The first question the Board of Directors of a homeowners association will ask when discussing a document amendment project is how much it will cost the HOA. Any attorney worth their salt should give a pretty standard response: it depends. The reason for this vague answer is that an amendment project for a Michigan homeowners’ association will cost different amounts on a variety of factors: the scope of the amendment project, the documents that need to be amended, the complexity of the existing governing documents, how involved the Board of Directors wants the attorney to be in the informational and voting phases, and even the method of the amendment’s approval.
This article provides an overview of the three amendment approaches that the attorneys of Hirzel Law use to assist Michigan homeowners associations in amending their governing documents, the typical costs of each, and an overview of the amendment process. Board members can use this information to make an informed decision about the type of amendment that is right for their community.
How Much Does a Michigan HOA Amendment Cost?
The cost to amend a Michigan homeowners association’s governing documents depends on the approach the board chooses. As a general guide, Hirzel Law uses three approaches at the following typical price points:
- Amended and restated documents — a complete rewrite of the governing documents, typically averaging $7,000 to $10,000.
- Spot amendment — a targeted change to one or more provisions, typically starting around $1,000 for a single change and increasing with the number and complexity of changes.
- Report card — a flat-rate review of the governing documents, currently $2,000, to help the board decide whether and how to amend.
The sections below explain what drives these figures, walk through each approach in detail, and outline the amendment process from start to finish.
An HOA’s Governing Documents
Before getting into the details on an amendment project, it is important to recognize that Michigan homeowners associations have multiple governing documents. In general, there are three individual documents that make up the governing documents:
- The Declaration. The Declaration is the governing document recorded with the county, identifies the HOA’s authority over lot owners, and contains restrictions on how lot owners may use their property. This document has several names: Declaration, Deed Restrictions, Covenants, CC&Rs, Restrictions, among others. Despite the different names, this document is likely to be the focus of most HOA amendment projects.
- The Bylaws. An association’s Bylaws are the document that identifies how the HOA operates. Typical provisions in an HOA’s Bylaws include meetings, voting, elections, Board authority, financial provisions, and sometimes details on assessments.
- The Articles of Incorporation. The Articles of Incorporation are the document that was filed with the State of Michigan that created the homeowners association as a corporate entity, usually as a nonprofit corporation.
Why Amend Your HOA’s Governing Documents?
The specific reasoning that a homeowners association begins an amendment project varies, but it can usually be categorized into one of a few themes: the governing documents are old and the HOA wants to modernize them; the governing documents drafted by the developer do not reflect the desires of the owners; or there have been problems with specific provisions of the governing documents. All of these reasons are valid.
The original governing documents were drafted by the developer who had a particular vision for how the subdivision would operate. Often, decades have passed since the subdivision was established, and that vision no longer holds true for the current board and owners. A homeowners association may therefore decide to amend the governing documents to reflect the needs and desires of the community, and how the association has historically operated.
Other times, the board will want to modernize and update the governing documents, particularly if they are over 20 years old. In the past 10 years, there have been a number of changes in Michigan law that homeowners associations can take advantage of through an amendment, such as changes to the Michigan Nonprofit Corporation Act, MCL 450.2101 et seq., to allow for virtual meetings, electronic voting, limitations on director and officer liability, and document inspection requests. Michigan recently adopted the Homeowners Energy Policy Act, MCL 559.301 et seq., which affects an HOA’s traditional architectural authority over changes to an owner’s home exterior when it comes to solar panels and energy-saving improvements or modifications. Society in general has also changed over the last decade, with short-term rentals becoming a topic of growing concern.
Boards may also feel that the existing governing documents are conflicting or ambiguous, or just simply do not address topics that have become an issue in the community. The governing documents set the rules and restrictions of how the homeowners association operates and what is expected of the owners, as well as contain reasonable enforcement methods. The documents should be clear, easy to follow and enforce, and reflect the needs and desires of the community.
The Three Amendment Approaches and Their Costs
There are two categories of amendment approaches, with the third being an informational review that can allow the HOA to decide on which of the two general approaches is best-suited for the community.
Approach A: Amended and Restated Documents
An amended and restated declaration and bylaws is the most comprehensive amendment project that completely rewrites the existing governing documents. This approach results in an entirely new set of governing documents that contains provisions to reflect updates in Michigan law, address current concerns and issues, and remove outdated, unwanted, or unnecessary provisions.
The amended and restated amendment process begins with a questionnaire that allows the board to respond to a number of topics. The purpose of the questionnaire is to have the first draft of the amendments reflect the unique aspects of each community and be one step closer to a finished product. Once the questionnaire is complete, an initial draft of the governing documents typically starts around $3,500. After the first draft, the amendment project will usually entail reviewing and implementing the board’s revisions, addressing questions and concerns at Board or community meetings, and drafting the voting package. After the first draft of the governing documents, the additional work to get the amendments to a finished product and submitted for a vote usually adds an additional $3,000 to $6,000. An amended and restated amendment project typically averages between $7,000 to $10,000 in total.
Approach B: Spot Amendment
The second approach is the “spot amendment.” A spot amendment is a targeted change to one or more provisions to make one or more specific changes. This results in a document that only identifies the change or changes that are being made, with the remaining provisions of the governing document unchanged and not identified in the amendment. Spot amendments are appropriate when the HOA wants to make a specific change without going through the amended and restated amendment process. Examples of spot amendments include short-term rental restrictions, parking restrictions, and enforcement mechanisms such as fines and recovery of attorney’s fees.
The cost of spot amendments varies with the number and extent of the changes. A change to allow or prohibit fences will have a different cost than creating a short-term rental framework, and making a large number of spot amendments can begin to approach the cost of an amended and restated amendment project. In general, spot amendment projects typically start at around $1,000 for a single change and increase from there based on the number and complexity of changes. HOAs should be aware that sometimes a spot amendment can have a cascading effect on the rest of the governing document. A comprehensive review of the entire document is often necessary to avoid inconsistencies among the provisions.
Approach C: Report Card
For homeowners associations that would like to update their governing documents but don’t know where to start or what changes should be made, a report card can be an effective tool to assess the condition of the governing documents. For a current flat rate of $2,000, an experienced Hirzel Law attorney will review the governing documents and provide a detailed checklist of the provisions that are and are not present. The results of the report card assist the board in understanding the types of provisions present in the governing documents and in identifying which other types of provisions are not present and may be added in an amendment project. From there, the board can make an informed decision of whether to pursue an amendment and restatement amendment or spot amendment project.
The Amendment Process
Regardless of whether a homeowners association pursues an amendment and restated amendment or a spot amendment, the amendment project follows a similar process:
- Develop the Scope of the Amendment.
The first step in any amendment project is to determine the scope of the amendment. For amended and restated amendments, this begins wth the questionnaire. The questionnaire identifies a number of proposed changes and issues for the Board to determine whether to include in the first draft. It also allows the Board to suggest other changes not identified in the questionnaire. Completing the questionnaire makes the project more efficient and cost-effective by reducing the number of revisions in an amended and restated amendment.
For a spot amendment, the process begins with a discussion between the Board and its attorney. The discussion should identify the areas or topics that the Board would like to address, or an issue the Board is currently facing but the governing documents do not adequately address.
- Drafting and Reviewing.
Based on the responses to the questionnaire or a discussion of the aim of a spot amendment, the association’s attorney will prepare an initial draft of the proposed amendment. The Board will then review the draft and often provide feedback through questions or comments. Based on the Board’s feedback, additional changes may be needed. Once the Board approves the final draft, the amendment is ready to be sent to the community for an informational meeting or to begin the voting process.
- Informational Meeting.
Before the formal voting process begins, an HOA may hold an informational meeting with the owners to discuss the proposed changes in the amendment. An informational meeting is an important part of an amended and restated amendment project, as these types of amendments often contain numerous changes that cannot reasonably be identified and explained in an explanatory letter. Beyond answering questions, an informational meeting is also an opportunity for owners to provide feedback and suggest their own changes to the amendments. Getting feedback and suggestions at this stage is crucial because, once the amendments are submitted for a vote, they cannot be changed without restarting the entire voting process.
- Owner Vote.
Unlike condominium associations, which are required by the Michigan Condominium Act to follow a certain voting process, the method of approving an amendment to a homeowners association’s governing documents depends on the process identified in the current documents. To complicate matters, the amendment process in the Declaration may be different than the process in the Bylaws.
- The Declaration.
The amendment process identified in the Declaration typically falls into one of three categories: (1) written consent, (2) a vote, or (3) no amendment provision.
A Declaration that contains a written-consent amendment process will contain a provision similar to the following example:
These covenants are to run with the land and shall be binding on all parties and all persons claiming under them for a period of twenty-five years from the date these covenants are recorded, after which time said covenants shall be automatically extended for successive periods of ten years unless an instrument signed by a majority of the then owners of the lots has been recorded, agreeing to change said covenants in whole or in part. [Brown v Martin, 288 Mich App 727, 729; 794 NW2d 857 (2010).]
A written consent is different from a traditional “yes” or “no” vote. Under this type of amendment provision, a specified number of owners must sign their names to a consent form to certify their approval of the changes. These consents may also need to be notarized. The signed consents will then be attached to the amendment, establishing the required number of owners approved the amendment.
A Declaration may also contain an amendment provision that requires a traditional vote:
This Declaration may be amended, changed, or added to at any time and from time to time upon the execution and recording of an instrument signed by the President of the Association certifying that the amendment set forth in the instrument was adopted by a vote of at least two-thirds (2/3rds) of the votes of all owners.
This type of amendment provision contemplates a traditional “yes” or “no” vote. The vote will need to be conducted in accordance with the existing Bylaws, which may require the vote to take place at a meeting or may allow for a vote by ballot without a meeting.
Although rare, some Declarations do not contain any amendment provision. For a Declaration that does not contain an amendment provision, any change must have the unanimous approval of all owners.
- The Bylaws and Articles of Incorporation.
Unlike a Declaration, an HOA’s Bylaws and Articles of Incorporation are usually amended through a typical “yes” or “no” vote. The existing Bylaws and Articles of Incorporation should identify the number or percentage of owners who must vote in favor of the amendment in order for the amendment to pass.
- The Declaration.
- Recording and Filing the Amendment.
After an amendment to the Declaration has been approved by the requisite number of owners, whether through written consents or a traditional vote, the Declaration will need to be recorded with the county register of deeds. Although it is beyond the scope of this article, HOAs should also be aware of the renewal periods and effective dates in their Declaration’s amendment provision, as further discussed in the article Time Limits for Amending HOA Restrictive Covenants in Michigan. An amendment to the Bylaws generally just needs to be signed by the Board President to be effective, and does not need to be recorded. An amendment to the Articles of Incorporation must be filed with the State of Michigan.
Factors That Affect the Cost of an Amendment Project
The estimated costs for one of the amendments described above assume a typical project. There are several factors that can increase the overall cost of an amendment project:
- Community Size. Larger communities may have been originally developed in multiple phases, with each phase having its own Declaration. Accordingly, each phase’s Declaration will likely need to be amended to ensure that the changes apply to each phase. While any changes should be consistent across each phase’s Declaration, drafting multiple amendments still takes more time than drafting a single amendment for a community developed in a single phase with a single Declaration.
- Engagement. An essential part of any amendment project is getting the community engaged in the process. This starts with meetings and discussions with the Board to develop the final drafts of the amendments, and continues to communications and possibly meetings with the general membership.
- Revisions. The number and scope of the revisions requested by the Board of Directors has a direct impact on the cost of an amendment project. This is not to say that a Board should forgo suggesting changes or asking questions about the drafts. But revisions and comments can be communicated and coordinated in a way to minimize the rounds of revisions, thereby keeping costs down.
Conclusion
Amending the Declaration of a Michigan homeowners association is a significant undertaking, but it is one that can provide lasting benefits to the community. A well-drafted Declaration that reflects current Michigan law, addresses the issues facing the community, and clearly sets out the association’s rules and restrictions reduces the risk of disputes and gives the Board the tools it needs to effectively serve its members. A homeowners association that is considering a document amendment project should contact the attorneys at Hirzel Law to discuss which approach (an amended and restated amendment, a spot amendment, or a report card review) is right for its community and to obtain an estimate of the anticipated cost.
