Since 2016, one particular section within the Michigan Condominium Act has been the source of repeated litigation in Michigan trial and appellate courts – Section 67, or MCL 559.167. When initially enacted, MCL 559.167 was designed to curtail the problem of Michigan condominium projects that began construction but, for one reason or another, never ended up being completed. MCL 559.167 set a deadline by which the construction of a condominium project had to be completed and, from 2002 through 2016, MCL 559.167 provided that upon the expiration of that deadline, any “need not be built” units that still had not been constructed automatically became general common element land collectively owned by a condominium’s co-owners. In 2016, MCL 559.167 was amended to change that transfer from an automatic to a manual process, requiring a condominium association now to undergo certain affirmative steps to convert undeveloped “need not be built” units into general common element land.
What has transpired since this statutory amendment in 2016 is a series of litigation between condominium associations where construction deadlines expired before the 2016 changes and who assert that their projects are no longer open for development against individuals and entities who own, or thought they owned, “need not be built” units within those projects and who argue that, notwithstanding MCL 559.167, they retain the right to construct those units.
In 2019, the Michigan Court of Appeals issued a binding opinion in favor of those condominium associations, yet individuals and entities who desire to hold onto these “need not be built” units have continued to challenge that precedent. In 2022, however, the Michigan Court of Appeals reaffirmed its prior determination in a second binding opinion in Elizabeth Trace Condominium Association v American Global Enterprises, Inc, 340 Mich App 435; 986 NW2d 412 (2022), which we explore further below.
The Elizabeth Trace Condominium was created on May 25, 2004 and initially contemplated the construction of a 46-unit condominium project across ten buildings. While the condominium documents designated five of the units as “must be built,” the 41 other units were designated as “need not be built.” The condominium’s developer constructed 19 condominium units but, because of the 2008 recession, it conveyed the 27 remaining, unbuilt units to its bank to avoid foreclosure in 2009. A few years later, in 2012, the bank sold the 27 unbuilt units to American Global Enterprises, Inc. (“AGE”). By 2018, though, AGE still had not constructed the 27 unbuilt units so the Elizabeth Trace Condominium Association (the “Association”) filed a lawsuit, alleging that the 27 unbuilt units had become general common element land within the condominium by the end of 2014 and, as a result, AGE had lost its right to develop and construct those unbuilt units.
MCL 559.167 was initially enacted in 2001 to provide a maximum time during which the construction of a condominium project had to be completed in order to avoid forever-incomplete projects. In 2002, subsection (3) of MCL 559.167 was amended to limit the timeframe during which “need not be built” units must either be constructed or removed from the condominium project to 10 years from the start of construction of the project, otherwise the unbuilt units would become general common element land:
. . . [I]f the developer has not completed development and construction of units or improvements in the condominium project that are identified as “need not be built” during a period ending 10 years after the date of commencement of construction by the developer of the project, the developer, its successors, or assigns have the right to withdraw from the project all undeveloped portions of the project not identified as “must be built” without the prior consent of any co-owners, mortgagees of units in the project, or any other party having an interest in the project . . . If the developer does not withdraw the undeveloped portions of the project from the project before expiration of the time periods, those undeveloped lands shall remain part of the project as general common elements and all rights to construct units upon that land shall cease . . . .
Later, in 2016, MCL 559.167 was amended to start the 10-year clock from the recording date of the condominium documents, as opposed to construction, and to provide a new statutory process by which unbuilt units would become general common element land once the deadline expired, requiring the approval of 2/3 of the co-owners to declare that the unbuilt units were general common land, notice to the developer or successor developer and an opportunity for them to withdraw the land or convert the units to “must be built,” and recording of the declaration with the register of deeds:
(3) . . . [F]or 10 years after the recording of the master deed, the developer, its successors, or assigns may withdraw from the project any undeveloped land or convert the undeveloped condominium units located thereon to “must be built” without the prior consent of any co-owners, mortgagees of condominium units in the project, or any other party having an interest in the project . . .
(4) If the developer does not withdraw undeveloped land from the project or convert undeveloped condominium units to “must be built” before expiration of the applicable time period under subsection (3), the association of co-owners, by an affirmative 2/3 majority vote of the members in good standing, may declare that the undeveloped land shall remain part of the project but shall revert to general common elements and that all rights to construct condominium units upon that undeveloped land shall cease. When such a declaration is made, the association of co-owners shall provide written notice of the declaration to the developer or any successor developer by first-class mail at its last known address. Within 60 days after receipt of the notice, the developer or any successor developer may withdraw the undeveloped land or convert the undeveloped condominium units to “must be built”. However, if the undeveloped land is not withdrawn or the undeveloped condominium units are not converted within 60 days, the association of co-owners may file the notice of the declaration with the register of deeds. The declaration takes effect upon recording by the register of deeds. The association of co-owners shall also file notice of the declaration with the local supervisor or assessing officer . . . .
Questions then arose about the impact this 2016 amendment had on condominium projects in which the 10-year deadline under MCL 559.167(3) had already expired and whether the amendment, including its co-owner approval and notice requirements, applied retroactively to those projects. In 2019, these questions were answered by the Michigan Court of Appeals’ published opinion in Cove Creek Condominium Association v Vistal Land & Home Development, LLC, 330 Mich App 679; 950 NW2d 502 (2019), which held that the 2016 amendment did not apply retroactively and, as a result, all rights to construct and develop “need not be built” units in condominium projects where the 10-year deadline had already expired had automatically been lost by operation of law and those unbuilt units would remain as general common element land in those projects. The Michigan Court of Appeals later reached the same decision in Wellesley Gardens Condominium Association v Manek, unpublished per curiam opinion of the Court of Appeals, issued Jan 9, 2020 (Docket No. 344190), and Lakeside Estates Condominium Property Owners Association v Sugar Springs Development Company, unpublished per curiam opinion of the Court of Appeals, issued Sep 16, 2021 (Docket No. 354451).
Arguments in the Case
In Elizabeth Trace, the Association argued that construction of the condominium project had begun no later than the end of 2004 and, under MCL 559.167(3) and the Michigan Court of Appeals’ prior opinions, the 27 unbuilt units had automatically become general common element land no later than the end of 2014, which meant that the 2016 amendment to MCL 559.167 did not apply and AGE no longer had a right to construct or develop those units.
AGE, on the other hand, alleged that MCL 559.167, either as amended in 2002 or 2016, did not apply to the case and, consequently, it still had a right to construct and develop the 27 unbuilt units based on the following arguments:
- MCL 559.167 only applied to developers or those who stood in the legal shoes of the developer and, because AGE allegedly was not a developer or a successor to the developer, MCL 559.167 did not apply;
- Allowing MCL 559.167 to apply to developers and nondevelopers alike would create absurd practical results that would result in a nondeveloper losing property rights based on a failure of the developer to construct or withdraw “need not be built” units;
- The 27 unbuilt units were not “unbuilt” because the general common elements that would support those units had been constructed; and
- MCL 559.167, as applied to AGE, resulted in an unconstitutional taking of its property without due process of law.
The Michigan Court of Appeals Rejects Each of AGE’s Arguments
- MCL 559.167 applies to both developers and nondevelopers.
The Michigan Court of Appeals rejected AGE’s first argument that MCL 559.167 only applied to developers and those who stood in the shoes of the developer based on an analysis of the statutory language within MCL 559.167(3), as amended in 2002. The appellate court found the language within the statute to be clear and that there was nothing within the statute that indicated that it would only apply to unbuilt units that were owned by the developer or a successor to the developer. Instead, the appellate court stressed the language within the statute that stated that “all rights to construct units upon that land shall cease,” evidencing that these property rights were lost regardless of who owned the units at the time.
- AGE did not support its argument that applying MCL 559.167 to both developers and nondevelopers would create absurd practical results.
The Michigan Court of Appeals noted that AGE did not elaborate or provide any examples to support this argument and the appellate court declined to consider the argument, leaving it instead up to the Michigan legislature to consider this issue if it desired.
- The 27 unbuilt units were “unbuilt.”
The Michigan Court of Appeals rejected AGE’s third argument that construction of the general common elements that would support the units, including roads, sidewalks, and water systems, meant that the units had been constructed or developed. The appellate court again focused on the language within MCL 559.167, as amended in 2002, which required that construction of the “need not be built” units be completed within 10 years, and upheld the trial court’s determination that the units had not been constructed or developed and, as a result, AGE lost its right to later construct those units.
- MCL 559.167, as applied to AGE, did not result in an unconstitutional taking of its property without due process of law.
The Michigan Court of Appeals also rejected this final argument, relying on a similar determination by the previous panel in Cove Creek. Both appellate court panels relied on a Michigan Supreme Court case, Kentwood v Sommerdyke Estate, 458 Mich 642; 581 NW2d 670 (1998), which held that the state could condition the continued retention of a property right on the performance of some action within a statutory timeframe and that the loss of a property right under such conditions is not unconstitutional. Applying that same legal analysis to MCL 559.167, the appellate court panels in Cove Creek and Elizabeth Trace both determined that defendants were on notice that the continued retention of their property rights was conditioned on their completion of construction or withdrawal of the unbuilt units within a 10-year timeframe and that their failure to take such action did not result in an unconstitutional taking without due process.
Notwithstanding multiple efforts to reach a different outcome, the Michigan Court of Appeals’ opinion in Cove Creek has been reaffirmed through a subsequent line of cases, including most recently in Elizabeth Trace. More importantly, the defendants in Cove Creek, Wellesley Gardens, and Elizabeth Trace all requested the Michigan Supreme Court to consider their cases and, in each of those cases, the Michigan Supreme Court declined to do so. This means, then, that Michigan condominium associations whose projects’ construction deadlines expired prior to the 2016 amendment to MCL 559.167 can continue to rely on MCL 559.167(3), as amended in 2002, in asserting that their projects are no longer open for business and that any remaining “need not be built” units within their community are general common element land collectively owned by their co-owners. Michigan condominium associations that still have “need not be built” units remaining in their condominium projects should contact counsel knowledgeable in Michigan condominium law to advise on the applicability of MCL 559.167 to their project and any rights the association and its co-owners may have in the undeveloped land.
Kayleigh B. Long is a Member at 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) 397-6596 or firstname.lastname@example.org.