Most associations have common areas. These can range from simply a detention pond or two and/or maybe a few subdivisions entry signs for a large detached single-family home community on one end of the scale to recreational facilities (such as a clubhouse, pool, tennis courts, etc.), parking lots and lakes used for recreational activities (such as boating, fishing, and swimming) on the other end of the scale. While the type of common area an association has will largely dictate the maintenance, insurance and potentially staffing responsibilities of the association, there are several common issues we have come across that all associations with common areas need to consider which this article will address.
What are the Common Areas?
The first issue with common areas that an association, and the board members running the association, need to address is what are the specific common areas for the association. While this may at first seem like a simple question, the answer is not always straight-forward. What constitutes the common areas of an association is typically identified within the association’s declaration. These could be defined by reference to a specific set of lots (e.g., lots A, B and C on the plat of subdivision), or could instead refer to all areas identified on the plat of subdivision as common areas. Either way, the association will likely need to refer to the recorded plat(s) of subdivision to determine what area(s) are legally part of the common areas that the association is responsible for.
Where we have seen this question cause issues for associations are where an association assumes it knows what the common areas are without referring to the declaration. For example, this could occur with a partially developed community where the association assumes that certain open areas are part of the common area the association is responsible for when, in fact, the developer that created the association never made those open areas part of the common area for the association in the declaration. Therefore, if an association has not already done so, it would be a good idea to verify via the association’s declaration what all the common areas for the association are.
Who Owns the Common Area?
According to most declarations, the association should own the common area. Many declarations even specifically set a date or deadline by when the developer will transfer title to the common areas to the association via deed that is recorded with the county recorder of deeds, with the date/deadline often being by the turnover date or some period shortly thereafter.
However, a common issue we have found with some associations is that while the declaration states that the association is to receive a deed for title to the common areas, this does not always occur. In these cases, for some reason, the developer fails to prepare a deed transferring title to the common areas to the association. When this occurs, the official ownership of the common areas remains in the name of the developer, even if the developer has gone out of business or otherwise moved on. If this failure is not discovered promptly and while the developer is still involved with the association, this can create problems for the association in correcting this which may ultimately require the association to file a lawsuit to obtain a judicial deed for the common areas.
Having recorded title to the common areas in the association’s name is important for a few reasons. Amongst these is that having title in the association’s name may be necessary to properly ensure the common areas, and that without being the recorded title holder, the association likely will not receive relevant notices pertaining to the common areas such as property tax notices.
Thus, if an association does not have a deed showing the association as the recorded owner for the common areas or is not sure if it has such a deed, the association would be prudent to verify that it has been given this title to the common areas by a deed which is recorded with the applicable county recorder of deeds. If no such deed exists, the association would be wise to consult with its attorney to attempt to obtain this deed to make sure the association is shown as the official owner of the common areas.
Are the Common Areas Being Properly Taxed?
According to the Property Tax Code of the Illinois Revenue Act (35 ILCS 200/10-35), association common areas that are used for recreational and other similar residential purposes are to be assessed at a value of $1.00 each year, meaning that the association should not have to pay any property taxes on the common areas. However, we are aware of several associations where the applicable taxing authority incorrectly assessed the common areas at a higher value which resulted in property taxes being charged to the association. While each county handles this issue in a slightly different manner, what is common amongst all the counties we have worked with on this issue is that time is of the essence to correct this issue and delays can be costly for associations. Some counties have a short window of time when assessed value appeals can be filed and if an association misses that window of time, it can be out of luck and forced to pay the property taxes that were levied at the incorrect assessed value rate.
Another significant issue that may arise is that common area property taxes, like property taxes for residences, can be sold if they are not paid by the owner on time. Further, if the sold property taxes are not redeemed by the owner within the allotted time, a tax sale can occur which means that the person that purchased the unpaid property taxes can then become the owner of the property. In other words, if an association’s common areas are improperly charged property taxes and the association fails to pay these and they are sold to a tax sale buyer, the association could eventually lose ownership of the common areas.
Therefore, it is important for an association to verify that its common areas are being properly assessed at a $1.00 value by the applicable taxing authority. Additionally, an association should make sure that the applicable taxing authority has tax bills being sent to the association at a current address for the association. This is important so that the association will be notified should the common area assessed value change in the future.
Regardless of whether an association has significant common areas with multiple recreational facilities or merely one or two open space common areas, it is important for the association to verify that it has legal, recorded title to these common areas and that they are being properly assessed for property tax purposes. If your association is not sure about the answer to any of the questions raised in this article about your common areas or is aware of an issue with your common areas that you need legal guidance with, please feel free to contact our office and one of our attorneys would be happy to assist you.
This article is being provided for informational purposes only. This article does not constitute legal advice on the part of Costello Sury & Rooney. or any of its attorneys. No association, board member or any other individual or entity should rely on this article as a basis for any action or actions. If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office.