Michigan Condominium Act Amendments: Enhancing Financial Transparency and Security for Condo Associations

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:
• • • 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

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.

Rita Khan is the Digital Marketing Manager at Hirzel Law. Ms. Khan received her Bachelor of Arts in American Culture from the University of Michigan, Master of Business Administration with a focus on Business Intelligence from Baker College, Paralegal Certificate from the University of Michigan Flint – Center for Legal Studies, and Graphic Design Certification from the New York Institute of Art and Design. Ms. Khan has over 15 years of experience in the property management industry from residential real estate, student housing, and condominium & HOA management. Ms. Khan holds several designations and certifications such as Certified Manager of Community Associations (CMCA), Association Management Specialist (AMS) and Professional Community Association Manager (PCAM) from the Community Associations Institute (CAI), Accredited Residential Manager (ARM), Accredited Commercial Manager (ACoM), and Certified Property Manager (CPM) from the Institute of Real Estate Management (IREM), Certified Apartment Manager (CAM), Certified Apartment Portfolio Supervisor (CAPS), and Certified Apartment Supplier (CAS) from the National Apartment Association (NAA), Project Management Professional (PMP) from the Project Management Institute, Certified ScrumMaster (CSM) from Scrum Alliance, Professional Certified Marketer Marketing Management (PCM) from the American Marketing Association and Certified Digital Marketing Professional (CDMP) from the Digital Marketing Institute. She is a licensed Michigan Real Estate Salesperson, Broker and Notary Public. Ms. Khan is also a Real Estate Property Management faculty member at Schoolcraft College where she teaches Introduction to Property Management and Residential and Commercial Property Management. Ms. Khan currently serves as the Chair of the CAI-Michigan Social Media Committee and is an active member of the Institute of Real Estate Management (IREM), where she serves as a member of the IREM Foundation Board of Directors, NextGen Advisory Committee, and a member of the Board of Directors for the IREM Michigan Chapter. Ms. Khan has previously served as a Delegate Member on the CAI Michigan Legislative Action Committee. She may be reached at (248) 986-2290 or rkhan@hirzellaw.com.