Condemnees Be Advised: Illinois Requires Ownership and Beneficiary Disclosures to Settle Takings

In passing the Public Officer Prohibited Activities Act, the Illinois legislature included a statutory provision requiring any entity entering into a contract with the State of Illinois or local government relating to the ownership and use of real property to disclose ownership and beneficial interest-holder information related to the property. Such a disclosure, especially when examined under the lens of anti-corruption efforts, is understandable when a business and governmental body voluntarily elect to enter a contract in furtherance of some legitimate business goal. However, the statute requires such disclosures even in agreements related to condemnation efforts in which the government unilaterally elects to take private property. It is indisputable that the government must take certain property by eminent domain for valid public purposes, but the statute, as implemented, compounds the impact of a taking on Illinois real estate investors by requiring disclosure of confidential, and commonly extremely sensitive, ownership and beneficial interest-holder information. This can be a difficult proposition for owners and beneficial interest holders to understand and agree to when they had no choice in becoming involved with the taking efforts.

The statute directs:

Before any contract relating to the ownership or use of real property is entered into by and between the State or any local governmental unit or any agency of either the identity of every owner and beneficiary having any interest, real or personal, in such property, and every member, shareholder, limited partner, or general partner entitled to receive more than 7 ½ % of the total distributable income of any limited liability company, corporation, or limited partnership having any interest, real or personal, in such property must be disclosed. . . . However, if the interest, stock, or shares in a limited liability company, corporation, or general partnership is publicly traded and there is no readily known individual having greater than a 7 ½ % interest, then a statement to that effect, subscribed to under oath by a member, officer of the corporation, general partner, or managing agent, or his or her authorized attorney, shall fulfill the disclosure statement requirement of this Section. . . . This Section shall be liberally construed to accomplish the purpose of requiring the identification of the actual parties benefiting from any transaction with a governmental unit or agency involving the procurement of the ownership or use of real property thereby. For any entity that is wholly or partially owned by another entity, the names of the owners of the wholly or partially owning entity shall be disclosed under this Section, as well as the names of the owners of the wholly or partially owned entity.

50 ILCS 105/3.1.

At first blush, the statute appears to be a straightforward attempt by the government to meet the goals of the Public Officer Prohibited Activities Act by ensuring public disclosure of any public officer standing to benefit from a contract with the state relating to real property. See 50 ILCS 105/3. However, the statute is not so narrowly tailored only to require disclosure of such public officers, for instance by affidavit. Instead, the statute requires disclosure of anyone with the described interests, including private individuals and entities who made their investments with an expectation of privacy.

Exceptions to the reporting requirement are also limited, and inapplicable to most entities. More specifically, unless the company owning the property happens to be publicly traded, or wholly owned by a publicly traded company, and no readily known individual holds more than a 7.5 percent interest in the publicly traded company, or no member, shareholder, or partner receives more than 7.5 percent of the distributable income of an entity wholly or partially owning the property, the entity or entities with ownership or beneficial interests must be disclosed as part of a condemnation settlement. The only option to avoid such a disclosure is to proceed to judgment through litigation, which is costly to the property owner and taxpayers, as well as burdensome to the courts.

The Illinois courts have hardly mentioned the statute, except for one unreported case acknowledging, without any discussion, that such a disclosure was made. However, the legislature left the door open for courts to require far-reaching disclosures by including the express direction that the Statute is to be “construed liberally.” That direction, read with the last sentence, provides an argument that a disclosing entity is not just required to disclose any direct owner and beneficial interest-holder, but also the ownership/control structure to disclose any member, shareholder, or partner which is entitled to receive more than 7.5 percent of the distributable income of an owner or beneficial interest-holder. The liberal construal language also provides an argument that even agreed judgments or agreements for owners to sell the portion being taken for a mutually agreeable sum prior to a condemnation action would constitute contracts requiring such disclosures. Therefore, parties who wish to avoid disclosures must go through the motions of an opposed dispute, costing taxpayers and condemnees more money than a simple settlement agreement. The governments pursuing condemnation actions have taken this viewpoint—no settlement without a disclosure.

Sophisticated real estate developers and investors, whether small business owners or small real estate investors, or large investment entities, frequently use multi-layered business structures to protect the extremely sensitive identities of their investors, which may include recognizable individuals, pension funds, and foreign and out-of-state governments. These investors have an expectation that their identities will be protected. Forcing such disclosures when the government elects to take all or a portion of property could serve to discourage investment in Illinois and any state with a similar rubric, which in turn impedes developments that would boost the economy and provide jobs.

The legislature would do well to pay heed to the detrimental impact of the anti-corruption statute and consider whether it should be applied so strictly to settlements in condemnation actions, as well as if the statute could be narrowed to require only the disclosure of public officers up the ownership structure.