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Same Unit, Yet Different Percentage of Ownership; Why?
One of the most frequent areas of controversy in a condominium association is why similar units in the association have different percentages of ownership. For example, two units have identical square footage, identical garages and floor plans, both face the front of the property, are end units and sold for the same price. Although for all intents and purposes these units are exactly the same, one has a higher percentage of ownership in the common elements than the other. The owner with the bigger percentage pays more assessments, bears a bigger share of any special assessment and the only compensating factor is that their vote is worth more.
The method for computing the percentage of ownership for a condominium unit is set forth in Section 4(e) of the Illinois Condominium Property Act. This provision specifically states:
"Sec. 4. Declaration - Contents. The declaration shall set forth the following particulars:...(e)The percentage of ownership interest in the common elements allocated to each unit. Such percentages shall be computed by taking as a basis the value of each unit in relation to the value of the property as a whole, and having once been determined and set forth as herein provided, such percentages shall remain constant unless otherwise provided in this Act or thereafter changed by agreement of all unit owners. The percentage of ownership interest in the common elements allocated to each unit."
Under this definition, the developer is granted great leeway in determining how to compute the "value" of a unit for the purpose of determining the percentage of ownership for each unit. The basis of value can be determined by the use of square footage, the purchase price, the market value, the appreciated value, the location in the building, view, etc. So long as the total percentages of all units add up to 100% and there is some reasonable explanation as to why the developer chose the method that he used, one cannot simply claim that the developer made an error in calculating the percentage of ownership. However, in this example, since these two units are exactly the same, it would make sense that they would have exactly the same percentage of ownership. Without speaking with the developer, we cannot realistically determine why he chose a different percentage of ownership for these two units.
This would appear to be wholly unfair. Yet, chances are the development was sold in phases and each time a new phase was added, the percentages changed. The new percentages were probably based upon sales price.
In these situations, a board should advise its owners that the association had no input on how the percentages were established, since this is all the developer’s responsibility. The board should further state that under the Illinois Condominium Property Act, the percentages of ownership cannot be changed without the agreement of ALL owners, unless there was an error in the calculations. As you can imagine, this is almost an impossibility, because if you are lowering some members’ percentage, you are going to be increasing others. The parties that are required to pay higher assessments will probably not vote for the redistribution.
However, if it can be documented that an error was made, Section 27(b) of the Illinois Condominium Property Act provides that:
"If there is an omission or error in the declaration...the association may correct the error...by an amendment...by vote of two-thirds of the members of the Board of..."
Under this provision, if the board, acting in good faith, can establish that an error or omission has occurred in computing the percentages of ownership, then the board has the ability to make a change without having to obtain the approval of 100% of the owners. Yet, inequity is probably not sufficient to constitute an error.
A board can argue that the developer made a mistake, because these units are the same with regard to view, square footage, price, location, etc. An easy way to show this is to obtain an affidavit from the developer specifically stating that they made an error in computing the percentages. If the board members are unable to obtain this affidavit, then the 27(b) amendment could be subject to challenge. The board must always show that they had the necessary documentation for changing the percentages.
As a last resort, an association could file an action for a declaratory judgment and ask the court to rule that the calculations are unfair. However, this presents similar problems. First, the association would have to submit evidence to prove its argument and second, all owners must be notified and those who would not benefit from a reallocation could argue against it.
The only exception to the above may be when two or more associations merge. Section 18(b)(13) of the Illinois Condominium Property Act allows for mergers by a vote of 2/3rds of the owners at a special meeting. What then happens to the percentages of ownership as each association has their own 100%? Some mergers result in a blending formula for budget purposes where for example, the budget is based upon two former associations which merged equaling 200%, and then re-dividing it on a per unit basis. This does not require a change of percentage.
On the other hand, if one can obtain the consent of all of the owners, then the percentages can be recalculated. Generally, the formula for recalculation is based upon square footage, which is probably the most equitable.
The most important thing to remember is that the Illinois courts frown on associations making improper reallocations of the percentages. This is a classic example of "buyer beware."