HB 4446 allows Michigan Condominium Associations to enforce restrictions and defend lawsuits

On March 30, 2017, Representative Klint Kesto introduced House Bill 4446, which would modify the Michigan Condominium Act, MCL 559.101, et. seq. House Bill 4446 (2017) would amend MCL 559.160, MCL 559.207 and MCL 559.215 as follows:

Sec. 60. (1) Actions on behalf of and against the co-owners shall be brought in the name of the association of co-owners. The association of co-owners may assert, defend, or settle claims on behalf of all co-owners in connection with the common elements or the enforcement of the condominium documents.

(2) The board of directors of an association of co-owners may assert, defend, or settle claims on behalf of all co-owners in connection with the common elements or the enforcement of the condominium documents.

(3) The articles of incorporation for an association of co-owners and the condominium documents shall not restrict the power of the board of directors granted under subsection (2). Any provision in the articles of incorporation or the condominium documents that requires a vote of the co-owners to authorize the board of directors of an association of co-owners to incur legal fees and costs in the exercise of the power granted under subsection (2) or that otherwise restricts that power is void.

(4) Notwithstanding subsections (2) and (3), the condominium documents may require the board of directors to obtain approval by a vote of the co-owners to initiate litigation against a developer or successor developer for money damages. However, the condominium documents shall not require approval by more than 2/3 of all co-owners that are entitled to vote for the initiation of such litigation.

(5) Any provision in the condominium documents or articles of incorporation for an association of co-owners that contradicts subsection (3) or (4) is void unless all of the following apply:

(a) The provision existed before the effective date of the amendatory act that added this subsection.

(b) Within 6 months after the effective date of the amendatory act that added this subsection, the continuation of the provision is approved by a vote of 2/3 of the co-owners entitled to vote.

(c) A declaration evidencing the results of the vote under subdivision (b) is recorded.

Sec. 107. Subject to section 60, a co-owner may maintain an action against the association of co-owners to compel the enforcement of the terms and provisions of the condominium documents. In such a proceeding, the association of co-owners or the co-owner, if successful, shall recover the costs of the proceeding and reasonable attorney fees, as determined by the court, to the extent that the condominium documents expressly so provide. A co-owner may maintain an action against any other co-owner for injunctive relief or for damages or any combination thereof for noncompliance with the terms and provisions of the condominium documents or this act.

Sec. 115. (1) A person or, subject to section 60, association of co-owners adversely affected by a violation of or failure to comply with this act, rules promulgated under this act, or any provision of an agreement or a master deed may bring an action for relief in a court of competent jurisdiction. The court may award costs to the prevailing party.

(2) 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.

HB 4446 is positive for Michigan condominium associations as many developers have drafted onerous provisions in condominium documents that do not allow for the board of directors to take necessary to protect condominium associations action unless a 2/3 co-owner vote is a obtained and numerous other requirements are satisfied. HB 4446 will address the following issues:

Anti-Lawsuit Provisions Decrease Property Values

Michigan residents purchase condominiums with the expectation that the condominium documents will be enforced equally against all co-owners as a means to increase property values and preserve the aesthetic character of the community. If the board of directors of a condominium association cannot enforce the restrictions contained in the condominium documents, due to an anti- lawsuit provision, property values will decrease.

In a published decision, the Michigan Court of Appeals held that a condominium association could not file a lawsuit to a make a co-owner to remove a fence that was not allowed as the condominium bylaws required co-owner approval for any litigation. See Tuscany Grove Ass’n v Peraino, 311 Mich App 389, 394; 875 NW2d 234, 237 (2015). HB 4446 would make it illegal for the condominium bylaws to contain provisions that would prevent a condominium association from enforcing the condominium bylaws. Examples of situations that arise where condominium associations often need to take immediate action are as follows:

      • Enforcing leasing restrictions to prevent co-owners from operating AirBnB or to remove unruly renters.
      • Enforcing occupancy restrictions to avoid fire hazards.
      • Enforcing bylaw restrictions preventing illegal activity such as drug use or discharging firearms in the common areas.
      • Enforcing restrictions that prevent allowing dangerous animals to walk around the common areas.
      • Enforcing aesthetic restrictions that relate to landscaping and/or preventing trash from being left in common areas or around units.
      • Enforcing parking restrictions and preventing co-owners from parking in unassigned areas.
      • Preventing commercial enterprises from being operated out of a residential condominium.
      • Preventing co-owners from inappropriately taking pictures and/or using the internet or social media with respect to other owners.

Anti-Lawsuit Provisions could bankrupt a Condominium Association

The primary source of income for condominium associations is the collection of assessments. If a co-owner does not pay assessments, the association typically must take action to collect the assessments through demand letters, placement of a lien and by filing a lawsuit. If the condominium documents do not permit the board of directors to take legal action to collect assessments without 2/3 co-owner approval, many co-owners will just stop paying without consequence. Accordingly, anti-lawsuit provisions deprive a condominium association’s board of directors of the ability to collect assessments on the behalf of the association. By way of example, if there are 10 units in a condominium. Four units are owned by one individual and that co-owner decides to stop paying dues. If the 2/3 co-owner approval provision is in effect, the other 6 units cannot file a lawsuit to compel the owner of the remaining 4 units to pay assessments and there is not a realistic change that this provision could be amended.

Anti-Lawsuit Provisions make it virtually impossible for a Condominium Association to defend itself in Litigation

If a condominium association were sued, it would have either 21 days or 28 days to answer a complaint, depending on the manner in which it was served. In order to call a meeting of the association, MCL 450.2404 requires an association to provide at least 10 days’ notice before a meeting can be held. Accordingly, even if an association could call a meeting before the answer to the complaint was due, which would be difficult due to time constraints, it is extremely unlikely that it would be able to obtain 2/3 of the co-owners to attend the meeting in such a short time period given that many associations struggle to obtain a quorum at an annual meeting, which is typically between 20-35% of the owners. Accordingly, anti-lawsuit provisions deprive a condominium association’s board of directors of the ability to defend the association in litigation.

In an unpublished opinion, Tuscany Grove Ass’n v Gasperoni, Docket No. 314663 (Mich Ct App June 24, 2014), the Michigan Court of Appeals held:

The Association contends that the prelitigation-approval provision “would deny [it] the right to even defend itself in any litigation brought by anyone for any purpose.” This interpretation is incorrect. The provision does not preclude the Association from defending itself in the face of a lawsuit. Rather, it sets a condition under which the Association may act on behalf of the owners for the purpose of litigation. A vote could be conducted to spend money on a defense should the Association be sued, or the owners could choose to default, just like any other defendant is free to choose.

However, as indicated above, this is not really a “choice” as an association does not have a realistic chance of being able to take the necessary action to respond to the complaint in such a short time period. By way of example, if a 100 unit association is sued for $1,000,000. The association has 21 days to file an answer, but fails to either a) find a location and/or schedule a meeting in time or b) holds the meeting, but cannot obtain a quorum of members. The 21 days elapses and the circuit court clerk enters a default against the association. Each co-owner would be forced to pay $10,000 to satisfy the default judgment merely because the board of directors was prevented from hiring an attorney to defend the lawsuit. Accordingly, HB 4446 would prevent these types of situations from taking place and provide the board of directors of a condominium association with authority to defend a lawsuit.

Conclusion

HB 4446 will make it easier for condominium associations to enforce routine bylaw violations, collect assessments and defend themselves in litigation. Most co-owners would expect a condominium board to handle routine matters such as bylaw violations, collecting assessments or defending lawsuits, and co-owner apathy should not prevent condominium associations from handling these types of matters. We fully support HB 4446 and believe that it will alleviate many problems associated with anti-lawsuit provisions that were associated with the Tuscany Grove cases. We urge you to contact your state representative, advise them that you support HB 4446 or can contact JimRunestad@house.mi.gov, the chair of the Judiciary Committee, and request that a hearing be held on HB 4446, via the HB 4446 Form Letter.

Kevin Hirzel is a Partner and Chair of the Community Association and Real Estate Practice Group at CMDA. He concentrates his practice on commercial litigation, community association law, condominium law, construction law and real estate law. Mr. Hirzel has been a Super Lawyer’s Rising Star in Real Estate Law from 2013-2017, an award given to only 2.5% of the attorneys in Michigan each year. He was named an Up & Coming Lawyer by Michigan Lawyer’s Weekly in 2015, an award given to only 30 attorneys in Michigan each year. Mr. Hirzel represents builders, community associations, condominium associations, cooperatives, co-owners, developers, homeowner’s associations, investors, property owners and property managers throughout Michigan. He is available to represent clients out of CMDA’s Michigan offices in Clinton Township, Livonia, Grand Rapids or Traverse City. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.