MCL 559.184: When can a purchaser withdraw from an agreement to purchase a new condominium?

Purchasing a new construction condominium is an exciting prospect for many people.  However, condominium purchasers are often provided with a large amount of information and requested to make numerous decisions in a short period of time.  In many instances, potential condominium purchasers are completely unfamiliar with condominium associations altogether.  While condominium living certainly has many potential benefits, some purchasers may change their mind after reviewing the condominium bylaws or rules.  Potential purchasers, especially those that have never lived in a condominium before, may have an issue with building restrictions, pet restrictions, potential additional or special assessments, maintenance responsibilities, etc.  Realizing that purchasers of new construction condominiums often have a lot on their plate, the Michigan legislature allowed for purchasers of new condominiums to withdraw from a signed purchase agreement, provided that certain requirements are met.  Accordingly, purchasers of new construction condominiums should be aware of their ability to withdraw from a signed purchase agreement if they later change their mind.

9 Business Days to Withdraw from a Signed Purchase Agreement

 MCL 559.184 allows for a purchaser of a new construction condominium to “withdraw from a signed purchase agreement without cause and without penalty before conveyance of the unit and within 9 business days after receipt of the documents required in section 84a.”  MCL 559.184 does not apply to the re-sale of an existing condominium by the original purchaser or to the purchaser of a business condominium unit.  The withdrawal period is measured in BUSINESS DAYS and not calendar days.  MCL 559.103(6) defines a business day as “a day of the year excluding a Saturday, Sunday, or legal holiday.”

What documents must be provided to a potential purchaser under MCL 559.184a?

The period to withdraw from a condominium purchase agreement does not commence until specific documents are provided to the condominium purchaser. First, the developer, successor developer or builder must provide a purchase agreement that complies with the Michigan Condominium Act.   Purchase agreements for new construction condominiums have special requirements that are not contained in standard real estate purchase agreements.

Specifically, MCL 559.184(4) requires the following to be contained in a purchase agreement for a new construction condominium:

(a) A statement that all funds paid by the prospective purchaser in connection with the purchase of a unit shall be deposited in an escrow account with an escrow agent and shall be returned to the purchaser within 3 business days after withdrawal from the purchase agreement as provided in subdivision (b). The statement shall include the name and address of the escrow agent.

(b) A statement that unless the purchaser waives the right of withdrawal, the purchaser may withdraw from a signed purchase agreement without cause and without penalty if the withdrawal is made before conveyance of the unit and within 9 business days after receipt of the documents required in section 84a including the day on which the documents are received if that day is a business day.

(c) A statement that after the expiration of the withdrawal period provided in subsection (2), the developer is required to retain sufficient funds in escrow or to provide sufficient security to assure completion of only those uncompleted structures and improvements labeled under the terms of the condominium documents, “must be built”.

(d) The following paragraph:

“At the exclusive option of the purchaser, any claim which might be the subject of a civil action against the developer which involves an amount less than $2,500.00, and arises out of or relates to this purchase agreement or the unit or project to which this agreement relates, shall be settled by binding arbitration conducted by the American arbitration association. The arbitration shall be conducted in accordance with applicable law and the currently applicable rules of the American arbitration association. Judgment upon the award rendered by arbitration may be entered in a circuit court of appropriate jurisdiction.”

(e) A statement that the escrow agreement between the developer and the escrow agent is incorporated by reference.

Second, in addition to a purchase agreement that meets the above requirements, a purchaser must be provided additional information in order for the 9 business day withdrawal period to expire.  MCL 559.184 requires the following documents to be provided:

(a) The recorded master deed.

(b) A copy of a purchase agreement that conforms with section 84, and that is in a form in which the purchaser may sign the agreement, together with a copy of the escrow agreement.

(c) A condominium buyer’s handbook.

(d) A disclosure statement relating to the project containing all of the following:

(i) An explanation of the association of co-owners’ possible liability pursuant to section 58.

(ii) The names, addresses, and previous experience with condominium projects of each developer and any management agency, real estate broker, residential builder, and residential maintenance and alteration contractor.

(iii) A projected budget for the first year of operation of the association of co-owners.

(iv) An explanation of the escrow arrangement.

(v) Any express warranties undertaken by the developer, together with a statement that express warranties are not provided unless specifically stated.

(vi) If the condominium project is an expandable condominium project, an explanation of the contents of the master deed relating to the election to expand the project prescribed in section 32, and an explanation of the material consequences of expanding the project.

(vii) If the condominium project is a contractable condominium project, an explanation of the contents of the master deed relating to the election to contract the project prescribed in section 33, an explanation of the material consequences of contracting the project, and a statement that any structures or improvements proposed to be located in a contractable area need not be built.

(viii) If section 66(2)(j) is applicable, an identification of all structures and improvements labeled pursuant to section 66 “need not be built”.

(ix) If section 66(2)(j) is applicable, the extent to which financial arrangements have been provided for completion of all structures and improvements labeled pursuant to section 66 “must be built”.

(x) Other material information about the condominium project and the developer that the administrator requires by rule.

What happens if the documents required by MCL 559.184 and MCL 559.184a are not provided or do not contain all of the required information?

            In interpreting MCL 559.184 and MCL 559.184a, the Michigan Courts have strictly enforced these provisions and indicated that the withdrawal period will not expire until ALL of the above requirements have been satisfied.  By way of example, the Michigan Court of Appeals has held that purchaser could withdraw from a purchase agreement on the day of closing when the developer failed to include the name and address of the escrow agent in a purchase agreement, even though that information was contained in other documentation provided to the potential purchasers.  Specifically, the Court held:

…the legislature has clearly indicated that a purchase agreement is invalid where it fails to include the name and address of the escrow agent. Because there is no indication that the legislature did not intend that provision to be mandatory, it would be improper for this Court to conclude that substantial compliance suffices.
Bridgewater Condos, LC v Boersema, unpublished opinion per curiam, issued December 14, 2010 (Docket No. 293935) at *4.

Accordingly, absent strict compliance with the requirements of MCL 559.184 and MCL 559.184a, it is likely that a court will allow a purchaser to withdraw from a purchase agreement prior to closing and refund the purchaser their full deposit. If a purchaser elects to close, the right to withdraw based upon MCL 559.184 would no longer exist.  However, the fact that a purchaser closes on the condominium unit, does not mean that they lose all of their potential claims.  If the information provided by a developer, successor developer or builder is false or misleading, a purchaser may still have common law claims for breach of contract, breach of warranty, fraud or rescission.  Additionally, MCL 559.215(2) indicates a “developer who offers or sells a condominium unit in violation of section 21 or 84a is liable to the person purchasing the condominium unit for damages.”

Conclusion

            In conclusion, developers, successor developers and builders should carefully review purchase documents to ensure compliance with the Michigan Condominium Act.  The courts have thus far insisted on strict compliance with MCL 559.184 and MCL 559.184a.  The Michigan Court of Appeals has made clear that providing information to prospective purchasers is not a game of horseshoes or hand grenades, and substantial compliance will not be a substitute for compliance with the Michigan Condominium Act.  For potential purchasers, they must be aware of the rights afforded to them under MCL 559.184 and MCL 559.184a.  Given that there the disclosures required by the Michigan Condominium Act are lengthy and very specific, it is often advisable for potential condominium purchasers to have an attorney review the disclosures at the beginning of any transaction.

Kevin Hirzel is a Partner at Cummings, McClorey, Davis & Acho, P.L.C. and 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.