How to Fix the Roads in your Condo or HOA: Increase Assessments or A Special Assessment District?
The majority of new residential condominium and subdivision developments in the State of Michigan are established with private roads. When a new condominium project or subdivision is established with private roads, the roads are typically identified as a “common element” or a “common area” and are owned collectively by all members of the applicable condominium or homeowners association. When roads are private, the responsibility for the costs of maintenance, repair, and replacement of the roads typically lies with the condominium or subdivision association and is paid for out of assessments that are levied against the members. Due to harsh Michigan winters and the fact that initial road installations are often performed by developers at the bare minimum standards (or worse), roads often start to fail within 15 years of initial development of the community. The costs of replacing a private road can be tremendous and often poses a challenge for communities that have not adequately prepared and budgeted for this expense.
If a condominium or subdivision association has public roads servicing their community, the public roads would likely have been dedicated to the local municipality or the County Board of Road Commissioners. With publicly dedicated roads, the association likely will not need to budget or contract for major repairs or replacements to the roads. Public roads within Townships are generally subject to the jurisdiction of the County Road Commission, while Cities and Villages may maintain responsibility for their own public roads.
The dedication of a public road must be accepted by the municipal agency before the dedication is legally effective. See Kraus v Michigan Dep’t of Commerce, 451 Mich 420; 547 NW2d 870 (1996). Under Michigan law, a governmental entity that has accepted the dedication of a public road is legally obligated to maintain the road. MCL 691.1402(1) of the Governmental Tort Liability Act provides in part: “Each governmental agency having jurisdiction over a highway shall maintain the highway in reasonable repair so that it is reasonably safe and convenient for public travel.” Similarly, MCL 224.21(2) of the Public Highways and Private Roads Act provides in part: “A county shall keep in reasonable repair, so that they are reasonably safe and convenient for public travel, all county roads, bridges, and culverts that are within the county’s jurisdiction, are under its care and control, and are open to public travel.”
Increasing Assessments
Associations with private roads lacking the funds to complete a major road project have two options to consider. The first option is for the association to increase the regular annual assessments (or possibly impose an additional assessment) and collect the increased amount from the members in order to replace their roads. Most condominium associations have provisions in their bylaws that allow the board of directors to levy an “additional assessment” in the case of emergencies, which could potentially include making some emergency repairs/replacements to a private road. However, for a full-scale replacement of the road, it will typically take several years of collecting assessments and budgeting them into a dedicated road fund before the necessary funds are raised.
Special Assessment Districts Generally
An alternative option is to petition the local municipality to establish a Special Assessment District (also commonly referred to as an “SAD”). A Special Assessment District is a designated area where a number of property owners have agreed to have the municipal agency perform the work (which can include a road replacement project, a sidewalk project, or a storm/sanitary sewer/water project). In exchange, the municipal agency levies a special assessment (which is a form of property tax) on all of the impacted properties to recoup the cost of the project. While the municipal agency pays for the initial cost of the work, each of the impacted property owners within the Special Assessment District are legally required to pay their portion of the costs as part of their property tax bill over a period of years.
A Special Assessment District can either be administered by the County Road Commission or the Township. For Special Assessment Districts that are administered by a Township, the applicable statute is Act 188 of 1954, MCL 41.721-738. For Special Assessment Districts that are administered by a County Road Commission, the applicable statute is Act 246 of 1931, MCL 41.271-290. In either event, if the homeowner fails to pay the special assessment, that default is treated the same way as a failure to pay property taxes and can result in the tax foreclosure of the property.
A Special Assessment District under Act 246 of 1931 applies to roads that are not located in the corporate limits of a city of village and the road must be a public county road. In order to start the process, a petition must be signed by property owners representing at least 51% of the linear footage along the road. When a petition is filed that meets all of the requirements, the board of commissioners must schedule a public hearing to hear objections to the petition. Within 30 days after hearing objections, if the commissioners deem the proposed improvement necessary for the benefit of the public welfare, they shall issue an order in writing. The maximum permitted period of time to pay off a Special Assessment District under MCL 41.279 is ten years, however homeowners are allowed to pay off their assessment early at no penalty.
A Special Assessment District under Act 188 of 1954 only applies to improvements that are located in a Township and can include both public and private roads. See MCL 41.722. Townships have authority to create a Special Assessment District for a road project unless written objections are filed at or before the public hearing by the owners of more than 20% of the total frontage of land upon the road. If written objections are filed, the Township cannot proceed with the project until a petition is filed and signed by the owners of land constituting more than 50% of the total frontage upon the road. See MCL 41.723.
Conclusion
As set forth above, condominium and subdivision associations must be aware of the legal responsibilities for maintenance, repair, and replacement of the roads servicing their communities. It is critical for all communities to have an adequate reserve fund and to properly budget and plan for large capital replacement projects, such as road replacement projects. Due to the significant cost of road projects, it is wise for communities to start collecting and budgeting for major road projects several years in advance of when the work is scheduled to take place. In addition, a reserve study may be recommended for communities to determine the remaining useful life of critical infrastructure within their communities so they can adequately budget for expenses several years in advance.
Brandan A. Hallaq is a Senior Attorney with Hirzel Law, PLC where he litigates cases involving defective construction, contract disputes, shareholder/member disputes, quiet title actions to determine interests in property, enforcement of restrictive covenants, real estate foreclosure actions, and bankruptcy matters representing creditors. Mr. Hallaq is also a licensed Real Estate Broker in the State of Michigan and leads the real estate transactions department at Hirzel Law, PLC where he negotiates and prepares the necessary documents for business and real estate transactions, including purchase agreements, franchise agreements, loan/financing documents, and commercial and residential leases and mortgages. In each year from 2018 through 2022, he has been recognized as a Rising Star in the area of real estate law by Super Lawyers Magazine, a designation that is given to no more than 2.5% of the attorneys in the State of Michigan each year. He was also recognized as a 2020 Up & Coming Lawyer by Michigan Lawyer’s Weekly, an award given to no more than 30 attorneys in the state each year, and he has been recognized in the Best Lawyers in America: “Ones to Watch” list for professional excellence in real estate law in each year from 2021 through 2023. Mr. Hallaq obtained his Juris Doctor degree, cum laude, from Wayne State University Law School where he served as an editor on the Wayne Law Review. Prior to joining Hirzel Law, PLC, Mr. Hallaq worked for a Federal Judge and in a Fortune 500 corporation’s in-house legal department. He can be reached at (248) 478-1800 or at bhallaq@hirzellaw.com.
