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January 26, 2001

No. 3--00--0329

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2001

FACTS

The Association is the governing body of a condominium apartment complex located on 38^th Street in Rock Island, Illinois. Under its bylaws, the Association assesses its members a monthly fee of $88.23 to cover the costs for general maintenanceand repair of the condominium facilities. Members who fail to pay the assessment on a timely basis are charged a late feeof $25.

Crooks owned a unit in the complex and was a member of the Association. On October 13, 1997, she paid the Association$1,176 in assessment fees. The payment covered approximately 14 months of fees from December 1996 through January1998. However, because she failed to make each monthly payment on a timely basis, the Association charged Crooks a latefee for every month she had failed to pay the assessment. Crooks was charged $25 for the first month and an additional$25 for every month thereafter. The Association's records for 1997 indicated that Crooks was charged a $225 late fee forthe payment due in January 1997, a $200 late fee for the payment due in February 1997, a $175 late fee for March, andsimilarly calculated late fees for each month thereafter until the October payment was received. Crooks made lump sumpayments toward assessment fees in 1998 and 1999 as well. Additional late fees were charged.

On August 25, 1999, the Association filed suit against Crooks seeking to collect overdue assessment fees and late chargesfrom 1997 through 1999. After hearing arguments, the trial court entered judgment in favor of the Association. Crooksappeals.

STANDARD OF REVIEW

Our review of the trial court's order granting the Association's request for past due fees involves only a question of law. Therefore, we apply a de novo standard of review. See P.R.S. International, Inc. v. Shred Pax Corp., 184 Ill. 2d 224, 703N.E.2d 71 (1998).

DISCUSSION

On appeal, Crooks claims that the late charges assessed by the Association are unenforceable penalties.

Pursuant to the Condominium Property Act (Act) (765 ILCS 605/9(a) (West 1998)), it is the duty of every unit owner in acondominium association to pay her proportionate share of the common expenses. Section 18.4 of the Act further providesthat the board of managers may impose charges for a unit owner's late payment of those expenses. 765 ILCS 605/18.4(l)(West 1998). In general, a plaintiff is only entitled to recover damages under a contract theory to the extent provided bythe terms of the written instrument. However, if the purpose of the clause fixing damages is merely to secure performanceof the agreement, it will be not be upheld. Stride v. 120 West Madison Building Corp., 132 Ill. App. 3d 601, 477 N.E.2d1318 (1985). An agreement setting damages in advance of a breach is an unenforceable penalty unless: (1) the amount sofixed is a reasonable forecast of just compensation of the harm that is caused by the breach; and (2) the harm caused isdifficult or impossible to estimate. United Order of American Bricklayers and Stone Masons Union No. 21 v. ThorliefLarsen & Son, Inc., 519 F.2d 331 (7th Cir. 1975). The unreasonable nature of the sum provided is sufficient grounds forfinding that the sum was intended to be a penalty. United Order of American Bricklayers, 519 F.2d 331.

According to the Association's bylaws, members are charged $25 for each month an assessment fee payment is late. Thenecessary expenses and administrative costs of pursuing the late assessment fee as well as lost interest income on the feecould reasonably equal the late charge.

Although this initial charge seems reasonable, the piling on of an additional $25 per month for each month the assessmentfee goes unpaid is unreasonable. For example, in 1997, Crooks didn't pay her January assessment until October. She wascharged $225 or nine months of continuous late fees against her January assessment. That sum equals a 255% return on aninitial $88.23 fee. Those costs necessary to maintain a past due account would not increase at the same nominal rate forevery month beyond the initial month of late payment. Not even the loss in income from the interest on the assessment feerequires such a late charge. Typically, an interest charge to recover the lost value of money ranges between 5% and 10%. To demand an interest rate in gross excess of this amount is unnecessary and does not reasonably relate to any recoverableexpense of a late payment. Thus, we must assume that the compounding nature of the late charge is merely an attempt tosecure timely payment of the assessment fee.

In sum, we find that a cumulative late charge is an unreasonable charge for failure to pay one monthly assessment fee. However, we hold that a one-time late charge of $25 would be reasonable. Consequently, we find that the charge agreed toin the Association's bylaws is an unenforceable penalty. Accordingly, we reverse the trial court's decision ordering Crooksto pay the Association $1,696.21 in past due assessment fees and late charges. We remand to the trial court for a hearing todetermine the amount of late charges. The judgment entered should be reduced accordingly.

For the foregoing reasons, the judgment of the circuit court of Rock Island County is reversed and remanded for furtherproceedings consistent with the opinion expressed herein.

Reversed and remanded.

LYTTON and BRESLIN, JJ., concur.