In Michigan the question of whether the common elements of a condominium are taxable appears to be well-settled. In Paris Meadows, LLC v City of Kentwood, 287 Mich App 136; 783 NW2d 133 (2010), the Michigan Court of Appeals held that pursuant to Section 131 of the Michigan Condominium Act, MCL 559.231, property taxes may only be assessed against individual condominium units, not the total property of the condominium project. Paris Meadows, supra, at 149. Accordingly, common elements may only be taxed through an assessment imposed against individual condominium units and not an assessment against the common elements themselves. Id. (“The central question on appeal is whether the city can tax the common element of Paris Meadows’ condominium development independent of the condominium units. We hold that it cannot.”). While this may appear to resolve the issue, how the issue is presented may decide the outcome, even if the outcome is different than expected.
Paris Meadows, LLC v City of Kentwood
The Paris Meadows master deed, recorded on December 29, 2005, created a 24-unit residential condominium project. Under the master deed any portion of the condominium project not designated as a unit was designated as a common element, with the land of the project being specifically defined as a general common element. In addition, however, and for a six-year period of time, the master deed also reserved a right on behalf of the developer to convert any general common element into “one or more additional Condominium Units . . .” without the consent of any co-owner or mortgagee.
In 2007 the City of Kentwood sent Paris Meadows a notice of assessment for taxes to be assessed against the general common elements which included the convertible area. Paris Meadows challenged the assessment on the basis that the master deed designated the property being assessed as a general common element, not a condominium unit, and that the assessment was, therefore, improper under MCL 559.231. MCL 559.231 states, in relevant part:
(1) Special assessments and property taxes shall be assessed against the individual condominium units identified as units of the condominium subdivision plan and not on the total property of the project or any other part of the project . . . .
(2) . . . Condominium units shall be described for such purposes by reference to the condominium unit number of the condominium subdivision plan and the caption of the plan together with the liber and page of the county records in which the approved master deed is recorded.
MCL 559.231. Paris Meadows petitioned for review and ultimately appealed the matter to the Michigan Tax Tribunal. In ruling in favor of the City, the Tax Tribunal reasoned that since the master deed reserved a right to the developer to expand, contract, and convert the land, including converting it into units, until such time as this right expired the developer could exert significant control over the land and it, therefore, was not a “’true’ common element.” Paris Meadows, supra, at 140.
The Michigan Court of Appeals rejected the Tax Tribunal’s reasoning and reversed the assessment relying in part on its prior decision in Richmond Street, LLC v City of Walker, unpublished opinion per curiam of the Court of Appeals, issued July 14, 2009, 2009 WL 2031890 (Docket No. 286454). In Richmond Street the Court of Appeals had previously recognized that under the Michigan Condominium Act, a “condominium project consists of ‘units’ and ‘common elements’ only. Any part of the project that is not a unit must be a common element.” Id. at 146 (quoting Richmond Street, LLC, at *1). Accordingly, the Michigan Court of Appeals had determined the following:
Although a developer may retain rights to withdraw or develop land within the project, until it records an amended master deed the land remains part of the project and, under MCL 559.231, no part of the project is taxed separately from the units.
Paris Meadows, supra, at 146 (quoting Richmond Street, at *2).
In adopting the rationale of Richmond Street, the Paris Meadows panel concluded as follows:
According to the language in the master deed and the [Condominium Act], the disputed property was a common element, in which the co-owners held an undivided, inseparable interest, and the fact that Paris Meadows retained the right to withdraw or develop the property for six years did not vitiate this fact.
Paris Meadows, supra, at 147. Therefore, the land, was not taxable since it was designated as a common element.
Pursuant to Paris Meadows and Richmond Street, the question of whether a common element is taxable appears to be well-settled– it is not separately taxable. In In re: Emmet County Treasurer for Foreclosure, unpublished opinion per curiam of the Court of Appeals, issued January 24, 2013, 2013 WL 275897 (Docket No. 308892), however, the Michigan Court of Appeals reversed a circuit court’s ruling that certain property designated as a common element was nontaxable under MCL 559.231 even though there was no genuine dispute that the land at issue was, in fact, a common element.
In re: Emmet County Treasurer for Foreclosure
At first glance the In re: Emmet County decision appears to undermine the Court of Appeals’ prior rulings in Paris Meadows and Richmond Street. In re: Emmet County is a procedural case, however, and the Court of Appeals did not disagree with the substance of the respondent’s argument; the Court of Appeals did disagree, however, with the respondent’s attempt to present its argument to a circuit court while objecting to a tax foreclosure proceeding.
In In re: Emmet County, supra, there was no question that the taxes that had been assessed had been assessed against land defined as a “common element” (either limited or general) under the condominium’s master deed. The taxes were not paid, and due to their non-payment the Emmet County Treasurer had filed a petition for foreclosure based on the unpaid taxes. The respondent objected in that foreclosure proceeding relying on the Court of Appeals’ prior ruling in Paris Meadows that common elements were not taxable. The circuit court agreed with respondent and dismissed the petition for foreclosure, determining that the taxes had been improperly assessed against a common element and not a unit.
The Court of Appeals, however, reversed the circuit court’s dismissal. The Court of Appeals considered the matter to require the resolution of an apparent conflict between the exclusive and original jurisdiction granted to the Michigan Tax Tribunal under MCL 205.731(a) and the authority granted to the circuit courts to hear objections to a petition for tax foreclosure under MCL 211.78k(2) & (3). In re: Emmet County, at *1. In resolving this apparent conflict, the Court of Appeals relied on its prior decision in In re Petition of Wayne Co Treasurer for Foreclosure, 286 Mich App 108, 110-113; 777 NW2d 507 (2009), and determined that the “circuit court has jurisdiction where a tax ‘forfeiture challenge does not require any findings of fact, but rather only construction of law.” In re: Emmet County, at *2. In a tax forfeiture challenge involving a “factual dispute requiring the tribunal’s expertise, ‘it falls squarely within the Tax Tribunal’s exclusive jurisdiction.’” Id. Accordingly, in the view of the Court of Appeals, since the resolution of the respondent’s challenge to the assessment necessarily required reference to the master deed and a factual determination that the land assessed is a common element, or not, the circuit court lacked jurisdiction to hear the respondent’s objection and the matter was an issue that fell within the Tax Tribunal’s exclusive jurisdiction.
Based on Paris Meadows and Richmond Street, it appears well-settled that common elements may not be taxed separately from condominium units. In cases where such taxes have been assessed, however, it is important that the party objecting to the assessment ensure that its challenge and objections are presented correctly. A failure to object in the appropriate venue may result in the loss of the objection and the dismissal of the challenge.
Matthew W. Heron is a Member of Hirzel Law, PLC where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, land use, large contractual disputes and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. Mr. Heron concentrates his practice on drafting, revising, amending, restating and interpreting governing documents of condominium and homeowner’s associations in Michigan. He can be reached at (248) 480-8758 or firstname.lastname@example.org. You can also follow him on Twitter at @mwheron75.