Michigan Court of Appeals rules that HOA Developer is subject to the Michigan Consumer Protection Act

In Liss v. Lewiston–Richard Inc, 478 Mich. 203; 732 NW2d 514 (2007), the Michigan Supreme Court held that a residential home builder was exempt from compliance with the Michigan Consumer Protection Act, MCL 445.901 et seq.  The Michigan Supreme Court reasoned that MCL 445.904(1)(a) exempted homebuilders from compliance with the Act as they were specifically authorized to build homes under the Michigan Occupational Code, MCL 339.101 et seq. The Supreme Court reasoned that homebuilders were not subject to the Act as they held professional licenses and were regulated by the Michigan Residential Builders’ and Maintenance and Alteration Contractors’ Board, which oversees licensing and handles complaints filed against residential builders in disputes involving the construction of homes.

In Pedinelli v Turnberry Park Estates Inc, Michigan Court of Appeals Docket No. 324331 (January 28, 2016) (Unpublished Opinion), the Michigan Court of Appeals provided clarification as to the application of Liss.  Specifically, the Plaintiffs sued the developer of a subdivision for violating the Michigan Consumer Protection Act after the developer, and its officers, misrepresented the enforceability of an amendment to the declaration of restrictions and the amount of assessments that Plaintiffs would be required to pay.  The Court of Appeals upheld the trial court’s ruling that the developer of the subdivision, and its officers, violated the Michigan Consumer Protection Act.  The Court of Appeals held that a developer of a subdivision, which was also a licensed builder, was subject to the Michigan Consumer Protection Act as the developer did not enter into an agreement to construct a home for the Plaintiffs.  Specifically, the Court of Appeals held that the developer entered into an agreement to sell property to the Plaintiffs, and then in a separate capacity, agreed to serve as the construction manager for the Plaintiffs’ home.  The Court of Appeals determined that the Plaintiffs served as their own general contractor on the project.  Under these circumstances, the Court held that the fact that the developer held a builder’s license did not exempt it from compliance with the Michigan Consumer Protection Act as it was not engaged in an activity that was specifically authorized by statute, i.e. acting as a licensed builder.

The Pedinelli decision is consistent with Heritage in the Hills Homeowners Ass’n v Heritage of Auburn Hills, LLC, Docket No. 286074 (February 2, 2010)(Unpublished Opinion), in which the Michigan Court of Appeals held that a Michigan Condominium Association could bring a claim for violating the Michigan Consumer Protection Act after Liss had been decided in 2007.  While MCL 559.245 of the Michigan Condominium Act authorizes a complaint under the Michigan Consumer Protection Act, both Heritage in the Hills Homeowners Ass’n and Pedinelli stand for the proposition that a developer must also serve as the builder in order to be exempt from compliance with the Michigan Consumer Protection Act. The mere fact that a developer also holds a residential builder’s license does not suffice to exempt a developer from liability.  Accordingly, developers that create multiple shell companies to develop a condominium or subdivision risk liability under the Michigan Consumer Protection Act.  This can be a painful lesson to learn, as MCL 445.911 allows for a successful plaintiff to obtain injunctive relief, actual damages or $250.00 (whichever is greater) and reasonable attorney’s fees when a developer makes misrepresentations regarding a project.

Kevin Hirzel is a Michigan Condominium Attorney and Partner at Cummings, McClorey, Davis & Acho, P.L.C. where he leads the Community Association Practice Group.  He frequently represents Builders, Community Associations, Condominium Associations, Cooperatives, Co-Owners, Developers, Homeowner Associations, Investors, Property Owners and Property Managers throughout the State of Michigan. Cummings, McClorey, Davis & Acho, P.L.C. has Michigan offices in Clinton Township, Grand Rapids, Livonia and Traverse City.  Mr. Hirzel can be contacted at (734) 261-2400 or khirzel@cmda-law.com. Please view The Michigan Community Association Law Blog at http://micondolaw.com for additional resources on Michigan Community Association Law.