Eminent domain, also known as condemnation, or simply, taking, is the long-established government practice of converting private property for public use. It applies to all property, including units and common areas owned through a community association such as condominium or homeowners’ associations.
The government’s use of eminent domain began in the late 1800’s as a mechanism to develop infrastructure in our rapidly evolving nation. It aided in the establishment of transportation lines and public buildings, as well as defense readiness. As its use spread, eminent domain has allowed for cities to invent and later reinvent themselves, typically bolstering economic growth as a result.
The first United States Supreme Court case to review federal eminent domain power was Kohl v. United States, 91 U.S. 367 (1875). The Kohl case presented a challenge to the power of the United States to condemn land in Ohio for a custom house and post office building. The Supreme Court set the standard for the government’s ability to take private property for public use, calling it “essential to its independent existence and perpetuity.” Id. at 371 (1875).
Perhaps the most famous case of eminent domain use in Michigan is the condemnation of Poletown, in which the City of Detroit used eminent domain power to demolish the neighborhood in the early 1980’s. Though the property was appropriated for a General Motors assembly plant, with the expectation that it would encourage commercial growth in the area, it led to the displacement of many residents and ignited a debate regarding the invocation of eminent domain.
How Does Eminent Domain Affect Condominiums?
Eminent domain in Michigan is governed by the Michigan Uniform Condemnation Procedures Act (“UCPA”), MCL 213.51, et al. Pursuant to the UCPA, the State must provide “just” compensation to the property owner for any taking. MCL 213.56. When the taking involves condominium property, multiple parties may claim a compensable interest, including developers, co-owners and the association. And, because co-owners of a condominium unit not only have property rights to the unit itself, but also to the common elements thereto, distributing just compensation can be a tedious process.
Michigan’s Condominium Act (the “Condo Act”) contains provisions regarding the application of eminent domain to condominium property, including allocation of funds to those parties with a compensable interest. Specifically, MCL 559.233 of the Condo Act provides:
(1) If any portion of the common elements is taken by eminent domain, the award therefor shall be allocated to the co-owners in proportion to their respective undivided interests in the common elements. The association of co-owners, acting through its board of directors, may negotiate on behalf of all co-owners for any taking of common elements and any negotiated settlement approved by more than 2/3 of co-owners based upon assigned voting rights shall be binding on all co-owners. (2) If a condominium unit is taken by eminent domain, the undivided interest in the common elements appertaining to the condominium unit shall thenceforth appertain to the remaining condominium units, being allocated to them in proportion to their respective undivided interests in the common elements. The court shall enter a decree reflecting the reallocation of undivided interests produced thereby, and the award shall include, without limitation, just compensation to the co-owner of the condominium unit taken for his undivided interest in the common elements as well as for the condominium unit. (3) If portions of a condominium unit are taken by eminent domain, the court shall determine the fair market value of the portions of the condominium unit not taken. The undivided interest for each condominium unit in the common elements appertaining to the condominium units shall be reduced in proportion to the diminution in the fair market value of the condominium unit resulting from the taking. The portions of undivided interest in the common elements thereby divested from the co-owners of a condominium unit shall be reallocated among the other condominium units in the condominium project in proportion to their respective undivided interests in the common elements. A condominium unit partially taken shall receive the reallocation in proportion to its undivided interest as reduced by the court under this subsection. The court shall enter a decree reflecting the reallocation of undivided interests produced thereby, and the award shall include just compensation to the co-owner of the condominium unit partially taken for that portion of the undivided interest in the common elements divested from the co-owner and not revested in the co-owner pursuant to subsection (4), as well as for that portion of the condominium unit taken by eminent domain. (4) If the taking of a portion of a condominium unit makes it impractical to use the remaining portion of that condominium unit for a lawful purpose permitted by the condominium documents, then the entire undivided interest in the common elements appertaining to that condominium unit shall thenceforth appertain to the remaining condominium units, being allocated to them in proportion to their respective undivided interests in the common elements. The remaining portion of that condominium unit shall thenceforth be a common element. The court shall enter an order reflecting the reallocation of undivided interests produced thereby, and the award shall include just compensation to the co-owner of the condominium unit for the co-owner’s entire undivided interest in the common elements and for the entire condominium unit. (5) Votes in the association of co-owners and liability for future expenses of administration appertaining to a condominium unit taken or partially taken by eminent domain shall thenceforth appertain to the remaining condominium units, being allocated to them in proportion to the relative voting strength in the association of co-owners. A condominium unit partially taken shall receive a reallocation as though the voting strength in the association of co-owners was reduced in proportion to the reduction in the undivided interests in the common elements.
How Does Eminent Domain Relate to a Condominium’s Governing Documents?
As a threshold matter, determining what parties have a compensable property interest in a taking involves review of the condominium’s master deed and bylaws. In Lyon Charter Twp. v. McDonald’s USA, LLC, 292 Mich. App. 660, 667, 809 N.W.2d 167, 171 (2011), vacated in part sub nom. Charter Twp. of Lyon v. McDonald’s USA, LLC, 493 Mich. 906, 823 N.W.2d 420 (2012), as amended (Dec. 19, 2012), the plaintiff took property from defendant by eminent domain. The issue involved whether that taking affected any compensable property interest retained by McDonald’s. See Adams Outdoor Advertising v. East Lansing (After Remand), 463 Mich. 17, 24, 614 N.W.2d 634 (2000) (a preliminary inquiry in a takings action is whether the claimant possesses the interest at issue). The court confirmed that the extent of defendant’s property rights was found in the master deed and bylaws.
Additionally, most condominium associations have portions of their bylaws dedicated to eminent domain proceedings. Such provisions typically complement the Condo Act, filling in gaps where it is silent. For example, there are often provisions securing a mortgagee’s right to its share of any taking award, with respect to either a unit or any portion of the common elements. Also, a condominium’s bylaws may contain directions for amending the master deed to reflect the change in the land after a taking and updating the percentage of value assigned to the remaining co-owners.
Once a taking concludes, the responsibility to reallocate interest in the common elements, unit votes and assessment liability will fall onto the association under MCL 559.233. In order to accurately determine those figures, the board will rely upon the provisions of the condominium’s master deed to see how units are described and the corresponding percentage of value associated with same.
As the Lyons court noted, the extent of a claimant’s rights to just compensation will be derived from the condominium’s master deed and bylaws, and a review of same must be immediately completed in any takings case. Furthermore, any association affected by a proposed property taking should consider if the purpose of the taking qualifies as “public use,” and whether the compensation offered is “just.” Since the initial negotiations will often fall into the purview of an association’s board of directors under MCL 559.233(1), those directors must ensure they are protecting the interests of the association and meeting their fiduciary duties.
As the eminent domain proceedings unfold, it is vital to determine which provisions of the Condo Act apply and whether any bylaws impact the taking. When the taking process concludes, the association should consider whether to amend their governing documents to account for the changes in ownership rights.
The government’s ability to take private property for public use may be essential, but it can be a stressful process when it affects your association directly. An experienced attorney in community association and eminent domain law can safeguard fair negotiations during the proceedings, ensure all proper parties are justly compensated and address any necessary document amendments at the conclusion of the matter.