Recreational facilities in condominiums are often one of the many amenities that draw potential purchasers to a particular condominium. Co-owners enjoy the use of recreational facilities such as barbeques, basketball courts, boat launches/slips, clubhouses, gyms, parks, picnic areas, pools, private lakes, saunas, spas or tennis courts in many condominiums. Many recreational facilities are common elements that are located within a condominium and may only be used by the co-owners. In these types of situations, the recreational facilities are solely controlled by condominium association’s board of directors and the maintenance, repair and upkeep of the recreational facilities is financed through assessments that are collected pursuant to MCL 559.169.
However, some recreational facilities located in condominiums are also subject to use by third parties. Similarly, it is also common for a developer to build recreational facilities on property that is located outside of the condominium and is used by multiple condominium projects or apartment complexes. Situations involving recreational facilities that are not solely owned and controlled by the co-owners are often more complicated as the interests of the co-owners may differ from the third parties that either own or use the recreational facilities.
Accordingly, the Michigan Condominium Act and accompanying administrative rules have specific requirements that must be satisfied when a condominium association shares its recreational facilities with third parties or the co-owners utilize recreational facilities that are owned by a third party. MCL 559.234 states that “[r]ecreational facilities and other amenities, whether on condominium property or on adjacent property with respect to which the condominium has an obligation of support, shall comply with requirements prescribed by the administrator, to assure equitable treatment of all users.” Mich Admin R 559.111 was enacted to implement MCL 559.234. Mich Admin R 559.111(a) imposes requirements in which third parties utilize recreational facilities that are owned by the co-owners and provides as follows:
(a) When the recreational facilities are owned by the condominium co-owners and are to be used by a third party, all of the following conditions shall be met:
(i) Disclosure shall be made to all prospective purchasers that the recreational facilities will be shared with a third party.
(ii) The master deed shall define who is entitled to use recreational facilities.
(iii) The master deed shall set forth the appropriate financial obligations of all the parties involved.
In order to comply with Mich Admin R 559.111(a), it is important to note that the disclosure statement for the condominium must disclose to potential purchasers that the recreational facilities can be used by third parties. This would constitute “Other material information about the condominium project and the developer that the administrator requires by rule” that is required to be contained in the disclosure statement mandated by MCL 559.184a. It is also important to make sure that the master deed itself defines who is entitled to use the recreational facilities and how the financial obligations associated with the recreational facilities will be shared. MCL 559.108 defines a master deed as the “…document recording the condominium project to which are attached as exhibits and incorporated by reference the bylaws for the project and the condominium subdivision plan for the project.” Accordingly, while there may often be a separate agreement that will detail the terms on which a third party can utilize recreational facilities that are owned by the co-owners, such terms must also be included in the master deed as well in order to ensure compliance with Mich Admin R 559.111(a).
Mich Admin R 559.111(b) covers a different situation in which the co-owners utilize recreational facilities that are owned by a third party. In such situations, the following rules apply:
(b) When recreational facilities are owned by a third party and condominium co-owners are obligated to help financially support the recreational facilities, all of the following conditions shall be met:
(i) Disclosure shall be made to prospective purchasers of their financial obligations and responsibilities as co-owners to support the recreational facilities. Such disclosure shall include information regarding all fees charged and compensation paid.
(ii) The condominium co-owners shall have an equitable vote, as set forth in the disclosure statement, as to the operation and management of the recreational facilities.
(iii) An arbitration clause to settle disputes upon consent of the parties shall be included in the condominium legal documents.
(iv) The necessary easements shall be established.
(v) The books and records of the recreational facilities shall be kept separate from other operations and shall be made available for inspection by the co-owners.
Mich Admin R 559.111(b) was enacted to protect co-owners who are required to financially support recreational facilities owned by third parties. Agreements that relate to the use of recreational facilities by co-owners that are owned by third parties must comply with Mich Admin R 559.111(b) if the co-owners are required to financially contribute towards the recreational facilities. Importantly, any such agreement must permit the co-owners to have an equitable vote in the operation and management of the recreational facilities. Similarly, the owner of the recreational facilities must keep separate books and records for the recreational facilities, which are not combined with their other operations. These books and records must be made available for inspection by the co-owners. Accordingly, these rules are in place in order to protect the financial interests of the co-owners.
Developers should be careful to comply with the requirements of MCL 559.234 and Mich Admin R 559.111. If a developer fails to provide accurate information related to recreational facilities in the disclosure statement, as required by MCL 559.184a, it may be subject to a claim by each co-owner that has suffered damages. See MCL 559.215(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.”). Accordingly, it is important for developers to be aware of the requirements of MCL 559.234 and Mich Admin R 559.111 and ensure that the appropriate provisions are contained in the master deed and disclosure statement for the condominium.
Co-owners must also be aware that agreements relating to recreational facilities that violate MCL 559.234 and Mich Admin R 559.111 are unlikely to be enforced by the courts. Specifically, Michigan courts will not enforce contracts that are made in violation of a statute. See e.g. Smilansky v Mandel Bros, 254 Mich 575, 579–80; 236 NW 866, 867–68 (1931) (“But where the litigation is to enforce an illegal contract, a new promise to perform the same contract does not change the nature of the obligation; nor can it be permitted to circumvent a statute adopting a public policy.”). At least one trial court in Michigan has held that an agreement between a developer and condominium association was unenforceable as it violated MCL 559.234 and Mich Admin R 559.111. See Phyle v Scheppe Investments, Inc. and Traverse Bay RV Park Condominium Association, Grand Traverse County Circuit Court Case No. 17-32082-CH, Order dated December 20, 2017. Accordingly, co-owners should be aware of their rights as it relates to recreational facilities that are shared with third parties and/or owned by third parties in order to ensure that their financial interests are protected.
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 firstname.lastname@example.org.