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Community Associations and the Power to Levy Fines

by Jordan I. Shifrin

Illinois Bar Journal, June 1983

The limitation of authority on condominium and homeowners' association board of directors to enforce the rules and regulations is often greater than the express grant of authority in the enabling documents and applicable statutes.

Serving on a board of directors of a condominium or homeowners' association can often be a frustrating experience when the question arises as to the enforcement of the association's rules and regulations, by‑laws or declaration.

Applicable Illinois statutes, the governing documents and the common law have established specific authority for boards of directors in various areas for the administration and maintenance of association property.  For example, the Illinois Condominium Property Act and most declarations incorporate several alternatives for collecting delinquent monthly maintenance assessments, such as filing of notice of liens, lien foreclosures, suspension of voting rights and forcible entry and detainer (condominiums only).  Numerous cases have established an associations' authority to enforce covenants restricting architectural control violations, structural alterations and other obvious affronts to the concept of regulating uniformity and communal aesthetics.

However, in trying to control serious and continuous rule infractions, particularly those involving conduct which constitutes a nuisance, the association must generally resort to the courts to seek relief.  This can be a very costly and time-consuming process and, unless the association can convince the trier of fact that there is a threat of irreparable harm and that the nuisance may continue unabated for an extended time, the association may have difficulty obtaining a protective order.  What is the alternative, then, for a small condominium or homeowners' association which has limited resources but a corresponding obligation to enforce the association rules and regulations?

In a practical sense, most associations do not have either the express or implied authority to deal wit the day‑to-day aggravations that may not warrant expensive litigation but are clearly an infringement on the use and enjoyment of the property of the unit owners or which obstruct the operation of the association.  Rule infractions such as noisy parties, unauthorized display of "for sale" signs, illegal antennas and parking violations require considerable time and effort by the board or a managing agent to regulate with the added prospect of having no readily available solution without some degree of voluntary compliance.

After numerous attempts to abate a nuisance have failed, the board may be left only with the alternatives of either filing a lawsuit or "doing nothing."  The board of directors may then be faced with the dilemma of being accused of breaching their duties as board members and opening themselves up to personal actions by other aggrieved homeowners for not enforcing the declaration.

One of the most commonly asked questions of attorneys representing associations is whether the board of directors has the authority to levy fines.  Should an attorney condone such a policy without an express grant of authority by any governing statute or document?  It appears that many associations have even taken it upon themselves to exercise such policies without the requisite authority.

Associations have often been compared to "quasi-municipalities" or other public bodies.  Under this theory, a board of directors should be able to assume the full power of a public body in order to effectively provide necessary services and control the abuse of rules and regulations.  However, to the extent that the board makes policy and enforces rules and regulations, what, then, are the requirements of "due process" and "equal protection?"  If associations voluntarily assume "police" powers that are analogous to those of a municipality, are they also opening the door to future governmental control and regulation?

Under the Illinois Condominium Property Act (1), condominiums are authorized to implement:

such restrictions on and requirements respecting the use and maintenance of the units and the use of the common elements, not set forth in the declaration, as are designed to prevent unreasonable interference with the use of their respective units and of the common elements by the several unit owners.

Attorneys who advise clients that they have the authority to levy fines for homeowner misconduct, probably read this section in conjunction with similar provisions within condominium declarations as supporting authority for punitive actions.

In addition, the Condominium Act also provides, in § 318.3, et seq:

…The association shall have and exercise all powers necessary or convenient to effect any or all purposes for which the association is organized and to do every other act not inconsistent with law which may be appropriate to promote and attain the purposes set forth in this Act or in the condominium instruments.

These statutory provisions which have often been so broadly interpreted as to infuse a board of directors with a grant of authority that it can levy fines are inadequate.  There are numerous hurdles to overcome before "loose construction" of a blanket grant of authority can support such action.

CONSTITUTIONAL QUESTIONS

"…nor shall any State deprive any person of life, liberty or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws." (2)

First, presuming that the board of directors of a condominium or homeowners' association chose to adopt a policy of levying fines to reduce rule infractions, they would also be compelled to adopt an accusatory system and a uniform standard of proof to protect the rights of the individuals involved.  The assessment of a penalty against a homeowner resulting from mere accusation of misconduct could constitute a denial of due process.  In Evans v. Newton (3), the United States Supreme Court held that when private groups or individuals are endowed by the state with powers and functions that are governmental in nature, they become agencies or instrumentalities of the state and subject to constitutional limitations.

In Baumgardner v. Boyer (4), the Illinois Supreme Court held that "due process of law" is the orderly proceeding wherein a person is served with notice, actual or constructive, and has the opportunity to be heard and enforce and protect rights before a court having the power to hear and determine the case.  Thus, the board of directors or a duly authorized committee would have to assume the role of a quasi-court to uphold constitutional safeguards.

Second, in setting up a "hearing" system, strict uniform guidelines would have to be adopted to insure adequate notice, the right to counsel, a fair and impartial hearing and the right of review.  In addition, any punitive measure adopted by the board or its hearing committee must be commensurate with the offending conduct.  The caveat here is that in the process of levying fines, even with the aforestated hearing procedure, associations still do not have an express grant of such authority.

Third, the implications are that when a board of directors decides to invoke punitive measures without express authority, the individual members of the board may be exposing themselves to a potential civil rights action if there is proof of unreasonable or arbitrary enforcement.

Based upon a recent surge of cases filed against boards of directors collectively and against individual members and the distinct limitations on liability in most "errors and omissions" insurance coverage carried by associations, the risks involved are substantial.  Also, the exculpatory language contained within most declarations ostensibly protect the board members from personal liability, but can a volunteer board member afford to take the risk of acting ultra vires?  By supporting a policy which may be outside the scope of authority, a board member must be willing to accept the consequences.

Lastly, the decision to levy a fine without strict controls is an invitation for an abuse of authority.  A court might construe a "fine" to be a penalty which is abhorrent to the law.  Clearly, one must consider the alternatives before endorsing a policy of fines for rule infractions.  Even if one feels sufficiently secure by adopting a hearing system, guidelines must be then adopted to guarantee individual rights.  This question should be examined by each individual member of the board of directors in light of the foregoing.  By adopting a policy for the levy of fines without the requisite authority, the board of directors also exposes itself to potential liability, which is contrary to what it is attempting to accomplish.

THE AUTHORITY OF VOLUNTARY V. INVOLUNTARY ASSOCIATIONS

"Human beings tend to form groups for cooperative purposes; this tendency seems to be instinctive.  Many anthropologists and sociologists and political philosophers speak of Homo Sapien as a 'social animal' who normally hunts and lives in groups or 'packs.'" (5)

"Western civilization has been (and is) characterized by voluntary associations of people from the earliest warrior lands and churches to towns and universities and guilds, etc." (6)  Therefore, a voluntary banding together for a mutual purpose is at the very root of our society.  However, where one purchases residential real estate and is compelled to abide by certain restrictions as a result of that purchase, the "association" loses any trappings of voluntariness.

Within most declarations of community associations, a variety of obligations bind each member or property owner from the payment of a monthly or annual assessment to restrictions on the use of that property.  In conjunction with the foregoing, there will often be a corresponding duty on the part of the association for collection of delinquent assessments and pursuit of appropriate legal remedies for violations of restrictive covenants.  However, according to the authorities, it has long been held that "the liability of a member of an association for dues and assessments, and for fines and penalties, depends on the contract with the association or constitution or by‑laws (7).  Thus, any organization is limited to those remedies expressly set forth in its charter or granted by statute.  That obligation is then enforceable notwithstanding whether the association is voluntary or involuntary.  This principle applies whether the condition is set forth in the initial documents or incorporated by an amendment adopted by the requisite majority of members.

For the purpose of this discussion, condominium and homeowners' associations must be deemed to be "involuntary" associations, as ownership of the subject property and membership in the organization are inseparable.  Each member of the association is not compelled to purchase a unit or home site, so the involuntariness of the association does not stem from the purchase itself, but rather from the incidents of ownership due to covenants running with the land.

It has been held that where membership in a professional society is necessary, in a substantial sense for the practice of one's profession in a particular locality, such an organization is not voluntary (8); whereas, a voluntary association is generally deemed one that indicates a group of people who have joined together for a certain object or purpose (9).  Even though property or condominium associations are deemed to be not‑for-profit corporations, whether voluntary or involuntary, they are still not immune to court scrutiny.

Generally, the courts are reluctant to interfere in the internal disciplinary proceedings of private associations absent violation of law (10).  However, where property rights are involved, courts have the power to examine the proceedings of even beneficial associations to determine whether the action taken is in substantial compliance with the association's bylaws (11).

Therefore, an association which levies fines without the requisite authority may be inviting a court challenge and the board of directors will be unable to shield itself with the traditional approach of the courts which have previously avoided looking into the internal proceedings of private organizations.

The designation of an association will ultimately determine the scope of its authority.  Only voluntary types of associations may provide penalties by way of fines for derelictions of its members without the amendment of its governing documents or by statutory grant.  With respect to involuntary associations, specifically of the "homeowner" type, unless that authority to levy fines is expressly stated in the declaration recorded against the property, added by amendment or authorized by statute, it is doubtful whether the board of directors of a community association of residential property owners can impose penalties through a mere rule or regulation adopted by the board.

RECENT CASELAW

This concept of condominium boards levying fines was recently considered by the Virginia Supreme Court in Unit Owners Association of Buildamerica-1 v. Gillman (12).

In this case, a commercial condominium association provided in its by‑laws that the board of managers had the power to levy fines against unit owners for violations of the rules and regulations promulgated by the board.  The reviewing tribunal, in affirming the trial court's finding which set aside the fines as unlawful, found "no language in the Virginia Condominium Act which authorized the governing body of the condominium to levy fines, impose penalties or exact forfeitures for violation of the by‑laws and regulations of unit owners."

Since the Act did not specifically empower the association to levy fines, such a power could only be delegated by provisions of the United States or Virginia Constitutions.

Subsequent to this ruling, the Virginia legislature amended the Virginia Condominium Act to allow condominium associations the power to levy fines as a means of enforcing the covenants and rules established by the board.

Therefore, it can be safely concluded at this juncture that unless property purchasers acquire title subject to a declaration which expressly authorizes the levying of fines, or unless the members of the association participate in amending the declaration, the levy of fines for rule infractions will probably be deemed to be unenforceable.

CONCLUSION

In 1982, the Illinois House considered the Uniform Condominium Act which has been adopted in a number of jurisdictions (New York, Virginia, Florida, New Jersey and California).

Section 3‑102 provides in part as follows:

Section 3‑1-2.  Powers of Unit Owners' Association.  (a)  Except as provided in subjection (b), and subject to the provisions of the declaration, the association may … (11) impose charges for late payments of assessments and, after notice and an opportunity to be heard, levy reasonable fines for violations of the declaration, by‑laws, and rules and regulations of the association.

Until such legislation is adopted in Illinois, or unless a community association has an express grant of authority within its governing documents, duly recorded against the property, such authority probably cannot be implied or imposed by a board-mandated regulation.

It is a far too serious matter for a board of directors to haphazardly adopt a short-hand method of enforcing rules and regulations and expose itself to a potential lawsuit.  Unless the association is prepared to properly amend its covenants, or wait until the legislature acts, the board of directors is restricted to traditional remedies.

1.  Illinois Condominium Property Act, Ill. Rev. Stat. Ch. 30, § 318(j).
2.  U.S. Const. Amend. XIV.
3.  Evans v. Newton, 382 U.S. 296, 86 S. Ct. 486, 15 L. Ed. 2d 373 (1966), on remand, 221 Ga. 870, 148 S.E.2d 329 (1966).
4.  Baumgardner v. Boyer, 384 Ill. 584, 52 N.E.2d 247 (1943).
5.  L.L. Fuller, Two Principles of Human Association in Voluntary Associations (Pennock and Chapman eds. 1969); Oleck, Howard L., Non Profit Corporations, Organizations, and 6.  McNeill, The Rise of the West; A History of the Human Community (1963); Trevor-Roper, The Rise of Christian Europe (1965).
7.  7 C.J.S. § 29:  United Automobile, A & A1 Workers, Local 283 v. Scofield, 50 Wis. 2d 117, 118 N.W.2d 103 (1971).
8.  Falcone v. Middlesex, County Medical Society, 162 N.J. Super. 184, 162 A.2d 324, aff'd. 34 N.J. 582, 170 A.2d 791.
9.  Black's Law Dictionary (rev. 5th ed. 1979).
10.  McCreery Angus Farms v. American Angus Ass'n. 379 F.Supp. 1008, aff'd. 506 F.2d 1404 (1974).
11.  Modern Woodmen of America v. Deters, 65 Ill. App. 368 (1896).
12.  Unit Owners Ass'n of Buildamerica-1 v. Gillman, 292 S.E.2d 378 (Va. 1982).