Court holds Michigan Condo Developer liable for changing sale price of unit

In Gordon v Cornerstone RG, LLC, No. 324909, 2016 WL 902195 (Mich Ct App March 8, 2016) (unpublished opinion), the Michigan Court of Appeals confirmed an arbitration award in favor of Robert and Debbie Gordon against the developers of the Villas of Hidden Lakes Condominium.  The Gordons entered into an agreement in which they paid a $1000 deposit to the developers in order to secure “early bird pricing” for a new construction condominium prior to the recording of the Master Deed based upon representations made by the real estate agent for the developers .  After receiving the deposit, the developers increased the price of the units and the cost of construction of all units in the project.  The developers then refused to sell the Gordons a unit at the “early bird pricing.”  The arbitrator calculated plaintiffs’ damages at $74,642, which represented the value of the condominium and lot at the time of breach minus the contract price of the condominium and lot, adjusted for a change in circumstances that occurred when the township approved only 20 units as opposed to the originally proposed 24 units.

On appeal, the developers argued that MCL 559.172 precludes a developer from selling a unit prior to recording a Master Deed.  Accordingly, the developers argued that no contract could exist between the developers and the Gordons as the deposit was paid prior to the recording of the Master Deed.  The Court of Appeals acknowledged “that MCL 559.172 precludes condominium developers, like defendants, from selling units before the recording of the master deed, and we also acknowledge that contracts created in violation of a statute are void. Mich Mut Auto Ins Co v Reddig, 129 Mich.App 631, 634–635; 341 NW2d 847 (1983).”  However, the Court of Appeals concluded that the deposit was in fact an enforceable reservation agreement, which is specifically permitted by MCL 559.183.  In upholding the arbitrator’s award, the Court of Appeals concluded that the contract was an “option contract” to purchase at a specific price and not a contract for the sale of a condominium unit.  The Court of Appeals held that the transaction was permissible under the Michigan Condominium Act and that the Gordons were entitled to damages.

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.