SB 914: Proposed amendment to the Michigan Condominium Act

Michigan Senate Bill 914 (2018) was introduced on March 21, 2018. Senate Bill 914 would amend various sections of the Michigan Condominium Act related to providing electronic notice of amendments to condominium documents, director voting via e-mail and setting more specific standards for co-owner inspections of a condominium association’s books and records.  Senate Bill 914 (2018) would amend MCL 559.106, MCL 559.115, MCL 559.156, MCL 559.157, MCL 559.190, MCL 559.191 and update the Michigan Condominium Act as follows:

Communicating with co-owners via e-mail

The Michigan Nonprofit Corporation Act was amended in 2015 to permit nonprofit corporations, including condominium associations, to communicate with members via electronic means based upon member consent. Senate Bill 914 would update the Michigan Condominium Act to clarify that condominium associations can communicate with co-owners via e-mail or other electronic means when amending condominium documents. The Michigan Condominium Act currently requires condominium document amendments to be delivered to co-owners, but does not specify what manner of delivery is acceptable. Codifying the ability to transmit large condominium document amendments to co-owners via electronic means may save some condominium associations thousands of dollars in postage and copying. Condominium associations would still be required to deliver proposed amendments to the condominium documents via hand delivery or by first class mail if a co-owner did not provide an e-mail address to the condominium association.

The board of directors of a condominium association would be allowed to make decisions based on a majority vote that occurred via e-mail

Condominium association boards are often required to make decisions quickly and do not always have time to meet in person before a decision must be made. It is not uncommon for a majority of the directors on a condominium board to vote via e-mail and later ratify a decision at an in-person board meeting. MCL 450.2525 of the Michigan Nonprofit Corporation Act currently allows for a board of directors to take action via e-mail if the decision is unanimous. Senate Bill 914 would clarify that the condominium bylaws may authorize a board of directors to take action via e-mail through a majority vote, and not a unanimous vote. Such provisions would be optional, and not mandatory, so a condominium association would be able to customize their condominium bylaws.

Clarifying requirements for co-owner inspections of the books and records of a condominium association 

The 2015 amendments to the Michigan Nonprofit Corporation Act provided a more specific standard for a member of a nonprofit corporation to inspect the books and records. Senate Bill 914 would amend the Michigan Condominium Act to contain the same document inspection provisions as the Michigan Nonprofit Corporation Act. Senate Bill 914 would also clarify that the following information is exempt from disclosure during a co-owner inspection of the condominium association’s books and records: 1) documents subject to the attorney-client privilege; 2) executive session meeting minutes, 3) private financial information of co-owners and 4) information that, if disclosed, would constitute a violation of state or federal law.

Kevin Hirzel is a Michigan Community Association attorney who 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 is a fellow in the College of Community Association Lawyers, a designation given to less than 175 attorneys in the country. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.

The full text of Senate Bill 914 can be found below:

Sec. 6. (1) “Co-owner” means a person, AN INDIVIDUAL, firm, corporation, partnership, association, trust, or other legal entity or any combination of those entities, who owns a condominium unit within the condominium project. Co-owner includes land contract vendees and land contract vendors, who are considered jointly and severally liable under this act and the condominium documents, except as the recorded condominium documents provide otherwise.

(2) “Developer” means a person engaged in the business of developing a condominium project as provided in this act. Developer does not include any of the following:

(a) A real estate broker acting as agent for the developer in selling condominium units.

(b) A residential builder who acquires title to 1 or more condominium units for the purpose of residential construction on those condominium units and subsequent resale.

(c) Other persons exempted from this definition by rule or order of the administrator.

(3) “ELECTRONIC TRANSMISSION” MEANS ANY FORM OF COMMUNICATION THAT MEETS ALL OF THE FOLLOWING REQUIREMENTS:

(A) DOES NOT DIRECTLY INVOLVE THE PHYSICAL TRANSMISSION OF
PAPER.

(B) CREATES A RECORD THAT CAN BE RETAINED AND RETRIEVED BY THE
RECIPIENT OR ACCESSED BY THE RECIPIENT ELECTRONICALLY THROUGH A WEBSITE. FOR THE PURPOSES OF THIS ACT, THE RECORD IS CONSIDERED A WRITING.

(C) CAN BE DIRECTLY REPRODUCED IN PAPER FORM BY THE RECIPIENT
THROUGH AN AUTOMATED PROCESS.

(4)  “Escrow agent” means a bank, savings and loan association, or title insurance company, licensed or authorized to do business in this state or a representative designated to administer escrow funds in the name, and on behalf, of the escrow agent.

(5) “Expandable condominium” means a condominium project to which additional land may be added in accordance with UNDER this act.

(6) “General common elements” means the common elements other than the limited common elements.

Sec. 15. (1) This act shall DOES not be construed or interpreted as to authorize or permit the incurring of indebtedness of the state contrary to the provisions of the state constitution of 1963.

(2) NOTWITHSTANDING ANY PROVISION CONTAINED IN THE NONPROFIT
CORPORATION ACT, 1982 PA 162, MCL 450.2101 TO 450.3192, IF ANY PROVISION OF THIS ACT OR THE CONDOMINIUM DOCUMENTS PROVIDES FOR THE ASSOCIATION OF CO-OWNERS TO DELIVER OR SEND A DOCUMENT OR INFORMATION TO A CO-OWNER, THE ASSOCIATION OF CO-OWNERS MAY SEND THE DOCUMENT OR INFORMATION BY ELECTRONIC TRANSMISSION IF THE CO-OWNER HAS PROVIDED THE ASSOCIATION OF CO-OWNERS WITH AN ELECTRONIC MAIL ADDRESS OR OTHER MEANS BY WHICH THE CO-OWNER CAN RECEIVE AN ELECTRONIC TRANSMISSION.

Sec. 56. The bylaws may contain provisions as are deemed appropriate ANY OF THE FOLLOWING:

(A) PROVISIONS for the administration of the condominium project not inconsistent with this act or any other applicable laws.

(b) For restrictions RESTRICTIONS on the sale, lease, license to use, or occupancy of condominium units.

(c) For PROVISIONS FOR insuring the co-owners against risks affecting the condominium project, without prejudice to the right of each co-owner to insure his A condominium unit or condominium units on his ON THE CO-OWNER’S own account and for his THE CO-OWNER’S own benefit.

(D) NOTWITHSTANDING ANY PROVISION IN THE NONPROFIT CORPORATION ACT, 1982 PA 162, MCL 450.2101 TO 450.3192, PROVISIONS ALLOWING ANY ACTION REQUIRED OR PERMITTED TO BE TAKEN AT A MEETING OF THE BOARD OF DIRECTORS OF THE ASSOCIATION OF CO-OWNERS OR A COMMITTEE OF THE BOARD OF DIRECTORS OF THE ASSOCIATION OF CO-OWNERS TO BE TAKEN WITHOUT A MEETING IF A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS OR OF THE COMMITTEE CONSENT TO THE ACTION IN WRITING. A RECORD OF ANY WRITTEN CONSENT SHALL BE FILED AND MADE PART OF THE ASSOCIATION OF CO-OWNERS’ BOOKS AND RECORDS. THE CONSENT HAS THE SAME EFFECT AS A VOTE OF THE BOARD OR COMMITTEE FOR ALL PURPOSES.

Sec. 57. (1) The books, records, contracts, and financial statements concerning the administration and operation of the condominium project shall be available for examination by any of the co-owners and their mortgagees at convenient times.

(2) Except as provided in subsection (3), (2), an association of co-owners with annual revenues greater than $20,000.00 shall on an annual basis have its books, records, and financial statements independently audited or reviewed by a certified public accountant, as defined in section 720 of the occupational code, 1980 PA 299, MCL 339.720. The audit or review shall be performed in accordance with PURSUANT TO the statements on auditing standards or the statements on standards for accounting and review services, respectively, of the American institute of certified public accountants.”STATEMENTS ON AUDITING STANDARDS” OR THE “STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES”, RESPECTIVELY, OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, INC.

(3) An association of co-owners may opt out of the requirements of subsection (2) (1) on an annual basis by an affirmative vote of a majority of its members by any means permitted under the association’s bylaws.

SEC. 57B. (1) A MORTGAGEE OF A CO-OWNER MAY INSPECT THE RECORDS OF THE ASSOCIATION OF CO-OWNERS DURING REGULAR BUSINESS HOURS.

(2) A CO-OWNER, IN PERSON OR BY ATTORNEY OR OTHER AGENT, MAY INSPECT THE RECORDS OF THE ASSOCIATION OF CO-OWNERS DURING REGULAR BUSINESS HOURS, SUBJECT TO ALL OF THE FOLLOWING:

(A) THE INSPECTION IS FOR A PROPER PURPOSE.

(B) THE CO-OWNER GIVES THE ASSOCIATION OF CO-OWNERS WRITTEN
DEMAND DESCRIBING WITH REASONABLE PARTICULARITY THE PURPOSE OF THE INSPECTION AND THE RECORDS THE CO-OWNER DESIRES TO INSPECT.

(C) THE RECORDS SOUGHT ARE DIRECTLY CONNECTED WITH THE PURPOSE DESCRIBED IN THE DEMAND.

(D) THE DEMAND IS DELIVERED TO THE ASSOCIATION OF CO-OWNERS AT
ITS REGISTERED OFFICE IN THIS STATE OR AT ITS PRINCIPAL PLACE OF BUSINESS.

(E) IF THE PERSON SEEKING TO INSPECT THE RECORDS IS AN ATTORNEY OR OTHER AGENT, THE DEMAND INCLUDES A POWER OF ATTORNEY OR
OTHER WRITING THAT AUTHORIZES THE ATTORNEY OR OTHER AGENT TO ACT ON BEHALF OF THE CO-OWNER.

(3) IF AN ASSOCIATION OF CO-OWNERS DOES NOT ALLOW AN INSPECTION WITHIN 5 BUSINESS DAYS AFTER A DEMAND IS RECEIVED UNDER SUBSECTION (2), OR IMPOSES UNREASONABLE CONDITIONS ON THE INSPECTION, THE CO-OWNER MAY APPLY TO THE CIRCUIT COURT FOR THE COUNTY IN WHICH THE PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF THE ASSOCIATION OF CO-OWNERS IS LOCATED FOR AN ORDER TO COMPEL THE INSPECTION. IF THE CO-OWNER ESTABLISHES THAT THE CO-OWNER HAS COMPLIED WITH THE REQUIREMENTS OF SUBSECTION (2), THE COURT MAY ORDER THE ASSOCIATION OF CO-OWNERS TO PERMIT THE
INSPECTION, PRESCRIBE CONDITIONS AND LIMITATIONS ON THE INSPECTION, AND AWARD FURTHER RELIEF THAT THE COURT CONSIDERS JUST AND PROPER.

(4) A DIRECTOR OF AN ASSOCIATION OF CO-OWNERS MAY INSPECT THE
RECORDS OF THE ASSOCIATION OF CO-OWNERS DURING REGULAR BUSINESS
HOURS FOR A PURPOSE REASONABLY RELATED TO HIS OR HER POSITION AS A DIRECTOR. THE DIRECTOR MAY APPLY TO THE CIRCUIT COURT FOR THE COUNTY IN WHICH THE PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE OF THE ASSOCIATION OF CO-OWNERS IS LOCATED FOR AN ORDER TO COMPEL THE INSPECTION. THE COURT MAY ORDER THE ASSOCIATION OF CO-OWNERS TO PERMIT THE INSPECTION, PRESCRIBE CONDITIONS FOR THE INSPECTION, AND AWARD FURTHER RELIEF THAT THE COURT CONSIDERS JUST AND PROPER.

(5) IF THE COURT ORDERS THE ASSOCIATION OF CO-OWNERS TO ALLOW
THE INSPECTION OF RECORDS UNDER SUBSECTION (2) OR (4), IT SHALL
ALSO ORDER THE ASSOCIATION OF CO-OWNERS TO PAY THE CO-OWNER’S OR DIRECTOR’S COSTS, INCLUDING REASONABLE ATTORNEY FEES, INCURRED TO OBTAIN THE ORDER. HOWEVER, THE COURT SHALL NOT ORDER THE PAYMENT OF THESE COSTS IF THE ASSOCIATION OF CO-OWNERS ESTABLISHES THAT IT FAILED TO PERMIT THE INSPECTION IN GOOD FAITH BECAUSE IT HAD A REASONABLE BASIS TO DOUBT THE RIGHT OF THE CO-OWNER OR DIRECTOR TO INSPECT THE RECORDS DEMANDED.

(6) NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS ACT, THE ARTICLES OF INCORPORATION, THE BYLAWS, OR A RESOLUTION OF THE BOARD OF DIRECTORS, THE RECORDS KEPT BY OR ON BEHALF OF THE ASSOCIATION OF CO-OWNERS AND THE BOARD MAY BE WITHHELD FROM INSPECTION UNDER THIS SECTION TO THE EXTENT THAT THE PORTION WITHHELD RELATES TO ANY OF THE FOLLOWING:

(A) COMMUNICATIONS WITH LEGAL COUNSEL THAT ARE SUBJECT TO THE ATTORNEY-CLIENT PRIVILEGE OR ATTORNEY WORK PRODUCT PERTAINING TO PENDING LITIGATION OR OTHER MATTERS RELATED TO THE CONDOMINIUM PROJECT.

(B) MEETING MINUTES OR OTHER RECORDS OF AN EXECUTIVE SESSION
OF A BOARD MEETING HELD TO DISCUSS AN OPINION OF LEGAL COUNSEL.

(C) SOCIAL SECURITY NUMBERS, BANK ACCOUNT NUMBERS, OR CREDIT
CARD NUMBERS OF INDIVIDUAL CO-OWNERS.

(D) ANY RECORDS, WHICH IF DISCLOSED, WOULD VIOLATE STATE OR
FEDERAL LAW.

(7) NOTWITHSTANDING THE ARTICLES OF INCORPORATION OR CONDOMINIUM DOCUMENTS OR ANY OTHER PROVISION OF THIS ACT, EXCEPT SUBSECTION (6), THE BOARD OF DIRECTORS OF AN ASSOCIATION OF CO-OWNERS MAY, BY RESOLUTION, PROHIBIT A CO-OWNER FROM INSPECTING THE RECORDS OF THE ASSOCIATION OF CO-OWNERS IF THE BOARD OF DIRECTORS DETERMINES IN GOOD FAITH THAT 1 OR MORE OF THE FOLLOWING APPLY TO THE PROPOSED INSPECTION:

(A) IT WOULD IMPAIR THE RIGHTS OF PRIVACY OR FREE ASSOCIATION
OF THE CO-OWNERS.

(B) IT WOULD IMPAIR THE LAWFUL PURPOSES OF THE ASSOCIATION OF CO-OWNERS.

(C) IT IS NOT IN THE BEST INTERESTS OF THE ASSOCIATION OF CO-OWNERS.

(8) IF AN ASSOCIATION OF CO-OWNERS LIMITS THE INSPECTION OF THE LIST OF CO-OWNERS UNDER SUBSECTION (7), IT SHALL PROVIDE A REASONABLE MEANS FOR THE CO-OWNER TO COMMUNICATE WITH ALL OTHER CO OWNERS CONCERNING THE ELECTION OF DIRECTORS AND OTHER AFFAIRS OF THE ASSOCIATION OF CO-OWNERS. THE ASSOCIATION OF CO-OWNERS MAY REQUIRE A CO-OWNER THAT WISHES TO COMMUNICATE WITH OTHER CO-OWNERS UNDER THIS SUBSECTION TO PAY THE REASONABLE COSTS OF LABOR AND MATERIALS AND THIRD-PARTY CHARGES INCURRED BY THE ASSOCIATION OF CO-OWNERS UNDER THIS SUBSECTION, INCLUDING A CHARGE FOR COPIES OF RECORDS PROVIDED TO A CO-OWNER AND FOR LABOR COSTS DIRECTLY ASSOCIATED WITH SEARCHING FOR, LOCATING, AND EXAMINING THE RECORDS DEMANDED.

(9) AS USED IN THIS SECTION:

(A) “INSPECTION” INCLUDES COPYING, MAKING EXTRACTS, AND, IF REASONABLE, REQUIRING THE ASSOCIATION OF CO-OWNERS TO SUPPLY COPIES MADE BY PHOTOGRAPHIC, XEROGRAPHIC, OR OTHER MEANS. “INSPECT” HAS A CORRESPONDING MEANING.

(B) “PROPER PURPOSE” MEANS A PURPOSE THAT IS REASONABLY
RELATED TO A CO-OWNER’S INTEREST AS A MEMBER OF THE ASSOCIATION OF CO-OWNERS.

(C) “RECORDS” MEANS BOOKS, CONTRACTS, FINANCIAL STATEMENTS, A LIST OF CO-OWNERS, OR OTHER RECORDS CONCERNING THE ADMINISTRATION OR OPERATION OF A CONDOMINIUM PROJECT

Sec. 90. (1) The condominium documents may be amended FOR A PARTICULAR PURPOSE without the consent of co-owners or mortgagees if the amendment does not materially alter or change the rights of a co-owner or mortgagee and if the condominium documents contain a reservation of RESERVE TO THE DEVELOPER OR THE ASSOCIATION OF CO-OWNERS the right to amend THE CONDOMINIUM DOCUMENTS for that purpose. to the developer or the association of co-owners. An amendment that does not materially change the rights of a co-owner or mortgagee includes, but is not limited to, a modification of the types and sizes of unsold condominium units and their appurtenant limited common elements.

(2) Except as provided in this section, the master deed, bylaws, and condominium subdivision plan may be amended, even if the amendment will materially alter or change the rights of the co-owners or mortgagees, with the consent of not less than 2/3 of the votes of the co-owners and mortgagees. A mortgagee shall have 1 vote for each mortgage held. The 2/3 majority required in this section may not be increased by the terms of the condominium documents, and a provision in any condominium documents that requires the consent of a greater proportion of co-owners or mortgagees for the purposes described in this subsection is void and is superseded by this subsection. Mortgagees are not required to appear at any meeting of co-owners except that their approval shall be solicited through written ballots. Any mortgagee ballots not returned within 90 days of mailing shall be counted as approval for the change.

(3) The developer may reserve, in the condominium documents, the right to amend materially the condominium documents to achieve specified purposes, except a purpose provided for in subsection (4). Reserved rights shall not be amended except by or with the consent of the developer. If a proper reservation is made, the condominium documents may be amended to achieve the specified purposes without the consent of co-owners or mortgagees.

(4) The method or formula used to determine the percentage of value of units in the project for other than voting purposes shall not be modified without the consent of each affected co-owner and mortgagee. A co-owner’s condominium unit dimensions or appurtenant limited common elements may not be modified without the co-owner’s consent.

(5) Co-owners shall be notified of proposed amendments under this section not less than 10 days before the amendment is recorded. NOTICE SHALL BE PROVIDED BY HAND DELIVERY, FIRST-CLASS MAIL, OR, SUBJECT TO SECTION 15(2), ELECTRONIC TRANSMISSION.

(6) A person causing or requesting an amendment to the condominium documents shall be IS responsible for costs and expenses of the amendment. , except for amendments HOWEVER, EXPENSES OF AN AMENDMENT based upon a vote of a prescribed majority of co-owners and mortgagees or based upon the advisory committee’s decision , the costs of which are expenses of administration.

(7) A master deed amendment, including the consolidating master deed, dealing with the addition, withdrawal, or modification of units or other physical characteristics of the project shall comply with the standards prescribed in section 66 for preparation of an original condominium subdivision plan for the project.

(8) For purposes of this section, the affirmative vote of a 2/3 of co-owners is considered 2/3 of all co-owners entitled to vote as of the record date for such votes.

Sec. 91. (1) An amendment to the master deed or other recorded condominium document shall not be IS NOT effective until the amendment is recorded.

(2) A copy of the recorded amendment shall be delivered to each co-owner of the project BY HAND DELIVERY, FIRST-CLASS MAIL, OR, SUBJECT TO SECTION 15(2), ELECTRONIC TRANSMISSION.

Enacting section 1. This amendatory act takes effect 90 days after the date it is enacted into law.