On January 12, 2017, House Bill 4015 (2017) was introduced in the Michigan House of Representatives and would make significant changes to the Michigan Condominium Act. The bill is a reincarnation of former House Bill 5655 that had failed to pass in 2016. Similar to House Bill 5655, House Bill 4015 is extremely problematic for Michigan Condominium Associations. House Bill 4015 would make the following significant changes to the Michigan Condominium Act:
Requiring Co-Owner Budget Approval. HB 4015 would require co-owners to approve a condominium association’s budget at a meeting with quorum by a majority vote in order to pay for essential services. No proxies could be utilized. No increase in the budget would be allowed without approval. The only exception would be if a condominium association called two (2) meetings and was unable to obtain a quorum.
Allowing Co-Owner’s to Withhold Assessments. HB 4015 would repeal MCL 559.239. MCL 559.239 precludes a co-owner from asserting a defense that services were not provided in answering a complaint for nonpayment of assessments. MCL 559.239 provides as follows, “A co-owner may not assert in an answer, or set off to a complaint brought by the association for non-payment of assessments the fact that the association of co-owners or its agents have not provided the services or management to a co-owner(s).”
Creating a Governmental Administrator to sue Condominium Associations and Volunteer Directors. HB 4015 would amend MCL 559.207 and revive the authority of a governmental administrator, which has not had enforcement authority since 1983, to monitor co-owner complaints regarding condominium associations and their directors. The administrator could refer complaints to the prosecuting attorney or attorney general to file lawsuits against condominium associations, directors and officers.
House Bill 4015 is bad for Michigan Condominium Associations for the following reasons:
- A board of directors of a condominium association has a fiduciary obligation to maintain the condominium project according to the condominium documents. If the co-owners reject the budget, this may not happen, and the condominium association may not be able to perform maintenance, repairs, pay for insurance, landscaping, snow plowing or other essential services. This is bad for property values and would lead to increased lawsuits against condominium associations if condominium associations do not have the financial ability to provide services required by the master deed and condominium bylaws.
- If a condominium association budget is never approved, the association cannot levy assessments to provide essential services. If essential services are not provided, HB 4015 would allow for co-owners to withhold assessments. This creates a vicious cycle that would ultimately bankrupt a condominium association. MCL 559.239 allows for a co-owner to pay the assessments and later file a lawsuit if there is a dispute so that the condominium association may continue to function and all co-owners do not suffer merely because there is one or two disgruntled co-owners.
- HB 4015 requires a majority approval of all co-owners, not just those eligible to vote. Why would a delinquent co-owner ever vote to raise assessments? Moreover, the board of directors and property management company are in the best position to determine the actual projected costs of operating the condominium association. Most co-owners will not take the time to educate themselves on the cost of running the condominium association before voting.
- Administrative enforcement will create a huge burden on taxpayers to pay for new administrative costs. Condominium disputes are best handled as civil matters by the court system. Providing a free governmentally paid for administrator to every disgruntled co-owner will greatly increase the legal expenses of every condominium association.
- A condominium association board of directors is almost always compromised of volunteer directors that serve without compensation. It is often difficult to get co-owners to sacrifice their free time to serve on the board of directors. Subjecting volunteer directors to lawsuits brought by the prosecuting attorney will discourage co-owners from serving on the board of directors.
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) 480-8758 or email@example.com.