Michigan condominium associations are governed by various documents: the Articles of Incorporation, the Master Deed, the Condominium Bylaws, the Association (Corporate) Bylaws and any Rules and Regulations meant to implement the Bylaws. In order to avoid confusion, many condominium attorneys in Michigan combine the Condominium Bylaws and the Association Bylaws into one document, however many older documents still include both sets of Bylaws. For purposes of this article, the terms “Bylaws” will refer to the Condominium Bylaws.
When determining whether to amend their governing documents, many associations want to know, “When should we amend the documents for our Association?” and “How do we amend the documents for our Association?” Part One of this two-part series addresses when to amend your Michigan condominium documents. Part Two will address how to amend your Michigan condominium documents.
When Should My Association Amend its Condominium Documents?
There are five main times when your association should amend its governing documents.
1. The Articles of Incorporation are Dated Prior to January 15, 2015
In 2008 and 2015, the Michigan legislature made major revisions to the Nonprofit Corporation Act, MCL 450.2101, et. seq., Act 162 of 1982. In a previous article titled Six Major Revisions to the Michigan Nonprofit Corporation Act: Should Your Condominium Association Revise its Articles of Incorporation and Bylaws?, we addressed the major changes to the Nonprofit Corporation Act and how those provisions affect the governance of condominium associations in Michigan. A few examples of the changes include, 1) participation in meetings by electronic means, 2) voting by electronic means, 3) additional limitations on director and officer liability, 4) new requirements for the inspection of association records, 5) the ability to create nonexecutive committees and 6) new changes to the requirements for mergers and dissolutions.
Given these recent changes, our office recommends reviewing your association’s Articles of Incorporation, which can be obtained by going to the State of Michigan’s Department of Licensing and Regulatory Affairs website. Frequently, it is necessary to update Articles of Incorporation with provisions, amongst other things, that include the following: limitations of liability for officers and directors, indemnification, taking action without meeting and electronic voting.
2. The Master Deed and Bylaws were Written Prior to 2001
Prior to 1978, Michigan condominiums were governed by the Horizontal Real Property Act of 1963. In 1978, the Michigan legislature repealed the Horizontal Real Property Act and replaced the statute with the Condominium Act, MCL 559.101, et. seq., Act 59 of 1978. Any Master Deed or Bylaws drafted prior to 1978 should be immediately reviewed and amended to reflect changes in Michigan law.
In addition, in 2001 and 2002, the Michigan legislature made significant amendments to the Condominium Act. If your Master Deed and Bylaws were written prior to 2001, there is a strong possibility that your documents are outdated or do not reflect the current changes to the Condominium Act. Thus, we recommend that any Master Deed or Bylaws drafted prior to 2001 should be reviewed and amended, if appropriate.
3. The Master Deed and Bylaws were Written by the Developer’s Attorney
In a prior article titled Transitioning from Developer Control to Non Developer Co-owner Control: Five Practical Steps Every Condominium Should Take, we emphasized the need for every association to review its governing documents once control from the Developer passes to the Co-owners. Often times, the Developer’s attorney drafts the Master Deed and Bylaws to protect the Developer instead of protecting the association. The Developer’s goals are primarily to sell units and complete the project, instead of focusing on how the association will be managed after the Developer no longer has any units in the project. We typically advise clients that the attorney for the Developer drafts the condominium documents “by the Developer, for the Developer.” For example, in many of these documents, the Developer retains rights to grant easements, amend the governing documents, not pay association assessments, etc. In addition, one hot area for Developers recently is to include ‘anti-litigation clauses’ to create significant hurdles for an association to file construction defect cases against the Developer. Many of these provisions do not protect the association and should be immediately removed from the Master Deed and Bylaws after the transitional control date from Developer control to Co-owner control.
4. The Master Deed and Bylaws Do Not Address Recent Technological Improvements
Many current Master Deeds and Bylaws were drafted at a time when current technological advancements did not exist or were in their infancy. For example, numerous recent advancements such as drones, electric vehicles, electronic voting, remote participation at meetings, internet use and security, smart phones, social media and solar panels are simply not addressed in most current condominium documents. Earlier this year, Kevin Hirzel in my office wrote an article titled The Future is Now: Is Your Condominium Association Prepared to Handle These 6 Technological Advances? Mr. Hirzel’s article highlights how other states are addressing these technology issues and how many of these issues are already here in Michigan. Our office recommends that associations be proactive rather than reactive to technology changes. Thus, every association should discuss the pros and cons of updating the association’s governing documents to address such technology issues.
5. The Master Deed, Bylaws or Condominium Subdivision Plan Contain Contradictory, Incomplete or Unclear Provisions
There are times when the Master Deed and Bylaws contain contradictory provisions, the documents are incomplete or the documents fail to address a particular issue. For example, what happens if a provision in the Master Deed conflicts with a provision in the Bylaws? Which provision takes precedence? As a recent example, a condominium’s Bylaws stated that the front doors to each unit were the responsibility of the association, whereas the Master Deed stated that the doors were the responsibility of each individual Co-owner. Often times, poorly drafted documents lead to seemingly contradictory results and associations will need to seek legal guidance in the form of an ‘Opinion Letter’ as to the rights and responsibilities of the association and its Co-owners. As another example, what happens when the Master Deed indicates that the condominium comprises 150 units, but the Subdivision Plan attached to the Master Deed only indicates 140 units? This could impact the percentages of value assigned to each unit and voting rights. Such conflicting provisions should be corrected immediately.
A second issue occurs when the condominium documents fail to include specific provisions that could benefit the association. For example, an association may be faced with issues that require additional funds, such as replacing old decks or addressing increased costs for snowplowing due to significant and unexpected snowfall. Simply, certain condominium documents do not include the ability to levy “special” and/or “additional” assessments. The inclusion of provisions addressing how special and/or additional assessments operate and may be imposed is important. As another example, some condominium documents do not allow for Co-owners to be fined. Often, the Board of Directors will want the ability to fine non-compliant Co-owners for violating the condominium documents as permitted by MCL 559.206(c). It is not fair for all Co-owners to have to pay the legal fees to force another Co-owner to comply with the condominium documents. Simply, the condominium documents should contain enforcement mechanisms including injunctive relief, the ability to obtain monetary damages and the ability to assess any damages or legal fees against the offending Co-owner’s unit. Again, incomplete condominium documents should be revised to address such concerns.
Finally, it goes without saying that unclear provisions should be clarified. There is no reason to open the association up to a lawsuit due to unclear or ambiguous interpretations.
In deciding whether your association should amend its Articles of Incorporation, Master Deed, Bylaws or Condominium Subdivision Plan, the first step is to consider the dates of when the association’s documents were created. The older the documents, the greater the likelihood that the documents should be updated to reflect current Michigan law. Once the determination is made that updating the documents is appropriate, the second step is to find competent legal representation to assist the association through the amendment process. Part Two of this series will address how the amendment process works, including both practical and legal considerations.
The team at Hirzel Law, PLC is composed of award-winning real estate attorneys that can offer quality representation for Michigan clients. Regardless of if you are a commercial real estate developer or individual homeowner, our real estate attorneys can help. We fully understand how unique and complex the challenges that our clients may face, and our real estate attorneys are prepared to help in whatever way necessary. Contact Hirzel Law online or call 248-986-2921 (Farmington) or 231-486-5600 (Traverse City) or 616-319-9964 (Grand Rapids) to learn how our Michigan real estate lawyers can help protect your Michigan real estate investment today.