As you have no doubt discovered, most new condominium/townhome developments include a “mixed use” building. That is, a portion of the building (usually on the ground floor) is reserved for commercial/retail use while the remainder of the building consists of residential units. Due to the obvious differences between commercial and residential owners’ uses and needs of the building, disputes often arise between the commercial owner and the community association. The following is a brief discussion of typical issues to consider when faced with such a dispute.

Is the commercial owner subject to the declaration?

Every condominium, townhome, or homeowner association is governed by a declaration that regulates the conduct of the members of the association, establishes each member’s pro-rata share for the maintenance of the building, and otherwise governs the conduct of the parties. If the commercial owner is subject to the terms of the declaration, then it is likely a “member” of the association and must be treated in the same manner as any other residential member. As such, violation notices may be sent, hearings may be conducted, fines may be imposed, and any unpaid fines/assessments will serve as a lien against the commercial space until paid. Not every commercial owner in a “mixed-use” building, however, is subject to the declaration. Instead, the parties may be bound by an “easement agreement.”

How is an “easement agreement” different from a declaration?

If the commercial parcel is not expressly referenced in the declaration, then the commercial owner very likely is not subject to the terms and conditions of the declaration. Instead, a second document was likely executed between the parties contemporaneously with the execution of the declaration: an easement agreement. An easement agreement is similar to a declaration in that it governs the conduct of the owners in the building, may include a formula for the payment of the commercial owner’s use of the common elements and generally governs the conduct of the parties. An easement agreement is very different from a declaration, however, because it is not subject to the terms and conditions of the Illinois Condominium Property Act or the Common Interest Community Act. Instead, it is simply a contract between two parties that must be enforced in the same manner as any other contract in the State of Illinois. To that end, the community association does not possess lien rights on the commercial unit and the community association plays no role in the purchase or sale of the commercial unit (unlike the sale of residential units, wherein the association can collect unpaid assessments/fines at the time of sale).

What remedies are available if a commercial owner violates the terms of an easement agreement?

In its most basic sense, an “easement agreement” is exactly as its name suggests: the parties “agree” to provide “easements” to one another for the purpose of using their respective properties. For example, a commercial unit on the ground floor often shares common walls and partitions with the residential owners in the building. Usually, the community association will own the building itself, so if the commercial owner wants to bring electricity into his unit or gain access to his unit through the building’s garage (which is owned by the community association), the community association must agree to allow an “easement” for such access to the commercial unit. Similarly, if the community association must make repairs to the building which requires access through the commercial unit, the easement agreement will expressly provide for such access.

Beyond this basic agreement for access to the different portions of the building, the easement agreement may also include various actions that must be performed by the parties. For instance, the commercial owner may be responsible for trash removal, snow removal, maintenance of the ground floor exterior, etc. If the commercial owner fails to perform such services, the community association’s recourse is much the same as any other contractual dispute – it must file a lawsuit or alternative dispute demand (depending on the language of the easement agreement) to obtain legal relief in the form of a breach of contract claim.

What if the commercial owner is not subject to the terms of the declaration and no easement agreement exists?

In certain rare instances, a commercial unit may share common areas with a community association without any agreement binding the two parties. For example, a developer may construct a building on a neighboring parcel which is separated by a parking lot and “carve out” several parking spaces from the parking lot which are not subject to the association’s declaration. If these parking spaces are not subject to an executed easement agreement, then the owner of these parking spaces will likely obtain the benefit of the association’s maintenance of the parking lot without any obligation to contribute to the costs of such upkeep. A similar example would include a commercial unit which shares a retention pond or drainage system with a community association without any obligation to contribute towards the maintenance/repairs of the system.

In such a circumstance, the association would be wise to seek judicial relief to obligate the commercial owner to contribute towards the ongoing maintenance of the shared common elements. Instead of a simple “breach of contract” claim, the association would pursue “equitable relief,” which is slightly more complex because it often involves a “balancing of the equities.” Put differently, the association would argue to the court that it would be inequitable for the owner of the neighboring parcel to continue receiving the benefit of the association’s services without just compensation. The association should pursue this relief as soon as the situation presents itself, as courts are more likely to grant the relief on a “prospective” basis as opposed to reimbursing the association for prior costs incurred.

If you have questions or concerns arising from commercial space usage in your community association, do not hesitate to contact KSN at 855-537-0550 or visit our website at www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We have four office locations, serving hundreds of clients and thousands of communities throughout Illinois, Indiana, and Wisconsin. Our attorneys are also licensed in Arizona, Florida, and Missouri.