March 29, 2016

In the October issue I addressed the Illinois Supreme Court’s latest decision on the Illinois Home Repair and Remodeling Act. I received a very good question from a client who is an architect but also does general contracting and construction management work. The question was does the Act apply to construction managers as advisors to homeowners? The Home Repair Act defines home repair and remodeling as “the fixing, replacing, converting, modernizing, improving or making an addition to any real property primarily designated or used as a residence.” The requirement of a written contract or work order applies to any person engaged in home repair or remodeling. In my opinion this language is broad enough to encompass a construction manager. The better practice would always be to have your contract in writing. As far as the requirement to give the brochure Home Repair Know Your Consumer Rights, I do not think a failure to give this is going to cause a problem in most instances. The reason for my belief on this point is the amendment to the Act which I referenced in my article which now requires the homeowner to show actual damages as a result of a breach of the Act. I think a failure to give the brochure is not going to cause actual damages in almost all cases. One Appellate Court has called this brochure merely a “tip sheet.” Again the better practice is to comply with the Act. However, as the Illinois Supreme Court held in McGinnis, all is not lost if a failure to comply occurs.

Vested Rights – A New Test Applies

If you are a developer can you rely upon a zoning classification from a change in zoning by a municipality after you have purchased the property or entered into a contract to purchase. Under Illinois law a property owner may obtain rights to develop property based upon a prior zoning classification if you in good faith rely upon the probability of a building permit being issued and you sustain a significant change in position based upon making substantial expenditures or incurring substantial obligations. In a recent Illinois Appellate Court decision the Court clarified the nature of the vested rights doctrine. In 1350 Lake Shore Associates v Randall the Court applied a totality of the circumstances test to determine whether or not a municipality is estopped from enforcing a zoning change against a developer based upon a vested rights argument.

In Randall the Court held that expenditure of $272,000 were not sufficiently significant to trigger a vesting of development rights. The Randall Court held that a proportionality test is to be used to determine substantiality. You are to compare the expenditures made to the total project costs. In Randall the $272,000 of expenditures amounted to less than one-half of one percent of the total proposed development cost of $72 million. This was considered insufficient.

The Appellate Court in Randall did not establish any bright-line test for determining substantiality of expenditures. The Court held that in determining substantiality you are to consider the totality of the circumstances. One of the factors to consider is the purchase price of the land. You also make a comparison of the expenditures incurred to the total projected cost of the development. You also consider the nature or character of the person or entity seeking to develop the property and any other factors that are deemed relevant. No single factor is controlling and each case presents a different factual setting that has to be assessed base upon its own facts to determine whether substantial expenditures have been made.

The Randall decision may make it more difficult for a developer to succeed on a vested rights claim. The developer’s expenditures will no longer be considered in a vacuum. An analysis must now be made of all of the relevant factors to determine if expenditures are substantial. It does seem appropriate to examine the totality of the circumstances in determining if it is unfair for a municipality to be allowed to change a zoning classification and make it apply to a particular development proposal. It will be interesting to see how the courts apply this “new test” to various factual situations as they arise.