Michigan Court of Appeals Confirms HOA Board’s Right to Hire a Property Manager
The Michigan Court of Appeals recently reaffirmed that a homeowners association (HOA) board has the authority to hire a property management company for compensation, even when an HOA’s bylaws state that “agents” must serve without compensation. In Neuman v. Long Lake Shores Association, the court clarified that the term “agent” does not extend to third-party vendors hired to assist in managing an HOA’s affairs. This ruling confirms that HOA boards retain broad discretion to hire outside management companies unless expressly restricted by their governing documents.
Facts
Long Lake Shores Association is a Michigan HOA governing a residential subdivision. In early 2023, the Association’s Board of Directors decided to enter into a contract with McShane and Associates, a professional property management company. The board presented McShane’s $11,000 annual fee as part of the proposed budget at the 2023 annual members’ meeting, and it also proposed raising the yearly HOA dues from $200 to $400 to cover increased costs. The homeowners present at the meeting approved the budget and the dues increase, which included the expense for the management contract.
Despite this membership approval, a group of homeowners (the plaintiffs) filed suit in May 2023 seeking a declaratory judgment that the board lacked authority under the bylaws to hire McShane and that the management contract was null and void. After initial proceedings, the trial court denied the homeowners’ claims and ruled that the board acted within its powers. The homeowners appealed, but the Court of Appeals agreed with the trial court, siding with the Association.
HOA Board’s Broad Powers Under the Bylaws Include Hiring Management
HOA Board Authority
The Long Lake Shores Association’s bylaws granted the board broad authority to manage the HOA’s affairs. Article IV, Section 1 of the bylaws provides that “the business property and affairs of this Association shall be managed by a Board of Directors”. In other words, the board of this HOA is responsible for handling the day-to-day business and property matters of the association. Additionally, the bylaws enumerate various purposes of the Association – such as enforcing building restrictions, maintaining common areas, and carrying out projects for the members’ benefit– implying that the board may take necessary actions to fulfill those purposes. There is no explicit bylaw clause forbidding the board from contracting with third parties to help carry out the Association’s objectives. In fact, the Court of Appeals noted that both parties to the lawsuit agreed the board generally has the power to hire third-party contractors to assist in carrying out the HOA’s purposes. Hiring a management company is a practical way to accomplish the board’s duties (e.g. collecting dues, maintaining property, and enforcing rules) and falls within the scope of managing the “business…affairs” of the Association.
Relevant Bylaw Provisions
The dispute in Neuman centered on certain bylaw provisions about appointing officers and agents, and whether those rules barred the board from paying an outside manager. The relevant provisions in the Long Lake Shores Bylaws include:
-
- Article IV, Section 5 – Board’s Power to Appoint Agents and Committees: “The Board of Directors shall have power to appoint such other officers, agents, and committees as may be deemed necessary for transaction of the business of the Association.”
- Article IV, Section 11 – Compensation: “Members of the Board of Directors, the officers, and agents of the Association shall serve without compensation. . . ”
The homeowners suing the HOA argued that by hiring McShane (a management company) for a fee, the board effectively appointed an “agent” and violated the Article VI, Section 11 ban on compensating agents. They claimed the management company was acting as an agent of the board, so it should not be paid under the bylaws. Thus, the key legal question was whether bringing in an outside property manager under a contract was equivalent to appointing an “agent” of the Association who must serve without compensation.
Bylaws’ “No Compensation for Agents” Clause Does Not Prohibit Hiring a Management Company
The bylaws did not define the term “agent,” so the Court of Appeals had to interpret it in context and according to its ordinary meaning. The court noted that in everyday usage, an agent is someone authorized to act on behalf of another, essentially standing in the other’s shoes. For example, a board-appointed volunteer who is given authority to perform certain duties for the HOA could be considered an agent of the association. The court found it important that Article IV, Section 5 empowers the board to appoint “other officers, agents, and committees” to carry out association business. Reading that in context with Article IV, Section 11’s no-compensation rule, the court concluded that the bylaws were referring to agents in the sense of individuals appointed to act in the Association’s place (typically volunteer assistants), not independent contractor companies hired for a specific service.
In Neuman, the HOA did not “appoint” McShane as an officer or agent of the Association in the way the bylaws envision. Instead, the board hired McShane through a contract for services, as a third-party vendor. The management company was not given any autonomous decision-making authority over HOA affairs – the Board of Directors retained ultimate control and simply delegated day-to-day administrative tasks to the company. Notably, the board even presented the idea to the membership for approval: at the annual meeting, the board asked the members to approve the budget that included McShane’s fee, and the members did approve it. These facts underscored that McShane was not functioning as an “agent” acting in the board’s place, but rather as a contractor following the board’s directives. The “without compensation” limitation in Article VI, Section 11 applies to internal positions (board members, officers, or agents appointed within the HOA’s organizational structure), not outside professionals like a management company hired to assist.
The Court of Appeals agreed with the trial court that nothing in the bylaws forbids the board from hiring a paid management company. While the bylaws required unpaid service from board-appointed agents, the management company did not fall into that category. As the Court succinctly stated, “the board does not lack the authority to hire a third-party management company with compensation” under the bylaws. The term “agent” in the bylaws was interpreted in its narrow sense – referring to someone authorized to act in place of the board – and McShane was not such an agent. Thus, the board’s decision to contract with McShane for an $11,000 fee did not violate the HOA’s governing documents. The Court of Appeals affirmed the dismissal of the homeowners’ claims and upheld the board’s authority to enter into the management agreement.
Key Takeaways for HOA Boards
1. HOA Boards Have the Right to Hire Management Companies – Unless an HOA’s governing documents expressly prohibit it, boards can hire property managers or other vendors to assist in administrative operations.
2. The Term “Agent” Does Not Include Contractors – The court distinguished between an agent (who acts on behalf of an association in an official capacity) and a third-party vendor (who provides services but does not make independent decisions for the HOA).
3. Bylaws Must Be Read in Context – The Court of Appeals interpreted the bylaws as a whole and declined to apply the “no compensation” rule to independent contractors.
4. Boards Must Retain Oversight and Act in Good Faith – While hiring a property manager is permitted, HOA boards should maintain ultimate control over decision-making and ensure that contracts serve the community’s best interest.
Conclusion
The Michigan Court of Appeals’ decision in Neuman v. Long Lake Shores Association reaffirms that HOA boards have broad discretion to hire professional management, clarifying that the “no compensation for agents” bylaw does not apply to third-party vendors. This ruling provides critical guidance for Michigan HOAs, ensuring that boards can seek professional assistance without violating their governing documents.
However, while boards have this authority, they must exercise it responsibly. Retaining oversight, complying with fiduciary duties, and maintaining transparency with homeowners are essential to avoiding disputes. By ensuring that bylaws are clear, governance is transparent, and decisions serve the community’s best interests, HOA boards can effectively manage their associations while staying within legal and ethical boundaries.
Is your HOA board making decisions within the scope of its authority? The attorneys at Hirzel Law, PLC are experienced in homeowners association law and can provide guidance on board powers, contract agreements, and general counsel needs. Contact us today!
Livia Khemmoro is an Associate Attorney at Hirzel Law in the firm’s litigation group. Ms. Khemmoro received her Bachelor of Business Administration, magna cum lade, from Walsh College and her Juris Doctor, magna cum lade, from the University of Detroit Mercy School of Law, where she was a Legal Research and Writing II teaching assistant, research assistant, law review, and moot court member. She received the book award in Applied Legal Theory and Analysis II, Constitutional Law, Business Organizations, Advanced Advocacy, Estates and Trusts, and Immigration Law Clinic. Ms. Khemmoro was also the Class of 2021 commencement speaker. Ms. Khemmoro courageously advocates for clients, digging into her work with a zeal to win. She delights in overcoming challenges and fact-finding to ensure a positive outcome for her clients. Never satisfied with the status quo, Ms. Khemmoro pushes herself to outdo the expected – reaching for better and more. It’s her competitive and fighting spirit that propels her into the top of her class and a leader among her peers. Prior to joining Hirzel Law, Ms. Khemmoro was an Associate Attorney at Warner Norcross + Judd LLP, where most of her matters involved handling business and real estate litigation matters. She can be reached at (248) 478-1800 or at lkhemmoro@hirzellaw.com.
