It is not uncommon for condominiums and homeowners associations that are located within close proximity to each other to be part of a master homeowners association. Community associations that share and utilize certain property and resources generally are organized in one of two frameworks: (1) sub-associations that manage their own individual communities with an overarching master association that oversees and manages the shared properties or (2) adjoining communities that manage both their own projects and shared properties with oversight and management responsibilities allocated between the communities. No matter the framework, the shared use of properties and financial obligations that stem from use of those properties are bound to lead to conflict. One way to ensure effective use and management of master homeowners associations is to have a recorded agreement in place that is tailored to the unique characteristics of the arrangement and addresses as many management and financial aspects of the relationship as possible. With this in mind, we present six tips for master homeowners associations and sub-associations to help avoid unnecessary and lengthy disputes.
Tip #1: Create and record easements for any shared common areas between the homeowners associations and specify the scope and purpose of those easements.
“An easement is the right to use the land of another for a specified purpose.” Schadewald v Brule, 225 Mich App 26, 35; 570 NW2d 788 (1997) (citation omitted). “The use of an easement must be confined strictly to the purposes for which it was granted or re[s]er[v]ed.” Delaney v Pond, 350 Mich 685, 687; 86 NW2d 816 (1957). Community associations that share properties and resources with other projects should review their recorded documents to determine whether the language is specific as to what exactly is included within the scope of the easement and what the purpose of the easement is. Agreements that are too vague or general in this regard are likely to lead to disputes, particularly if one community wants to expand access to these areas to other people or make substantial improvements or additions to the easement. For instance, an easement for shared recreational facilities that specifies its scope is limited to the owners within particular condominium associations and its purpose is to permit use of a swimming pool and tennis courts may help avoid a later disagreement if one association later wants to open them up to the public or build a multimillion dollar fitness center complex and the other does not.
Tip #2: Establish who is going to be responsible for maintaining, repairing and replacing the shared commons areas.
“It is the owner of an easement, rather than the owner of the servient estate, who has the duty to maintain the easement in a safe condition so as to prevent injuries to third parties.” Bayberry Group, Inc v Crystal Beach Condo Ass’n, 334 Mich App 385, 387; 964 NW2d 846 (2020). While in a master homeowners association and sub-association framework this responsibility generally will be more straight forward (typically, the master homeowners association will be responsible for this), adjoining community associations should review their recorded documents to identify whether the language clearly identifies which of them is responsible for actually performing the maintenance, repair and replacement needed to keep up the easement. A range of combinations are possible – for instance, one association could be responsible for performing all the work, no matter where the property is located, or each could be responsible for maintaining the property that is located within their own project. Without this specificity, Michigan law provides that the party who has a right to use the easement generally will be responsible for maintaining it.
Tip #3: Detail what costs related to the shared common areas will be shared between the community associations and how they will be shared.
“[T]he maintenance costs of an easement used jointly by both the dominant and servient owners are to be paid in proportion to each party’s use.” Bowen v Buck & Fur Hunting Club, 217 Mich App 191, 194; 550 NW2d 850 (1996). In addition to use of shared areas, the financial obligations incurred in maintaining, repairing, and replacing those areas is an issue likely to result in disputes between master homeowners associations and sub-associations. Consequently, these condominium or homeowners associations will want to review their documents to confirm the following aspects of expenses are addressed in as much detail as possible:
- What costs are included within the concept of maintaining, repairing and replacing the shared areas? For instance, do those costs include property damage and liability insurance and property taxes or are they restricted only to actual work performed on the easement?
- How will expenses be shared among the community associations? Will they be split equally based on the number of projects or number of homeowners that have a right to use the shared area or will they be allocated based on a different formula?
- Which party will be responsible for initially incurring these costs? Does that party have unilateral authority to incur those expenses or is notice or approval first required? Can a party assess expenses based off of a projected budget or can it only assess expenses once they have actually been incurred?
- How and when will incurred expenses be billed to the other responsible parties? When will those bills be due? Does a party have remedies if another does not pay their bill on time, such as late fees, interest and costs of collection?
For associations with documents that do not outline how maintenance costs will be allocated, Michigan law provides that those costs are to be shared among them in proportion to their use.
Tip #4: For master homeowners associations, define who is qualified to serve on the board of directors and how directors are selected.
With a master homeowners association that oversees and manages shared property, generally there are at least two or more condominium associations or homeowners associations involved in the overall project. Accordingly, a master homeowners association’s governing documents should clearly define who is qualified to serve on its board of directors, such as how many directors must live in each of the sub-associations. Moreover, the governing documents also should specify how the master homeowners association’s directors are elected or appointed to the board – Do the sub-association’s members vote on who their director will be, does the master homeowners association’s individual members vote on who all the directors will be or does the sub-association’s board of directors select these individuals?
Tip #5: For condominium projects with shared recreational facilities, verify that your documents comply with the Michigan Condominium Act.
MCL 559.234 states the following:
Recreational 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 Code, R 559.111, which implements MCL 559.234, requires the following:
Pursuant to section 134 of the act, a recreational facility which is to be enjoyed by condominium co-owners and third parties shall, at a minimum, comply with the following provisions:
(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.
(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.
Condominium projects that either have recreational facilities located within their own project that are available to users located outside the condominium or have co-owners that are entitled to use recreational facilities located outside their project are subject to MCL 559.234 and Mich Admin Code, R 559.111. As recently highlighted by the Michigan Court of Appeals, failure to comply with the requirements of MCL 559.234 and Mich Admin Code, R 559.111 may put the collection of expenses related to the shared recreational facilities at risk.
Tip #6: Provide a dispute resolution process.
Notwithstanding attempts to proactively address all possible areas of disagreement, inevitably there is still a chance that a master homeowners association and sub-association will disagree on some aspect of the intertwined relationship. As a result, it may be helpful to include within the recorded agreement a process by which the parties will handle their dispute. For some relationships that have experienced little to no conflict, the dispute resolution process may only need to include nonbinding alternative dispute resources, such as mandatory mediation before filing a lawsuit. However, for other relationships that have experienced multiple conflicts that have resulted in litigation, those parties may want to require binding alternative dispute options that avoid traditional litigation altogether, such as mandatory arbitration.
Master homeowners associations and sub-associations that wish to take a proactive approach to managing their shared areas and maintaining effective relationships with the other involved parties should review their current recorded and governing documents and identify what aspects of the arrangement, if any, are likely to lead to conflict unless more specific language is provided in their documents. Once identified, those condominium and homeowners associations should contact an attorney knowledgeable in community association law and obtain an opinion on how the documents can be amended and what language is recommended to accomplish their goals.
Kayleigh B. Long is a senior attorney with Hirzel Law, PLC and focuses her practice in the areas of community association law and appellate litigation. Ms. Long obtained her Juris Doctor degree from Indiana University Robert H. McKinney School of Law, where she graduated in the top 5 of her class and served as the Senior Executive Editor on the Indiana Law Review. Ms. Long has been recognized as a Michigan Rising Star in Real Estate Law by Super Lawyers since 2020, an award given to no more than 2.5% of the attorneys in the State of Michigan. Ms. Long has also made numerous presentations on community association law, along with having articles published in the Michigan Real Property Review. She can be reached at (248) 986-2290 or firstname.lastname@example.org.