Michigan Court Rules Condo Association Has Authority To Waive Assessments in a Settlement Agreement

In Deep Harbor Condo Ass’n v Marine Adventure, LLC, unpublished opinion of the Court of Appeals, issued December, 29, 2020 (Docket No. 349471), the Michigan Court of Appeals held that a dockominium association’s settlement agreement authorizing the temporary release of payment of assessments was enforceable under traditional contract principles.

Factual Background

Deep Harbor Condominium (“Deep Harbor”), was a boat slip condominium project governed by a Master Deed and Bylaws, in accordance with the Condominium Act, MCL 559.101 et seq. To run its Association, the governing board of directors was empowered by the Bylaws to have “all powers and duties necessary for the administration of the . . . Association and may do all acts and things as are not prohibited by State law or the Condominium Documents.”

Each co-owner of a boat slip condominium unit in Deep Harbor was required to be a member of the Association, and each unit was allocated an equal percentage of value by the Master Deed. The percentage of value allocated also determined the value of each co-owner’s right to vote, and each co-owner’s Association dues.  Section 2.4 of the Bylaws provided that “[a]ll assessments levied against the Co-owners to cover expenses of administration shall be apportioned among and paid by the Co-owners in accordance with the percentage of value allocated to each Unit . . . .”

In 2015, defendant, Marine Adventure, LLC (“Adventure”), a co-owner of 49 units, sued the Association and its last known board members, and the dispute was settled by agreement. The settlement agreement provided in part that if Adventure conveyed title to any of its 49 units within 30 days of settlement execution, the grantee would step into the shoes of Adventure, and enjoy the same rights granted to Adventure as “Successor and Assign”. The settlement agreement also included in part the following:

Notwithstanding anything in the Condominium Documents (or any amendments thereto) to the contrary, Adventure and its Successors and Assigns are hereby released and forgiven from paying any assessments levied against the Adventure Units by Association until the occurrence of the first of the following events for each Unit: (i) Adventure or its Successors and Assigns conveys title to an Adventure Unit after expiration of the thirty (30) days following the execution of this Agreement; or (ii) Adventure or its Successors and Assigns leases an Adventure Unit. Upon the occurrence of one of the preceding conditions, the Co-owner of the Adventure Unit as of the conveyance or lease shall be responsible for a pro-rata portion of the monthly assessment attributable to the particular Adventure Unit for the month of conveyance or lease as provided by the Condominium Documents, as well as all assessments levied against the Adventure Unit from the date of conveyance or lease moving forward. [Emphasis added].

Subsequently, the plaintiffs—the Association and individual co-owners—sued Adventure, its successors and assigns, and former board members, seeking, among other things, declaratory relief regarding Adventure’s voting rights and dues obligations, and relief from the prior agreement under the member-oppression statute of the Nonprofit Corporation Act, MCL 450.2489. After the trial court dismissed certain claims before trial, the plaintiffs appealed, and the Court of Appeals directed the parties to address (1) whether a settlement agreement may be collaterally attacked, and (2) whether a mutual release in the agreement barred plaintiffs’ claims for nonpayment of dues.

The Association’s Agreement to Temporarily Release Co-owners From Payment of Assessment was Facially Valid           

Regarding the settlement, the plaintiffs argued that the agreement was void because the former board members were not authorized to enter into a settlement with Adventure without the consent of the co-owners, whose votes would be required to amend the Master Deed and Bylaws to modify the percentages of value attributed to Adventure units. Paragraph 11 of the agreement, titled “Mutual Release,” included the following language:

Association . . . hereby release[s], acquit[s] and forever discharge[s] Adventure and its members, agents, employees, attorneys insurers, administrators, executors, heirs, personal representatives, trustees, beneficiaries, Successors and Assigns from and against any and all manners of action, suits, debts, accounts, claims . . .  and demands of whatsoever kind, in law or in equity, known or unknown, foreseen or unforeseen, which they have through the date of this Agreement, except for claims to enforce this Agreement or claims involving a breach of this Agreement.

Reviewing the terms of the settlement agreement up against the Master Deed and Bylaws, the Deep Harbor Court cited common-law principles underlying the broad freedom to contract and modify agreements. The Court disagreed that the settlement provision conditionally releasing and forgiving Adventure and its successors and assigns from paying assessments levied was equivalent to unauthorized modification of the percentages of value set forth in the Master Deed. Instead, the Court described the settlement term as “a temporary waiver of the Association’s right to collect assessments.” Id. at 9.  See also Quality Prod & Concepts Co, 469 Mich 362, 374; 666 NW2d 251 (2003) (“a waiver is a voluntary and intentional abandonment of a known right.”)

Next, turning to the requirements of the Condominium Act, 559.101 et seq., the Court of Appeals focused on the mandate for common expenses to be “assessed against the condominium units in proportion to the percentages of value or other provisions as may be contained in the master deed for apportionment of expenses of administration.” MCL 559.169(3). Comparing this statutory stricture with the language of the settlement provision releasing and forgiving Adventure, et al. from paying assessments levied, the Deep Harbor Court found that the term did not violate the Association’s obligation to proportionately allocate the percentages of value to each unit. While the assessments continued to be levied against all co-owners—including Adventure, et al.—the settlement provision operated simply to release Adventure, et al., from temporarily paying their assessment. Neither did the provision modify the manner in which the percentage of value was determined: doing so would violate MCL 559.190(4), which requires that co-owners consent to any change in method or formula used to determine percentages of value. Id. at 9.

Despite facially complying with these statutes, however, the Court acknowledged that the temporary release from payment of assessments left the Association with an annual budget deficit. Still, it emphasized that courts will not interfere with an otherwise lawful contract for want of prudence. Id. at 10. In sum, the Court of Appeals found that the settlement agreement was valid and not in conflict with either the Master Deed and Bylaws or the Condominium Act, MCL 559.101 et seq.

Conclusion

The Deep Harbor Court affirmed the liberty interest in the freedom to contract on matters not forbidden by law by upholding a condominium association’s settlement agreement to waive assessments. It recognized that despite the plaintiffs’ claims that there was a purported conflict of the settlement agreement with the Master Deed and Condominium Bylaws as well as the Condominium Act, MCL 559. 101, et seq., that the board had authority to enter into the settlement agreement. While it is generally not advisable to waive assessments, this case affirms the principle that condominium boards have the authority to do so if sufficient consideration is provided to the condominium association in exchange for waiving assessments.

Crystal Chow is an attorney with Hirzel Law, PLC. Her practice focuses on community association law and real estate litigation. She received a B.A. from Calvin College, a M.IPIS from Carleton University, and a J.D. cum laude from Michigan State University College of Law. After graduation, Crystal clerked for the Honorable David J. Newblatt of the Genesee Circuit Court. She is a member of the Real Property Law Section of the State Bar of Michigan, the Real Estate Law Section of the Illinois State Bar Association, and the Association of Defense Trial Counsel. Crystal may be reached at (248) 480-8758  or cchow@hirzellaw.com.  

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