Michigan Condominium Act Amendments: Enhancing Financial Transparency and Security for Condo Associations
In an effort to strengthen the financial stability of condominium associations in Michigan, the state legislature has introduced a bill to amend the Condominium Act of 1978. This amendment, specifically targeting section 105 (MCL 559.205), aims to enhance the financial accountability and security of condo associations across the state.
The Necessity for the Amendment
The proposed amendment comes as a response to the growing need for greater financial transparency and responsibility within condominium associations. These associations, which often consist of co-owners and property management boards, are responsible for the maintenance, repair, and replacement of common elements in the condominium project. As such, they are entrusted with significant financial responsibilities, and the proposed changes seek to ensure that they fulfill their obligations effectively.
Key Provisions of the Amendment
1. Initial Reserve Study Requirement
- The amendment mandates that an association of co-owners must conduct an initial reserve study. The timing for this study varies depending on when the condominium project was established:
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- For projects established after the effective date of the amendatory act, the study must be conducted no later than 30 days before the transitional control date.
- For projects established before the effective date of the amendment, the association must conduct a reserve study within three years, or they must execute a contract within three years to prepare a reserve study, which must be conducted within one year of executing the contract
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2. Subsequent Reserve Studies
- Following the initial reserve study, associations must conduct a subsequent reserve study or update the most recent reserve study at least once every five years. This ensures that associations continually assess their financial position and obligations.
3. Applicability
- These provisions apply to associations that are responsible for maintaining, replacing, and repairing common elements and meet certain financial criteria. Specifically, associations with an annual budget exceeding $20,000.00 or operating a condominium project with more than 20 units fall under these requirements.
4. Qualifications of the Reserve Study Preparer
- The reserve study must be prepared by an individual with specific qualifications, such as previous experience in reserve studies, relevant professional licenses, or designations from recognized organizations. This ensures that the study is conducted by knowledgeable and qualified experts.
5. Reserve Funding Plan
- Upon completing the reserve study, the association’s board of directors must establish a reserve funding plan in line with the study’s recommendations. This plan must be communicated in writing to the co-owners, and the board must review the reserve study when preparing each year’s annual proposed budget.
6. Reserve Fund Requirement
- A reserve fund for major repairs and replacements of common elements must be established and maintained. This fund is separate from the operating fund account of the association to ensure that funds are allocated for their intended purpose.
7. Annual Written Notice
- Condominium associations must provide an annual written notice to co-owners regarding the balance of the funds held in the reserve fund. This notice also informs co-owners about the availability of the reserve study and the reserve funding plan. It highlights the potential need for additional assessments or borrowing in case of major repairs or replacements exceeding the reserve fund’s balance.
Conclusion
The proposed amendment to the Condominium Act in Michigan is a significant step toward enhancing the financial transparency, responsibility, and security of condominium associations. By mandating reserve studies, establishing qualification criteria for study preparers, and ensuring a separate reserve fund, this amendment aims to protect the interests of co-owners and maintain the long-term value and sustainability of condominium projects.
The attorneys of Hirzel Law, PLC focus their practice on condominium and homeowners association law in addition to real estate law. Our attorneys have extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. We stand by our clients, offering quality legal representation and promptly responding to our clients’ needs. Contact Hirzel Law online or call 312-626-4535 to learn how our Illinois attorneys can help.
