Michigan Condo Act Demystified
A good place to start our discussion is with a brief overview of the statute itself. The Michigan Condominium Act, 1978 PA 59, MCL 559.101 et seq., is a legislative enactment designed to address the establishment and operation of condominiums. As such, it provides developers and unit owners with a uniform scheme for dealing with the rights and obligations relevant to the operation of a condominium.
The Condominium Act consolidates and updates multiple chapters of previous Michigan legislation concerning condominiums. It is the most comprehensive and extensive legislative scheme concerning the regulation of condominiums . The object of the statute is to provide a clear and practical legislative means to assure the orderly development and operation of condominium projects.
Fundamentally, the law provides the legal framework for common interest ownership developments. This is typically an apartment, townhome or detached home community that merges general common elements and limited common elements with privately held lots or units. The law includes provisions regulating the formation of condominium projects on waterfronts or inland sites, whether developed or to be developed, as residential condominiums or commercial property or both. A condominium may have residential units, commercial units, or a combination of both types of units.
Provisions of the MI Condo Act
The Michigan Condominium Act serves as a foundational legal framework that governs the establishment and use of condominiums throughout the state. Broadly speaking, it establishes the legal ground rules which are basic and common to all condominiums. The Act governs the development of a condominium, including specific requirements like developing a plat and filing for a Master Deed. It also requires condominium owners to comply with the documents which govern their association, including the Master Deed and Bylaws. The Act sets forth a detailed list of the rights and responsibilities of unit owners. Moreover, part of this list includes the disclosure of condominium documents, including production of a Master Deed, Bylaws and Association Rules and Regulations as well as sub-association documents for every unit in a condominium. In addition, the Act provides clear requirements for notice and procedures for voting within a condominium association. The Act has a full section on the creation and administration of associations for the general governance of a condominium. Other key provisions of the Act include:
Condo Unit Owners’ Rights and Obligations
Condominium owners do not have the unfettered right to determine what happens to their property. Michigan law imposes duties and gives rights to owners through the contractual arrangements of the Master Deed and Bylaws.
To maintain the condominium development, these documents impose dues on owners. These dues (also called assessments) are calculated from the annual expenses of the condominium as provided in the Master Deed. In addition to the costs of general maintenance, repair, and replacement of the common elements and limited common elements, dues may go towards paying for management services, utilities, insurance, legal work, dues on common property owned by a bank or other third party, and reasonable reserve funds. Dues are calculated proportionately based on the square footage of the unit. The amount of assessments is determined at least annually by the Board of Directors of the condominium association.
The Master Deed and Bylaws also provide condo owners with voting rights. Owners elect the members of the Board of Directors plus any other members who serve on committees (like the Architectural Control Committee). While generally owners of a residential unit receive one vote per unit, larger units get additional votes. Certain decisions made by the Board require the vote or approval of a super majority, such as the adoption of new rules or regulations, and the termination or abandonment of a condominium project. Owners may vote on additional issues involving their interests, like a merger with another condominium association.
Reserving rights to use the common elements (i.e., private balconies, ponds, swimming pools, tennis courts, and clubhouses) comes with the duty to maintain and repair these same items. Owners and their guests have the right to use the common elements, but they must act reasonably. The Master Deed may prohibit certain uses including laundry drying, outdoor storage, and parking. To ensure the areas for parking are not blocked, most Master Deeds provide that owners must park only in designated, marked areas. In addition, some associations require owners to pay a fee if they regularly use the amenities.
Board of Directors and Administration
The board of directors, along with officers and committees, make up the governing body of a Michigan Condominium. Pursuant to Section 340.107a of the Michigan Condominium Act ("Condo Act"), "the board of directors shall be responsible for the administration and operation of the condominium project…" A Condominium’s bylaws and articles will also contain terms regarding the type of board (i.e. elected versus appointed) and terms regarding committees. As a general rule, any duties not imposed on the developer in the Condominium Act or in the Condominium bylaws are committed to the Board of Directors.
The Condo Act requires the board to attend to many administrative tasks including but not limited to: collecting assessments, paying bills, preparing budgets and employing necessary personnel for the care, maintenance and operation of common elements and other property of the Condominium. Governance matters are generally contained in the bylaws. The Condominium Act leaves a fair amount of discretion in the hands of the board in terms of governance. The boards’ ability to conduct business is limited to specific areas in the operating documents of the Condominium (bylaws, articles of incorporation and master deed) and to those areas otherwise regulated under the law.
Pursuant to Section 340.1050(4) of the Condo Act, "the powers of the board of directors shall be exercised in the manner delegated by the articles of incorporation, master deed and bylaws…." Accordingly, if the condo bylaws delegate decision making authority to a certain body (like an architectural committee, master association or board), that determination will control. For example, many master association agreements permit the directors of the condominium association to control the selection of the members of the master association. Or, another example, the bylaws do not prohibit members from exercising a right of first refusal to purchase common elements as defined in the bylaws. Nevertheless, pursuant to the Condo Act, the board has an obligation to assess whether the exercise of the right of first refusal violates the law in any way. The right must not be "arbitrarily or discriminatorily exercised". The right must not be used as a pretext to prevent a particular person from becoming a member. Furthermore, while Articles may typically address officer elections and the nomination process, the articles may not negate Michigan statute regarding the election of board members.
The powers of the board of directors, unless specifically limited by the articles or bylaws, include but are not limited to:
The exercise of the board’s powers is subject to judicial review. If a board fails to exercise its power or exercise its power in an arbitrary or capricious decision, then a member may, pursuant to Section 452.4503 of the Conditional Real Estate Development Act ("CREDA"), seek to compel performance, restrain the improper performance or recover damages.
Resolving Conflicts under the MI Condo Act
As a creature of statute, the Michigan Condominium Act provides mechanisms for dispute resolution between owners and associations. The Act requires mediation for grievances made against an owner by the Association’s Board of Directors if a written request is made. MCL 559.206(6). The parties are to mediate within 30 days after the board’s receipt of the request for mediation, unless they mutually agree otherwise. Id. If the board fails to comply, it is barred from bringing the failure to collect assessments as a counterclaim in any lawsuit. Id. (In other words, the measure is self-executing, and litigants need not bring the mediation issue before the court for enforcement.)
Mediation is not a prerequisite, however, for disputed assessments, which may be pursued through arbitration if there is an arbitration provision in the declaration. MCL 559.206(3).
If there is no arbitration provision in the declaration, the Act permits the court to order arbitration of any court action involving disputed assessments or architectural decisions made by the association’s board. Id. In determining whether to refer a dispute to an arbitrator, the court is required to weigh the favorability of arbitration’s finality, speed and lower costs. Id . Arbitration proceedings are governed by the agreement between the parties, but if no such agreement exists, arbitration is ordered according to the code of alternative dispute resolution act. MCL 559.206(7).
Owners and associations can also consider the option of submitting disputes to small claims court, which can be less time-consuming once the matter has been litigated and appealed through the circuit court.
As a general rule, the Act limits an association’s liability for torts arising from the common elements and provides that the association is not liable for any act, omission or negligence of a unit owner or other occupant of the condominium. MCL 559.157.
The Act also provides that a condominium development and any of its components may be foreclosed upon and sold if certain criteria are satisfied. MCL 559.164. The law enumerates the components of the condominium and provides a number of conditions which must be satisfied in connection with foreclosure and sale.
Parties often incur attorney fees in the total amount of the claim(s) asserted and defend. The Michigan Condominium Act provides that litigation costs, including reasonable attorney fees, that an association incurs are a lien on each unit against which the litigation was commenced. MCL 559.208(9).
Key Amendments and Changes to the MI Condo Act
Several amendments to the Michigan Condominium Act were made in 2017, and they focus on a few key areas within community associations. One significant change is that the Act has a preference towards electronic notice of board meetings. While the boards are not required to use this method of notification, they must still provide owners with an option upon request.
There was also a provision added into the Act that states a unit owner has the right to request a fine hearing if a board imposed a fine for a violation of the bylaws, rules or regulations. The fine hearing must take place within 14 days of the board making the request and within 1 year of the alleged violation occurring. This is a major change from the previous version of the Act, where the right to a fine hearing was unclear and many associations were not providing them for owners.
Another change within that same section of the Act is that a board must provide a unit owner notice of its intent to foreclose a lien. The board must notify owners within 30 days of recording a lien on an owner’s property.
Finally, the amendments also clarify insurance coverage to include fire and casualty insurance policy coverage that is written exclusively on a blanket, agreed value or guaranteed replacement cost basis. These changes have become effective on January 6, 2018.
Condo Act and the Real Estate Industry
The Michigan Condominium Act, enacted in 1978, fundamentally reshaped the landscape of real estate development in the state. Gracefully nestled between single-family homes and commercial properties, condominiums emerged as a viable alternative, filling a critical gap in the housing market. This legislation opened the doors to an entirely new way of ownership, fundamentally changing the real estate panorama of Michigan.
Over the years, the legislation was updated, first less than a decade after the original Act came into law. A more significant revision took place in 2001, streamlining the formation and management of condominiums and addressing certain loopholes that had been identified over the years. This latest version places a strong emphasis on the responsibilities of the condominium developer – from compliance with local zoning laws to mandatory disclosures about the state of the property to the disclosure of any condition that may affect property value.
For the real estate development community, this Act was a game changer. It presented an alternative for developers – the ability to offer condos to individuals rather than large plots of land. As a result, many developers quickly began to change gear from single-family homes to multi-family properties; and, before long, condo developments became quite common.
For property managers, the Act created a unique business identity – one that requires specialized knowledge about the ownership of divided and undivided interest. These endeavors run the gamut from fee management to maintenance to overseeing the membership of the associations created by the Act. All owners are part of a community association, and this requires the added layer of organization for oversight. For those who have always stayed on top of the legal changes, these tasks are almost second nature, but they require a different approach when starting a property management business.
For the general public, the benefits of this legislation are many. With half the price tag of a single-family home, it made home ownership affordable to more families than ever before. At the same time, it alleviated some of the tremendous demand for land for development. Developers gained an alternative to the single-family housing market, and buyers had an alternative to paying for lots large enough for a farm.
The Michigan Condominium Act also addresses the looming issue of building codes, requiring compliance with all the usual rules and regulations. Developers make great efforts to bring their properties up to code by meeting all the same standards for homeownership. While builders were often responsible before the Act, it spelled out clearly what was required of developers in multiple areas.
In short, the Michigan Condominium Act has influenced the real estate market in Michigan greatly over the decades thanks to the positive impact it had on affordable housing in Michigan.
Condo Purchasing and Development Advice
The Michigan Condominium Act is a set of complex rules, put into place in 1978, that were designed to provide rights to condominium purchasers and owners. However, because the rules are more concerned with protecting owners than developers (by design, of course), condominiums with poor management oftentimes have to scramble to find one that understands the Act, and will work toward compliance. Between enforcing provisions for utilities and insurance, to requiring up-to-date surveys and the proper types of documents for the type of project involved, the list of requirements can seem overwhelming . Understanding the complexities of the law through careful review is paramount to compliance, and should be part of the legal review for potential condo buyers and developers interested in these types of real estate.
These recommendations may help in ensuring compliance with the key provisions of the Michigan Condo Act: A private attorney may identify loopholes and gaps in the subject association documents that may put the potential purchaser or developer at risk. These may become apparent by a comprehensive review conducted in conjunction with up-to-date surveys, deeds, deeds on other title and any other documents that affect the property being purchased or the development of the condominium.