Commercial Units and Residential Within One Condominium

When residential units and commercial units are part of the same condominium association and subject to one declaration, there are less problems. The commercial units are treated the same as residential units for assessment and voting purposes; the commercial unit owners are unit owners like everyone else. Often, the declaration will allow disproportionate use of services, such as water or electricity, to be billed back to the owners who disproportionately use them. This allows the board, if it can track the use of those services, to level the field on costs. Moreover, the Board has similar authority over the commercial units as it does the residential units, permitting it to regulate the use of the commercial units.

Commercial Units and Residential Units Within One Umbrella Association

In some instances, commercial units and residential units are included in an umbrella or master association. In these instances, the declaration determines what authority the board has over the residential and commercial units. The declaration will specify how common expenses are billed back to all of the owners and how the property can be used. The declaration also provides a common scheme for maintaining the property.

Commercial Units in a Commercial Association; Residential Units in a Residential Association

The most common interaction between residential units and commercial units is where they both are part of their own respective associations. In most cases, there is a separate cost-sharing agreement or there are covenants that determine how the associations are intended to interact. These agreements are generally very specific as to who is obligated to take care of what and who is obligated to pay for it. Often, the residential associations are tasked with actually performing work and a portion of the costs are billed to the commercial association or owners. The disputes generally arise over the interpretation of the costs responsibilities, whether notice has to be sent to the commercial owners prior to expenditures being made and requests for estoppel certificates.

disputes generally arise concerning whether a repair fits into a specific category. If it does not clearly fit in one, the commercial association will argue that it is not responsible while the residential association will argue that the commercial association is responsible for its percentage of the repairs. Generally, these disputes are resolved during negotiations. However, they may have to be resolved by a lawsuit.

Another issue is whether the residential association has to notify a commercial association of the charges and costs associated with repairs and maintenance. Most cost-sharing agreements and covenants state that the residential association must give notice to the commercial association. However, they vary on whether notice is required before repairs are undertaken or within a period afterwards. In either event, if the residential association does not notify the commercial association about the expenditures, the commercial association will cry foul. Since quicker reimbursement is always better, residential associations should do their best to give as much notice as possible of expenditures.

One of the final common issues between residential and commercial areas concerns estoppel certificates. The commercial owners are generally able to request estoppel certificates that state whether the commercial units are currently in default of any obligations under the agreement, and whether there are any amounts owed by the commercial property. Estoppel certificates provide a clear and definitive statement about those defaults to aid in the marketability of the commercial property. Generally, the association has 10 days to issue the estoppel certificate. Since the residential association will make certain statements in the estoppel certificate that will be relied upon, it is imperative that the statements be correct. Once it issues the estoppel certificate, it cannot go back on those statements in the future. For example, it cannot say nothing is currently owed in the estoppel certificate when $20,000 is actually owed. If it does, the residential association cannot later argue that the $20,000 is owed.

Who’s paying for those repairs?

The first common issue is whether the commercial property is responsible for paying costs for repairs. The cost- sharing agreement or covenants generally provides that the commercial units are responsible for a percentage of the costs associated with certain categories of repairs. The

Commercial associations generally request “clean” estoppel certificates, which state that nothing is owed and that there are no current defaults in the commercial property’s obligations. While the residential associations have the obligation to quickly turn around accurate estoppel certificates, commercial associations do not have the right to demand a “clean” estoppel

certificate. Instead, they are only entitled to a “clean” estoppel certificate if there are no defaults and there are no amounts owed from the commercial property. An Illinois Appellate Court made that clear in a recent case entitled Excelsior Garage Parking, Inc v. 1250 North Dearborn Condominium Association, 2015 IL App (1st) 133781. Again, actual and accurate communication is key.

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