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In Gordon v Cornerstone RG, LLC, No. 324909, 2016 WL 902195 (Mich Ct App March 8, 2016) (unpublished opinion), the Michigan Court of Appeals confirmed an arbitration award in favor of Robert and Debbie Gordon against the developers of the Villas of Hidden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 the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country.  He has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2018, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel was named an Up & Coming Lawyer by Michigan Lawyer’s Weekly in 2015, an award given to only 30 attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 478-1800 or kevin@hirzellaw.com.