Was your condominium properly expanded under the Michigan Condominium Act?

In Michigan, when a developer creates a condominium, the developer is required to record a master deed. Pursuant to MCL 559.108, the master deed and condominium subdivision plan must identify the total number of units in the project and assign a percentage of value to each unit.  However, the initial configuration of the condominium is not set in stone.  MCL 559.106(4) defines an expandable condominium as “…a condominium project to which additional land may be added in accordance with [the Michigan Condominium Act].” MCL 559.132 allows for a condominium to be expanded and allows for additional units to be added to a condominium, provided that certain requirements are met. As will be discussed below, the Michigan Condominium Act clearly sets forth the circumstances in which a condominium can be properly expanded to add units within six (6) years of the recording of the initial master deed.  However, after the expiration of the six (6) year time period, the Michigan Condominium Act is less than clear as to whether or not a condominium can be expanded to add units pursuant to MCL 559.190.  This article will discuss the potential issues with an expansion of a condominium that adds units after the expiration of the six (6) year time period.

Expansion pursuant to MCL 559.132

 Pursuant to MCL 559.132, a condominium may only be expanded if all of the following requirements are contained in the master deed:

(a) The explicit reservation of an election on the part of the developer or its successors to expand the condominium project.

(b) A statement of any restrictions on the election in subdivision (a), including, without limitation, a statement as to whether the consent of any co-owners is required, and if so, a statement as to the method whereby the consent is ascertained; or a statement that the limitations do not exist.

(c) A time limit based on size and nature of the project, of not more than 6 years after the initial recording of the master deed, upon which the election to expand the condominium project expires.

(d) A description of the land that may be added to the condominium project. The description shall be a legal description by metes and bounds or by reference to subdivided land unless the land to be added can be otherwise specifically described.

(e) A statement as to whether, if any of the additional land is added to the condominium project, all of it or any particular portion of it must be added, and if not, a statement of any limitations as to what portions may be added.

(f) A statement as to whether portions of the additional land may be added to the condominium project at different times, together with appropriate restrictions fixing the boundaries of those portions by legal descriptions setting forth the metes and bounds of the land and regulating the order in which they may be added to the condominium project. If the order in which portions of the additional land may be added is not restricted, a statement shall be included that the restrictions do not exist.

(g) A statement of the specific restrictions, if any, as to the locations of any improvements that may be made on any portions of the additional land added to the condominium project.

(h) A statement of the maximum number of condominium units that may be created on the additional land. If portions of the additional land may be added to the condominium project and the boundaries of those portions are fixed in accordance with subdivision (f), the master deed shall state the maximum number of condominium units that may be created on each portion added to the condominium project.

(i) With respect to the additional land and to the portion or portions of the additional land that may be added to the condominium project, a statement of the maximum percentage of the aggregate land and floor area of all condominium units that may be created on the additional land that may be occupied by condominium units not restricted exclusively to residential use.

(j) A statement of the extent to which any structures erected on any portion of the additional land added to the condominium project are compatible with structures on the land included in the original master deed.

(k) A description of improvements that shall be made on any portion of the additional land added to the condominium project or a statement of any restrictions as to what other improvements may be made on the additional land.

(l) A statement of any restrictions as to the types of condominium units that may be created on the additional land.

(m) A description of the developer’s reserved right, if any, to create limited common elements within any portion of the original condominium project or additional land added to the condominium project and to designate common elements which may subsequently be assigned as limited common elements.

(n) A statement as to whether the condominium project shall be expanded by a series of successive amendments to the master deed, each adding additional land to the condominium project as then constituted, or whether a series of separate condominium projects shall be created within the additional land area, all or some of which shall then be merged into an expanded condominium project or projects by the ultimate recordation of a consolidating master deed.

(o) A description of the developer’s reserved right, if any, to create easements within any portion of the original condominium project for the benefit of land outside the condominium project.

Accordingly, if all of the above requirements are not contained in the master deed and the expansion did not occur within six (6) years of recording of the initial master deed, the purported expansion of the condominium is invalid if it attempts to add units. See e.g. Paris Meadows, LLC v City of Kentwood, 287 Mich App 136, 147; 783 NW2d 133 (2010).[1]

Despite the fact that MCL 559.132 clearly sets forth the required language that must be contained in the master deed to expand a condominium, it is not uncommon for a condominium to be expanded without the required language. In the event that the requirements of MCL 559.132 are not satisfied, the land that was added to the condominium through an improper amendment is subject to removal from the condominium.  Accordingly, it is important for Michigan condominium associations to review their condominium documents to ensure compliance with MCL 559.132, if additional land has been added to the condominium through an amendment, or before a proposed expansion to the condominium occurs.

However, MCL 559.132 only applies to a situation in which units are added to a condominium. MCL 559.136 specifically allows for common element land to be added to a condominium, and provides in pertinent part:

The master deed may provide that undivided interests in land may be added to the condominium project as common elements in which land the co-owners may be tenants in common, joint tenants, or life tenants with other persons. A condominium unit shall not be situated on the lands. The master deed, or any amendment to master deed under which the land is submitted to the condominium project shall include a legal description thereof and shall describe the nature of the co-owners’ estate therein.

Unlike MCL 559.132, MCL 559.136 does not have any time limitations as to when undeveloped land can be added to the condominium.  Accordingly, the Michigan Condominium Act seems to contemplate that the number of units in the condominium will be capped six (6) years after recording the initial master deed, but that common element land can be added at any time.

Expansion pursuant to MCL 559.190

 The lack of flexibility in adding units to a condominium through MCL 559.132 has led associations, developers and successor developers to seek out creative solutions to add units to a condominium after the six (6) year time period contained in MCL 559.132 has expired. In many instances, an association, developer or successor developer will attempt to rely on the general amendment provisions contained in MCL 559.190 and MCL 559.190a in order to add units to a condominium after the expiration of the six (6) year time period, instead of the specific statutory provisions contained in MCL 559.132 and MCL 559.136.  The Michigan Court of Appeals has yet to opine on whether units can be added to a condominium through MCL 559.190 and MCL 559.190a.  In situations where a condominium has been expanded pursuant to MCL 559.190 and/or MCL 559.190a, based upon 2/3 co-owner and/or mortgagee approval, the author of this article has observed that title companies are willing to issue title policies on the newly added units in order to fulfill a developer’s obligation to provide a title insurance policy under MCL 559.194.

In contrast, in Clark v Pointes North Inn Condominium Association, Grand Traverse County Circuit Court Case No. 11-28675-CH (Order Granting Summary Disposition, Dated February 17, 2012), the Court held that MCL 559.190 and MCL 559.190a cannot be used to circumvent the six (6) year time period and expansion requirements set forth in MCL 559.132.  In Clark, the initial Master Deed was recorded on June 11, 1987.  On January 6, 2006, the successor developer recorded an amendment to the Master Deed that purported to add 25 units to the condominium.  The successor developer argued that since 100% of the co-owners approved the 2006 amendment that expanded the condominium, that the amendment was valid pursuant to MCL 559.190 and MCL 559.190a.  The court held that the amendment was invalid as the language required by MCL 559.132 was not contained in the original Master Deed and that the six (6) year time period for expansion had expired.  The court then entered an order declaring that the 25 units were never validly added to the condominium and were not part of the condominium.  While Clark is not precedentially binding, it should give an association, developer or successor developer pause that MCL 559.190 and MCL 559.190a may not be a viable vehicle to add units to a condominium after the expiration of the six (6) year time period contained in MCL 559.132.

Conclusion

The safest course of action for an association, developer or successor developer that desires to add units to a condominium is to comply with the plain language of the requirements of MCL 559.132.  While the Michigan Condominium Act should be amended to create more flexibility in adding units to a condominium, there is clearly a risk in an attempting to add units to a condominium after the six (6) year time period contained in MCL 559.132 has expired as there is no published case law that expressly allows for this type of expansion.  While it appears that title insurance will be available in such situations, title insurance only protects purchasers and it does not resolve issues relating to assessments, providing services, voting, etc. that arise when there is a dispute as to whether or not units were properly added to a condominium.  Accordingly, rather than attempting to add units to a condominium pursuant to MCL 559.190, the safest course of action would be to create a separate condominium for those units.  The separate condominium and the existing condominium can then create a master association or a cost sharing agreement between the associations for common amenities.

[1] “…pursuant to MCL 559.132, if the project is an expandable project, then the master deed must explicitly include this reservation of rights by the developer, any restrictions on this election (such as co-owner consent), a time limit of not more than six years, a description of the land that may be added, the specific methods for expansion, and any limitations on the development.”

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.