When most people think of condominiums, they typically picture a traditional residential condominium project, such as attached townhouses or loft-style units. While the majority of condominium developments in Michigan are residential projects, condominiums can also be developed for commercial or business purposes. The Michigan Condominium Act has special rules that apply exclusively to business condominiums.
What is a Business Condominium Unit?
Under MCL 559.103(5), a “business condominium unit” is defined as “a condominium unit within any condominium project, which unit has a sales price of more than $250,000.00 and is offered, used, or intended to be used for other than residential or recreational purposes.” A business condominium unit may be part of a purely commercial condominium project, or it may exist within a mixed‑use project where some units are residential and one or more units qualify as business condominium units.
Business condominium units take several forms. They can be part of a site condominium project, where individual parcels of land are designated as units and separate commercial buildings are constructed on each parcel. Business condominium units may also be part of an attached condominium project, such as a multi‑tenant retail or office building in which each unit consists of a portion of a shared structure. As outlined below, the Michigan Condominium Act treats business condominium units differently from other condominiums in several important respects.
Exemption from Purchase Agreement Requirements – MCL 559.184
Under MCL 559.184, there are several specific requirements that apply to purchase agreements with developers for condominium units. Among these requirements include: (1) the right of a purchaser to withdraw from a signed purchase agreement within 9 business days after receipt of certain required documents; (2) the requirement that a developer deposit all funds in an escrow account with an escrow agent and requiring the developer to retain amounts in escrow to assure completion of “must be built” structures and improvements in the condominium; and (3) requirements to include specific statements in the purchase agreement including an arbitration clause for certain claims between the developer and purchaser. MCL 559.184(1) specifically states that none of these requirements apply to a business condominium unit.
Exemption from Disclosure Document Requirements – MCL 559.184a
MCL 559.184a provides a detailed list of certain documents that a developer is required to provide to a prospective purchaser of a condominium unit, other than a business condominium unit. These documents include: (1) the recorded master deed for the project; (2) a purchase agreement that conforms with the requirements of MCL 559.184, together with a copy of the escrow agreement; (3) a condominium buyer’s handbook published by the State of Michigan Department of Licensing and Regulatory Affairs; (4) a disclosure statement, which is required to contain a laundry list of information related to the developer and the condominium project; and (5) specific disclosures related to a conversion condominium project. The developer is also required to provide a separate form to a prospective purchaser that explains the requirements of MCL 559.184a and the developer is required to promptly amend any document required under this section to reflect any material change or to correct any omission in the document. Similarly to the exemption from the requirements of MCL 559.184 for business condominium units, there is an exemption from most of the requirements of MCL 559.184a for business condominium units. Under MCL 559.184a(4), the developer is only required to provide to a prospective purchaser of a business condominium unit a copy of the recorded master deed for the project.
Exemption from Escrow Requirements – MCL 559.203b
MCL 559.203b contains several requirements related to holding funds in escrow to ensure the developer completes all “must be built” items in the Condominium. MCL 559.203b(1) specifically states “this section shall not apply to a business condominium unit.” Accordingly, business condominium units are exempt from these escrow requirements.
Conversion Condominium Projects – MCL 559.204
MCL 559.204 details certain specific requirements that apply to conversion condominium projects in Michigan. A conversion condominium is a pre-existing building, such as an apartment complex, that has been renovated and subdivided into individual units for sale to the public. Under MCL 559.204(2), before offering any unit for sale, the developer of a conversion condominium project is required to notify each existing tenant of any unit in the project of: (1) the proposed conversion; (2) the right of a prospective purchaser to receive the disclosure documents enumerated in section 84a; (3) the right to remain in the unit of residence for 120 days after receipt of the notice, or until expiration of the term of the lease, whichever is longer; and (4) the right to terminate tenancy after receipt of the notice upon 60 days’ notice to the developer. The requirements of MCL 559.204(2) apply to both residential and business condominium units. However, additional requirements apply only to non-business condominium units, including MCL 559.204(3) which states that a tenant who receives notice under subsection (2) may terminate his or her tenancy, at any time, if notice of termination of tenancy is given to the developer not less than 60 days before the date of termination.
Successor Developers – MCL 559.235
MCL 559.235(1) defines “successor developer” as “a person who acquires title to the lesser of 10 units or 75% of the units in a condominium project, other than a business condominium project, by foreclosure, deed in lieu of foreclosure, purchase, or similar transaction.” MCL 559.235(2) further provides that a “successor developer” is required to assume all express written contractual warranty obligations for defects in workmanship and materials undertaken by its predecessor in title. In contrast, MCL 559.235(4) states that a successor developer that acquires title to the lesser of 10 business condominium units or 75% of the business condominium units in the condominium project shall not be required to assume, and shall not otherwise be liable for, any contractual obligations of its predecessor in title.
Conclusion
The Michigan Condominium Act contains numerous statutory exemptions and special rules for business condominium units. Most of these special rules relate to consumer protection concepts designed for unsophisticated residential purchasers. These provisions are less relevant in an arm’s length commercial transaction where purchasers are typically more sophisticated and can protect themselves through due diligence and contract negotiation rather than statutory protections. Understanding these distinctions and the different requirements under the law is critical for developers, purchasers, lenders, and condominium associations.
Hirzel Law, PLC advises condominium developers and community associations across Michigan on structuring and managing business condominium projects in compliance with the Michigan Condominium Act. Whether you are planning a commercial development or managing a commercial condominium with business condominium units, the attorneys at Hirzel Law can help guide you through the unique issues surrounding business condominiums.
