An Important Lesson For Condominium Developers
On December 15, 2016, the Michigan Court of Appeals issued an unpublished opinion in the matter of Woodland Estates, LLC v. City of Sterling Heights and County of Macomb. The Woodland Estates case should be taken as a warning to developers. This case illustrates the importance of obtaining legal advice from an attorney throughout all stages of the development process. The Developer in this case may have been able to recoup a substantial sum of money from the Government if it had asserted its rights in a timely fashion. Real estate developers must take considerable care to ensure that they act diligently in pursuing their rights as time is of the essence.
Woodland Estates, LLC (the “Developer”) filed a lawsuit against the City of Sterling Heights and the County of Macomb (the “Government”) regarding a Condominium Project located in Sterling Heights, MI. The case centered on the Developer’s allegation that it was entitled to monetary compensation from the Government based on an inverse condemnation theory. Inverse condemnation is a term used to describe a situation in which the government takes private property but fails to pay the compensation required by the Fifth Amendment of the Constitution. As a result, the property owner typically has to sue to obtain the required just compensation.
In 2003 the Developer purchased a five-acre parcel of property in Sterling Heights upon which the Condominium Project was to be developed. When the Developer attempted to obtain permission from the Government to develop the property, the Government informed the Developer that a portion of the property (a 92-foot wide tract of land across the property) could not be developed because the Government anticipated that land would be used in a future expansion of 18 mile road. This left the Developer with a five-acre parcel of property upon which only 3.88 acres could be developed for the Condominium Project (the remaining 1.12 acres was left undeveloped and reserved for the Government’s eventual expansion of the road).
The Master Deed of the Condominium Project was recorded on February 6, 2006. The legal description of the property contained in the Master Deed included the 3.88 acres of land that could be developed as well as the 1.12 acres of land that could not be developed. One month later, the Developer recorded a Consent to Submission of Real Property to Condominium Project which essentially stated that the Developer was giving consent for the entire property to be governed by the Master Deed. The Consent to Submission also contained the same legal description of the property including both the 3.88 acres that could be developed and the 1.12 acres that could not be developed. The Developer filed the lawsuit against the Government on December 30, 2014 claiming that the Government was required to compensate the Developer under an inverse condemnation theory.
THE COURT’S DECISION
The Trial Court originally granted the Government’s request for dismissal on the basis that the six-year statute of limitations for pursuing an inverse condemnation claim had run. The Developer then appealed and the Court of Appeals affirmed the Trial Court’s decision. The Appellate Court ruled on the following arguments brought forth by the Developer:
- Whether the application of a statute of limitations defense to an inverse condemnation claim is constitutional; and
- If a statute of limitations defense is constitutional, as applied to an inverse condemnation claim, whether the appropriate limitations period should be six years or fifteen years.
The Court first ruled on the constitutional issue and stated that the Michigan Supreme Court as well as the United States Supreme Court have both held it constitutionally permissible to apply a statute of limitations to a constitutional claim. The Court cited the cases of Hart v. Detroit, 416 Mich 488, 503; 331 NW2d 438 (1982); United States v. Dickinson, 331 US 745, 747; 67 S Ct 1382; 91 L Ed 1789 (1947); and Block v. North Dakota ex rel Bd of Univ & Sch Lands, 461 US 273, 292; 103 S Ct 1811; 75 L Ed 2d 840 (1983) as authority.
Moving next to the question of whether the appropriate limitations period was six years or fifteen years, the Court stated
… the proper statute of limitations for an inverse condemnation claim is either six years pursuant to MCL 600.5813 and Hart, 416 Mich at 503, where the plaintiff does not maintain an interest in the property, or 15 years pursuant to MCL 600.5801(4) and Difronzo, 166 Mich App at 153-154, where the plaintiff does maintain an ownership interest.
The Court went on to explain that under the Michigan Condominium Act, condominium projects are made up of only two things: condominium units and common elements. Based on the language contained in the Master Deed and the Michigan Condominium Act, the Court held that the 1.12 acres of land reserved for the Government was classified as “general common element” land in the Condominium Project. Accordingly, that land is owned equally among the co-owners of the Condominium Project pursuant to the Master Deed.
The Court further stated that since the Developer was not a co-owner (since it did not own any units in the Condominium Project) it did not have any ownership interest in the property at issue. Therefore, the Court held that the appropriate statute of limitations period was six years. Because the Developer filed the Consent to Submission in March of 2006, the statute of limitations ran in March of 2012 and the Trial Court correctly dismissed the Developer’s lawsuit against the Government.
As previously mentioned, the Woodland Estates case should be taken as a warning to developers. Because the Developer did not obtain adequate and timely legal advice at the time it acquired the property, the Developer lost a significant amount of money. In fact, the amount of compensation owed by the Government to the Developer would be easy to calculate since the Condominium Project was initially intended to contain 17 or 18 units as opposed to the 11 that were developed and sold as a result of the inability to build on the 1.12 acres reserved for the Government. Accordingly, experienced real estate attorneys should be consulted from the beginning of the process through the end.
Brandan A. Hallaq is an attorney with the law firm of Cummings, McClorey, Davis & Acho, P.L.C., in the firm’s Livonia, MI office where he focuses his practice in the areas of business and real estate law. He practices in state and federal courts handling a wide scope of real estate and business/commercial litigation matters. He also has experience preparing the necessary documents for business formation, purchases/sales of businesses, as well as negotiating and drafting contracts. Mr. Hallaq obtained his Juris Doctor degree from Wayne State University Law School where he graduated cum laude and his Bachelor of Arts degree in Political Science from Wayne State University where he graduated cum laude. He can be reached at (734) 261-2400 or at email@example.com.