What are the mandatory Provisions in Condominium Bylaws?
Pursuant to Section 53 of the Michigan Condominium Act, MCL 559.153, the administration of a condominium project must be governed by condominium bylaws that must be recorded as part of the master deed. The Michigan Condominium Act, MCL 559.101, et seq., (the “Act”) and the Administrative Rules of the Department of Licensing and Regulatory Affairs (“LARA”), R 559.101, et seq., (the “Rules”) also require that the condominium bylaws that govern the administration of the condominium project contain certain mandatory provisions. The purpose of this article is to list those provisions which must be contained in the condominium bylaws.
The mandatory provisions that must be contained in a condominium’s bylaws cover several topics and are described below.
Administration of the Association
The first category of mandatory provisions relates to the administration of the condominium association. These include the following:
Name and Location of Project. Rule 501(5) requires that the bylaws state the name and location of the condominium project, the purpose of the bylaws, and they type of condominium project
Designation of Persons to Administer the Affairs of the Project. Pursuant to Section 54(1) of the Act, MCL 559.154(1), the bylaws must designate persons to administer the affairs of the condominium project and must require. Rule 502(1) requires that the bylaws designate the condominium association as responsible for the management and administration of the common elements, property, easements, and the affairs of the condominium project. Pursuant to MCL 559.154(2), the bylaws must provide that the person designated to administer the affairs of the project shall be assessed as the person in possession for any tangible personal property of the project owned or possessed in common by the co-owners.
Form of and Membership in Association, Rule 502(1) requires that the condominium bylaws indicate the form of the condominium association; that is, whether it was created and will operate as a profit or nonprofit corporation, a partnership, or an unincorporated association. Rule 502(4) requires that the bylaws provide that membership in the association shall be limited to persons who own one (1) or more units in the project and that each co-owner shall be a member of the association.
Expenditures Affecting Administration of the Project. MCL 559.154(4) requires that the bylaws state that expenditures affecting the administration of the condominium project include costs incurred in the satisfaction of any liability arising within, caused by, or connected with, the common elements or the administration of the condominium project, and that receipts affecting the administration of the condominium project shall include all sums received as the proceeds of, or pursuant to, a policy of insurance securing the interest of the co-owners against liabilities or losses arising within, caused by, or connected with the common elements or the administration of the condominium project.
Insurance. Rule 508 requires that the condominium bylaws provide that the association must carry insurance for fire and extended coverage, vandalism and malicious mischief, and, if applicable, liability and workers’ disability compensation, pertinent to the ownership, use, and maintenance of the premises and that all premiums for insurance carried by the association shall be an expense of administration.
The second category of mandatory provisions relates to the finances of the association:
Keeping of Books and Records and Account of Expenditures. MCL 559.154(1) requires that the persons designated to administer the association keep books and records with a detailed account of the expenditures and receipts affecting the condominium project and its administration, and which specify the operating expenses of the project. Rule 504 states that the bylaws shall provide that the Association books shall be maintained in accordance with Section 57 of the Act. Section 57(1) of the Act, MCL 559.157(1), requires the books, records, contracts, and financial statements concerning the administration and operation of the condominium project to be available for examination by any of the co-owners and their mortgagees at convenient times.
Annual Financial Statement. MCL 559.154(5) requires that the bylaws contain a provision stating that the association is to prepare and distribute to each owner at least once each year a financial statement, the contents of which shall be defined by the association.
Annual Audit. Section 57(2) of the Act requires an association of co-owners with annual revenues greater than $20,000.00 to annually have its books, records, and financial statements independently audited or reviewed by a certified public accountant. Rule 504 states that the bylaws shall provide that the cost of the annual audit are to be an expense of administration However, an association may opt out of the audit requirement on an annual basis by an affirmative vote of a majority of its members by any means permitted under the association’s bylaws.
The third category of mandatory provisions relates to the association’s records:
Maintenance of Condominium Documents. Rule 505 requires the bylaws to contain a provision requiring the association to keep current copies of the master deed and any amendments and all other condominium documents available for inspection in accordance with Section 68 of the Act, MCL 559.168. Pursuant to MCL 559.168, an association must keep current copies of the master deed, all amendments to the master deed, and other condominium documents for the condominium project available at reasonable hours to co-owners, prospective purchasers, and prospective mortgagees of condominium units in the condominium projects.
“Mortgages of Units” Book. Rule 507 requires that the bylaws provide that a co-owner who mortgages his or her unit must notify the association of the name and address of the mortgagee, and that the association of co-owners shall maintain such information in a book entitled, “Mortgages of Units.”
Payment and Allocation of Assessments
The fourth category of mandatory provisions relates to the payment and collection of assessments:
Assessments and Annual Budget. Rule 513 requires that the bylaws set forth detailed information concerning assessments. The method by which assessments are to be made must be included and the bylaws must require the board of directors of the association to establish an annual budget.
Lien and Foreclosure for Unpaid Assessments. Rule 514(2) requires that the bylaws outline the procedures to be followed when a co-owner’s unpaid assessments owed to the association become a lien on the co-owner’s unit.
In addition, Rule 514(2) also requires that the bylaws contain the provisions contained in Sections 108 and 111 of the Act. Section 108 of the Act, MCL 559.208, describes the creation and the priority of an association’s assessment lien and the process for foreclosure of an assessment lien. Section 211(1) of the Act, MCL 559.211, describes the manner in which proceeds from the sale of a condominium unit are to be allocated to assessments, and the priority of such assessments as to first mortgage liens and unpaid taxes. Section 111(2), MCL 559.211(2), describes the right of a purchaser to request a written statement from the association as to the amount owned in assessments and the obligation of the purchaser for such assessments.
Reserve Fund. Rule 511(1) requires the bylaws to provide that the association shall maintain a reserve fund for major repairs and replacement of common elements in accordance with Section 105 of the Act, which also requires that a reserve fund for major repairs and replacement of common elements be maintained by the association. Pursuant to Rule 511(1), the reserve fund must, at a minimum, be equal to ten (10%) percent of the association’s current annual budget on a noncumulative basis. In addition, Rule 511(4) requires the following statement to be contained in the bylaws: “The minimum standard required by this section may prove to be inadequate for a particular project. The association of co-owners should carefully analyze their condominium project to determine if a greater amount should be set aside, or if additional reserve funds should be established for other purposes.”
Rule 515 requires that the bylaws contain provisions for leasing condominium units and that these provisions contain the language contained in Section 112 of the Act, being MCL 559.212. Section 112(2) requires a co-owner desiring to rent a unit to disclose that fact to the association at least 10 days before presenting a lease or agreeing to grant possession to a potential lessee or other occupant. Section 112(3), MCL 559.212(3), requires that all tenants comply with the terms of the condominium documents and requires that all leases so state. Section 112(4), MCL 559.212(4) requires the association to take certain efforts to remedy violations of the condominium documents involving tenants and leases. These efforts include providing the co-owner with a fifteen (15) day time-period to cure a breach and the initiation of summary proceedings to evict a non-compliant tenant under MCL 559.212(5).
Compliance with Condominium Documents. Rule 510 requires the bylaws to provide, in accordance with section 65 of the act, that all present and future co-owners, tenants, and any other persons or occupants using the facilities of the project in any manner are subject to, and shall comply with, the act, the master deed and bylaws, and the articles of association, and rules and regulations adopted by the association of co-owners. Section 65 of the Act, being MCL 559.165, requires that each unit co-owner, tenant, or nonco-owner occupant comply with the master deed, bylaws, and rules and regulations of the condominium project and the Act.
Dispute Resolution. Rule 512 requires that the bylaws provide for procedures, in accordance with sections 106 and 107 of the Act, to resolve any dispute, claim, or grievance arising out of, or relating to, the interpretation or the application of the master deed, the bylaws, or the management agreement, if any. Section 106, being MCL 559.206, describes the rights of the association against a co-owner in the event of default by that co-owner; and section 107, being MCL 559.207, describes the rights of a co-owner against the association to compel the association’s compliance with the Condominium Documents.
Arbitration Provision. MCL 559.154(8) requires that the bylaws contain a provision providing that arbitration of disputes, claims, and grievances arising out of or relating to the interpretation of the application of the Condominium Document or arising out of disputes among or between co-owners shall be submitted to arbitration and that the parties to the dispute, claim, or grievance shall accept the arbitrator’s decision as final and binding, upon the election and written consent of the parties to the disputes, claims, or grievances and upon written notice to the association (though this requirement does not apply to those condominiums created prior to the date of the amendatory act which added the requirement).
Indemnification. MCL 559.154(6) requires that the bylaws contain an indemnification clause for the board of directors of the association . The indemnification clause must require that 10 days’ notice be given to the co-owners before payment under the clause. The indemnification clause must exclude indemnification for willful and wanton misconduct and for gross negligence
Amendment Effective Upon Recording. Rule 501(3) requires that the master deed or bylaws state that an amendment to, or a change in, the condominium bylaws shall be effective upon its recordation.
Partial or Complete Destruction of Condominium. MCL 559.154(3) requires the bylaws to contain specific provisions directing the courses of action to be taken in the event of partial or complete destruction of the building or buildings in the project. This is similar to Rule 506 which requires that the bylaws set forth the rights of the co-owners and the procedures to be followed in case of partial or complete destruction, or partial or complete taking by condemnation.
Facilitation of Development of Sale of Project. Rule 502(2) provide reasonable provisions to facilitate the development and sale of the project by the developer until completion of the project
Reference to Construction Lien Act. Rule 514(1) requires that the bylaws make reference to the provisions of Section 132 of the Act, being MCL 559.232 which describes the limitations applicable to a construction lien arising under the Michigan Construction Lien Act, MCL 570.1101, et seq.
As described above, there are several categories of topics which must be included in a condominium’s bylaws under the Michigan Condominium Act and its Administrative Rules. Those provisions that are expressly required to be contained in the bylaws are listed above. There are numerous other statutory requirements and prohibitions which may apply to a condominium, a condominium association or its co-owners, but this article is intended solely to list and identify those provisions which Michigan law has stated must be contained in the bylaws. Please keep in mind that the above list is not exhaustive. If you are unsure about whether your condominium bylaws comply with the Michigan Condominium Act, we would recommend that your condominium association obtain a condominium report card from Hirzel Law, PLC to determine whether your bylaws are missing any required provisions.
Matthew W. Heron is a Member at Hirzel Law, PLC where he concentrates his practice in real estate, community association law, condominium law, real estate litigation, and zoning and land use. Mr. Heron also has extensive experience in a variety of litigation matters, including insurance coverage, non-compete agreements, automotive supplier disputes, and breach of contract. He routinely appears in both federal and state courts throughout Michigan and has argued before the Michigan Court of Appeals and the Court of Appeals for the Sixth Circuit. He can be reached at (248) 480-8758.