The Lion in Winter (and Summer, and Fall, and Spring): Summer Resort Associations in Michigan

Introduction

As this article is written, the first significant ice storm of winter 2015-2016 has just blown through Michigan leaving icy roads, downed powerlines, and numerous traffic accidents. Of course, this is the perfect time to turn to summer and dream about the potential purchase of a picturesque home sitting on one of Michigan’s beautiful lakes. For many who live in Michigan having a summer home is a way of life. Due to its abundance of beaches and water-front property, Michigan has a long tradition of attempting to assist its residents in ensuring that land acquired for recreational purposes is maintained and used as intended. Many of the statutes originally enacted to address these issues, however, are over 100 years old, and numerous aspects of these statutes are either incompatible with how many residents view property ownership or rely on the delegation of certain powers which may be ill-suited for private individuals. At the same time, a review of these statutes identifies certain characteristics which could be used today. The powers described below should be viewed with caution, however, for if such power falls into the wrong hands, it could turn any summer vacation dream into a nightmare.

 Discussion

Michigan has enacted several statutes related to corporations created for the purpose of summer resorts and park associations. Each of these statutes is contained in Chapter 455 of the Michigan Compiled Laws, and almost all of these statutes are well over 100 years old. The summer resort and park association statutes enacted in Michigan are:

Unlike corporations created under the Michigan Nonprofit Corporation Act, MCL 450.2101, et seq., the Michigan Business Corporation Act, MCL 450.1101, et seq., applies to a summer resort association (unless otherwise provided for or inconsistent with the particular act under which the corporation was formed). See MCL 450.1123. Further, though similar, each of the different types of corporations formed under Chapter 455 contain their own unique characteristics. Some of these characteristics are not usually considered to be connected with a private organization, including the police power, the power to condemn, and the power to create a private government.

  1. MCL 455.1, et seq., Act 230 of 1897, Summer Resort and Park Associations

Act 230 of 1897 (“Act 230”) allows any number of persons, not less than 5, to form a corporation for the purpose of owning, maintaining, and improving lands “for the purpose of a summer resort or a park for ornament, recreation, or amusement . . . .” MCL 455.1. This authority extends to the ownership, maintenance, and improvement of lands contained in any city, village or township of Michigan, “or of any adjoining state.” Id. As may be expected with a corporation, property is owned by the corporation (instead of the individual) and each stockholder owns a percentage of the corporation. MCL 455.3. The corporation may not own more than 700 acres of land. Id. Each stockholder is able to cast one (1) vote for each every share owned of the company. MCL 455.5. The corporation is administered by a board of directors which is elected from the stockholders of the corporation. MCL 455.9. Significantly, the capital stock of the corporation is considered personal property, and the corporation has a lien against the stock for the repayment of debts owed to the corporation. MCL 455.14. Depending on the by-laws, lots may be assigned to a particular share (or shares) of stock. MCL 455.21. The real property is owned by the corporation, but if the corporation is dissolved, then the lot associated with particular shares is to be received in fee by the person who owns the share(s). MCL 455.21.

The board of directors has management and control of the business of the corporation, including all property, real and personal, and also has “jurisdiction over the lands of the corporation and all streets, alleys, and highways passing through and over the same . . . .” MCL 455.10. The board of directors is authorized to adopt “reasonable by-laws” as they “shall deem proper for the management, control and disposition of the property, affairs and concerns” of the corporation. MCL 455.12. These by-laws also may empower the board of directors to, inter alia, “prohibit and abate all nuisances,” and prohibit the transfer of corporate stock “without the consent of the board of directors.” Id.

  1. MCL 455.51, et seq., Act 39 of 1889, Summer Resort and Assembly Associations

Act 39 of 1889 (“Act 39”) allows any number of persons, not less than 10, to form a corporation for the purpose of purchasing and improving lands to be occupied for summer homes, camp meetings, for meetings of associations organized for scientific or intellectual culture and for the promotion of religion and morality. MCL 455.51. Such corporation may own up to 1000 acres of land. MCL 455.54.

Similar to a corporation organized under Act 230, a board of trustees, to be elected from the members of the corporation, has “jurisdiction over the lands of the association, the streets passing through and over the same and the water within or in front thereof . . . .” MCL 455.58. In addition, the board of trustees is authorized to “make such orders and by-laws relating to . . . the business and property of the association as shall seem proper . . . .” MCL 455.59. Any schools or churches located upon the grounds of the corporation are exempt from taxation. MCL 455.64. Real estate taxes are paid by the corporation, and a board of assessors to be elected from the members of the corporation are responsible for assessing the amount of such taxes to be paid by each particular member. MCL 455.68 to 455.71. None of the foregoing provisions should be considered extreme, though some may be unique. At the same time, however, Act 39 contains numerous provisions which empowers a corporation to utilize powers generally considered to be reserved to the state. For example, Section 10 of Act 39 states that:

Any person who shall violate any of such by-laws . . . shall be deemed guilty of a misdemeanor, and upon conviction . . . shall be punished by a fine . . . or imprisonment in the county jail not to exceed 30 days . . . .

MCL 455.60. In addition, and “for the preservation of peace and good order,” Section 11 of Act 39 authorizes the corporation to appoint a marshal who:

shall have all the powers conferred upon, and the duties required of, constables elected under the general laws of this state, for the preservation of peace and good order upon the grounds of the association . . . .

MCL 455.61. Among the powers vested in the marshal is the “authority to take any person arrested, before the district or municipal court . . . in which association lands are situated.” MCL 455.62. Further, any person who willfully cuts or injures any tree, shrub or plant” upon corporation grounds or who deposits any “filth or impurity” in any water upon such corporation grounds “shall be deemed guilty of a misdemeanor and shall be subject to imprisonment in the county jail not to exceed 30 days.” MCL 455.63.

In the exercise of its powers and the adoption of by-laws, however, the corporation’s powers and obligations are to be suspended “so far as the same shall conflict or interfere with” the powers and duties of the municipality in which the lands of the corporation are located. MCL 455.65.

  1. MCL 455.101, et seq., Act 69 of 1887, Suburban Homestead, Villa Park, and Summer Resort Associations

Act 69 of 1887 (“Act 69”) allows any number of persons, not less than 5, to form a corporation for the purpose of purchasing, holding, improving, and disposing of lands or lots for suburban homesteads or for a villa park or summer resort. MCL 455.101. Such corporation may hold up to 320 acres of land. MCL 455.104.

The affairs and property of the corporation are to be managed by a board of trustees, who may “make all necessary by-laws, rules and regulations for such purpose . . . .” MCL 455.103. The corporation is authorize to acquire and sell lands, and the corporation is also authorized to distribute among the owners of lots subject to the corporation’s jurisdiction certain proceeds resulting from the sale of land owned by the corporation. MCL 455.106.

Similar to language contained in Section 13 of Act 39, Section 11 of Act 69 makes it a misdemeanor to “willfully cut or injury any trees, shrub or plant” on grounds subject to the corporation’s jurisdiction, with such misdemeanor subjecting the violator to 30 days imprisonment. MCL 455.111. An action for enforcement of such a penalty may be brought in the name of the People of the State of Michigan “upon the complaint of the trustees of the association or an individual member thereof . . . .” Id. A violation of Section 11 also subjects the violator to a separate claim for trespass. Id.

  1. MCL 455.201, et seq., Act 137 of 1929, Incorporation of Summer Resort Owners

Act 137 of 1929 (“Act 137”) allows any number of persons, not less than 10, to form a summer resort owners corporation for the welfare of the community and the purchase and improvement of lands to be used for such purposes. MCL 455.201. Such corporation may hold up to 320 acres of land. MCL 455.204. As of January 31, 2006, there were 124 corporations organized in Michigan under Act 137.

Act 137 contains several provisions which appear to expand upon the police powers conferred upon corporations formed under Act 39 and Act 69. Specifically, Section 4 of Act 137 expressly empowers a corporation formed under Act 137 with the powers of a municipality:

the persons so associating . . . shall become a body politic and corporate, . . . and shall have and possess all the general powers and privileges and be subject to all the liabilities of a municipal corporation and become the local governing body.

MCL 455.204. Further, the corporation has the “jurisdiction over the lands owned by the corporation and over the lands owned by the members of said corporation for the exercise of police powers herein conferred[,]” MCL 455.211, the board of trustees has the authority to enact by-laws, MCL 455.212, and the power of the board of trustees is “subject only to restrictions or limitations imposed by the by-laws . . . and any special restriction or limitation imposed by a vote of the members at any annual or regularly called special meeting.” MCL 455.210. As with Act 139, a violation of the corporation’s by-laws is “a misdemeanor and upon conviction thereof” such violator shall be punished “by a fine not exceeding 25 dollars or imprisonment in the county jail not to exceed 30 days.” MCL 455.214. In addition, and similar to the authority granted under Act 39, Act 137 authorizes the corporation to appoint a marshal, though the marshal’s responsibility is to enforce the corporation’s by-laws:

The board of trustees may appoint a marshal, whose duties shall be to enforce the by-laws of said corporation. Said marshal shall have the authority of a deputy sheriff in maintaining the peace and order and the enforcement of law on the lands under the jurisdiction of the corporation, and in addition thereto shall be vested with authority to make arrests, in accordance with law, for the violation of the by-laws of said corporation.

MCL 455.215.

Further, while the corporation is limited to the ownership of 320 acres, this limitation is not to be construed “to limit the area of its jurisdiction to exercise the police power herein conferred over lands of its members.” Id. In addition, Act 137 contains a provision which could be used to block efforts by a local municipality to annex the corporation. In the event a city or village seeks to annex any portion of the lands owned by the corporation and its members, such land could only be annexed upon a 2/3 majority vote of all of the members of the corporation at a regular or special meeting of the corporation. MCL 455.218.

Finally, the police power is not the only power conferred upon the corporation by Act 137. Act 137 created a power similar to the power of annexation, though such power has been deemed unconstitutional and is, therefore, presumably unenforceable. Nonetheless, Section 6 of Act 137 appears to vest the corporation with the power to acquire territory and subject such territory to its jurisdiction pursuant to a majority election of persons who own land in the territory sought to be acquired by the corporation– even over the objection of land owners who are not members of the corporation and who do not wish to be members of the corporation. MCL 455.206 to 455.206e. The Michigan Supreme Court and Michigan Court of Appeals have both concluded, however, that this power violates the constitutional due process and equal protection rights of those persons whose property interests would be affected by the election. Baldwin v North Shore Estates Association, 384 Mich 42; 179 NW2d 398 (1970); Whitman v Lake Diane Corp, 267 Mich App 176; 704 NW2d 468 (2005).

  1. MCL 455.301, et seq., Act 161 of 1911, Parks, Playgrounds, Drives, and Boulevards

The above statutes appear to have been drafted with an increasing amount of power and authority conferred upon the corporation to be formed. Act 230 allowed for the creation of a corporation and the adoption of reasonable by-laws. MCL 455.1 & 455.12. Act 39 allowed for tax exempt status for schools and churches, MCL 455.64, the appointment of a marshal “for the preservation of peace and good order,” MCL 455.61, and imposed a misdemeanor punishment of up to 30 days imprisonment for a person who damaged lands subject to the corporation’s jurisdiction or who violated the corporation’s by-laws. MCL 455.60 & MCL 455.63. Act 69 similarly imposes a misdemeanor punishment of up to 30 days imprisonment for damaging lands subject to the jurisdiction of the corporation. MCL 455.111. Act 137 maintains each of these provisions, and also provides the corporation is conferred with the power of a municipal corporation, MCL 455.204, and (as with Act 39) that a violation of the by-laws constitutes a misdemeanor punishable by up to 30 days imprisonment. MCL 455.214. In short, Act 137 is the culmination of private power by authorizing the creation of a private government! Perhaps none of these powers, however, matches the power contained in Act 161 of 1911, the ostensibly benign, Parks Playgrounds, Drives and Boulevards (“Act 161”).

Act 161 begins innocently enough, allowing any number of persons, not less than 5, to form a corporation “for the purpose of acquiring, owing, controlling, maintaining and improving lands for the purposes of parks, playgrounds, drives and boulevards . . . .” MCL 455.301. Such land is to be held in trust for any one (1) or more municipal corporation. Id. The articles of incorporation are to specify the municipality for which the land is to be held in trust. MCL 455.302. While Act 161 also contains relatively ordinary language regarding corporate powers, including the power to sue and be sued, and to hold, sell, and convey property, MCL 455.304, the true power of an Act 161 corporation is contained in Section 7. Specifically, a private corporation organized under Act 161 possesses the power to condemn. In relevant part, Section 7 states:

Sec. 7. . . [I]f the corporation shall at any time be unable to make a reasonable agreement with the owners of land needed as herein provided for the purchase thereof, or with any railroad company as to crossing its railroad, or with any municipal corporation as to crossing or changing highways, streets, or streams, then in all such cases upon the vote of its board of directors, such corporation shall have the power to take such property, within the limits of the state constitution, as it may require in carrying out its purposes, and may bring suit therefor in any court of competent jurisdiction, and the laws of Michigan providing for the condemnation of lands for public use shall govern and be the rule of procedure so far as the same may be practicable and applicable thereto.

MCL 455.307 (emphasis added).

The power to condemn is not the only benefit conferred upon a corporation organized under Act 161. All lands held by the corporation are held in trust for the public, free to such persons, and pursuant to Section 10 of Act 161, “all such lands and personal property so held in trust for such purposes shall be exempt from taxation.” MCL 455.310.

Laws regarding Michigan summer resort associations could reasonably be expected to be reflective of the recreational nature of a summer resort home — uneventful, relaxed, and without controversy. As described above, however, the powers contained in the Michigan summer resort statutes are comparatively significant considering that such powers are to be exercised by private actors.

Summary

In Michigan, the vast majority of community associations are formed as nonprofit corporations under the Michigan Nonprofit Corporation Act, MCL 450.2101, et seq. These nonprofit corporations are then utilized as homeowner or condominium associations to administer bylaws, deed restrictions, and other rules and regulations to improve and maintain the nature of the community to which the association relates. In nearly all instances, the authority of these nonprofit associations is derived primarily from documents created by private developers which conveys an authority that does not go much further than the power to assess, to declare a violation, and to seek redress in the courts. The authority of corporations formed under Chapter 455 of the Michigan Compiled Laws, however, extends to the exercise of police power, the power to arrest, to create by-laws enforceable by imprisonment, the power to defeat annexation, the (likely unconstitutional), power to annex, and the power to condemn. In some instances, the land subject to the jurisdiction of the association will even be exempt from taxation.

The powers set forth in Chapter 455 could be useful for corporations in enforcing their by-laws and in expanding the land subject to the jurisdiction of the corporation. At the same time, however, the delegation of police power to a private corporation, along with the power to appoint a marshal and adopt by-laws enforceable through imprisonment creates a very tangible risk of misuse. While it is important that a corporation conduct its business in an orderly fashion, there is an irony in the fact that it is the summer resort association, which one would reasonably expect to be associated with sandy beaches, hammocks, and lingering sunsets, which is the community association most likely to resemble a police state.

 

Matthew W. Heron is an attorney with the law firm of Cummings, McClorey, Davis & Acho, P.L.C. where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, land use, large contractual disputes, and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. He can be reached at (734) 261-2400 or mheron@cmda-law.com. You can also follow him on Twitter at @mwheron75.