims that arise in connection with policies issued for condominium parcels tend to be caused by errors on the declaration and plat or because of physical changes to the condominium that were made after the declaration was recorded. ATG Administration Regulation No. 5 addresses the proper handling of a condominium declaration:

 

 

If the ATG member intends to issue a master policy or otherwise insure all or substantially all of the real estate that is included in a proposed or existing condominium declaration or plat of subdivision, the ATG member must submit a copy of the condominium declaration or subdivision plat and all exhibits and supporting documents included therewith to ATG legal staff for approval by ATG in writing prior to the issuance of a commitment or policy with respect to the real estate or any part of it. The requirements of the preceding sentence shall not apply if the ATG member has possession of a policy issued by any title insurance company authorized to do business in the State of Illinois with an effective date on or after the date of the recording of the condominium declaration or plat of subdivision, insuring the land as part of the condominium or subdivision. An ATG member who issues a commitment or policy in violation of the requirements of this Section of this Regulation shall, in addition to other rights and remedies of ATG, be strictly liable to ATG for all loss or damage by ATG resulting from defects in the condominium declaration or plat of subdivision.

 

 

 

To comply with the requirements of Regulation 5, please contact ATG Commercial Underwriting Attorney, Karen Courtney (kcourtney@atgf.comor 312.752.1409) to have the condominium master commitment, declaration, and plat reviewed prior to the recordation of the declaration. The review allows ATG to identify problems before the documents are recorded and at a time when problems are easier to identify and more cost efficient to correct. Please allow at least one week for ATG to review the master commitment, condominium declaration, and plat. ATG cannot review the development until all requested documents are provided. ATG will review the declaration and plat to make sure all statutory requirements are met.

The statutory requirements of the Condominium Property Act are available at 765 ILCS 605/1et seq.Pursuant to the statute, a condominium declaration must contain the following information:

 

  • A declaration submitting the property to the Condominium Property Act;
  •  

  • The legal description of the parcel;
  •  

  • The legal description of each unit;
  •  

  • The name of the condominium, which must contain the word condominium;
  •  

  • The name of the city and county where the condominium is situated;
  •  

  • The percentage ownership interest that each unit has in the common elements;
  •  

  • A description of the common elements and the limited common elements and how they are assigned to a unit owner;
  •  

  • Simultaneously recorded bylaws, which are either part of the declaration or are attached to and recorded with the declaration; and
  •  

  • A simultaneously recorded plat that sets forth the following:
    • The boundaries of the parcel, and any buildings and structures located on the parcel.
    •  

    • The elevations of the interior surfaces of the floors and ceilings of each unit.
    •  

    • The interior and exterior walls of each unit.
    •  

    • The location and elevation of any part of a unit that is located outside of a building.

Please note that there are additional requirements for add on and conversion condominiums, which are not addressed in this article. In addition to the reviewing the documents for conformity with the statutory requirements, ATG will look for other items to make sure condominium units will be insurable by ATG. Below is a non-exclusive list of additional items that ATG will look for when reviewing the documents submitted:

  • First page of declaration has space open on the upper right corner, as required by the recorder.
  •  

  • Declaration is signed by the same person or entity shown as the owner on Schedule A of master commitment.
  •  

  • Declaration has the property address and property index number (PIN).
  •  

  • Declaration contains information on who prepared the declaration and to whom to mail the recorded declaration.
  •  

  • Condominium name on declaration and on plat match exactly.
  •  

  • Unit descriptions are the same on the declaration as on the plat.
  •  

  • Bylaws are attached.
  •  

  • Any mortgagees have consented to the declaration.
  •  

  • All units, common elements, and limited common elements described in the declaration are accurately labeled on the plat.
  •  

  • Any survey matters are shown on the master commitment.

After a condominium declaration and plat have been recorded, questions from members frequently deal with parking. There are three options for addressing parking in a condominium development: (1) a common element; (2) a limited common element, or (3) a deeded unit. Most confusion is over the differences between parking that is a limited common element and parking that is a deeded unit. A limited common element (LCE) is defined at 765 ILCS 605/2(s) as "a portion of the common elements so designated in the declaration as being reserved for the use of a certain unit or units to the exclusion of other units, including but not limited to balconies, terraces, patios and parking spaces or facilities." Parking spaces that are limited common elements are inseparable from the dwelling unit that they are affiliated with. An owner who has a limited common element parking space cannot transfer the limited common element to someone other than who is obtaining the dwelling unit, unless it is done so in accordance with the Condominium Property Act.

To transfer an LCE to someone other than a successor in title to the party that was initially assigned the LCE, the requirements outlined at 765 ILCS 605/26 must be met. The statute provides that the transfer can be made only between unit owners. There has to be an amendment to the condominium declaration, which is executed by the parties to the transfer. In addition, the amendment must be consented to by any other unit owners who have the right to use the limited common elements that will be affected by the transfer. Any changes to the parties' proportionate shares must also be disclosed in a statement by the parties in the amendment.

Deeded parking spaces can be transferred separately from the dwelling unit. Deeded parking spaces will be assigned a separate property index number after the declaration is recorded. Parking spaces that are limited common elements will not always have a separate property index number.

ATG recently received a claim involving condominium property where a portion of the condominium property was purportedly removed from the condominium prior to ATG insuring the property. A declaration was initially filed, which among other things submitted the property to the Condominium Property Act. Subsequently, an amendment to the declaration was recorded that intended to remove a portion of the condominium property from the condominium. The Condominium Property Act has a specific provision regarding removing property from the condominium. See 765 ILCS 605/16, which provides the following:
 

All of the unit owners may remove the property from the provisions of this Act by an instrument to that effect, duly recorded, provided that the holders of all liens affecting any of the units consent thereto or agree, in either case by instruments duly recorded, that their liens be transferred to the undivided interest of the unit owner. Upon such removal the property shall be deemed to be owned in common by all the owners. The undivided interest in the property owned in common which shall appertain to each owner shall be the percentage of undivided interest previously owned by such owner in the common elements.

 

The above statutory language creates a way to remove the entire condominium from the Condominium Property Act; however, it does not provide a way to remove a portion of the property from the Condominium Act. In the event you are involved in a transaction where an amendment to the declaration has been recorded, which purports to remove the property from the condominium, please contact the Underwriting Department prior to issuing the commitment.

ATG claims have also arisen when waivers of the right of first refusal are not properly obtained. Keep in mind that parties other than the condominium association can have the right of first refusal. In one claim involving a commercial condominium, the condominium declaration gave an adjoining unit owner a right of first refusal. The adjoining unit owner wanted to expand into the space insured by ATG. The adjoining unit owner filed an action for specific performance. It is important to obtain waivers of the right of first refusal from all parties who have been given that right.

Based on our claims experience and the common questions we receive, we encourage ATG members to consider these important points well before closing condominium transactions:

 

  • If you represent a developer, keep in mind that once a condominium declaration has been recorded, any changes to the parcel are governed by the Condominium Property Act. Areas that are designated as a common element on the plat cannot then be used as a limited common element unless there is an amendment to the declaration that has been approved by all interested parties.
  •  

  • If you represent a unit buyer, make sure the unit your clients thinks they are buying is where it should be on the plat. It is not uncommon for things to be inaccurately depicted on the plat. For example, if your client is buying Unit 102, show your client the location of Unit 102 on the plat and make sure that is the actual location of the unit. It is much easier to get such issues resolved before a closing than after the fact.
  •  

  • If your clients think they are also purchasing a parking space, make sure the commitment reflects that. A search needs to be done prior to the date of closing to make sure that the parking is insurable; therefore, it is difficult to resolve the issue if it is not brought up until everyone is at the closing table.

If you need assistance, please contact the ATG Underwriting Department,legal@atgf.com, 217.403.0020, or 312.752.1990.

© ATG|Casenotes/Bulletin 0904_v2n4

[Last update: 4-9-09]