The Importance of Percentage of Value in a Michigan Condominium

What you Need to Know about Percentage of Value in a Michigan Condominium

The Master Deed of every Michigan condominium is required to assign a “percentage of value” to each condominium unit.  However, many co-owners and condominium associations do not understand the significance of the “percentage of value” assigned to each condominium unit.  To some extent, confusion is created as the “percentage of value” assigned to each condominium unit may mean different things in different condominiums.  Accordingly, this article will discuss the most common areas that “percentage of value” has an impact on Michigan condominium associations, being 1) ownership of the common elements 2) the payment of assessments and 3) voting rights.

How does the Michigan Condominium Act define Percentage of Value?

MCL 559.108 outlines the requirements for a Master Deed in a Michigan Condominium.  MCL 559.108(c) states that a Master Deed must contain “[a] statement showing the total percentage of value for the condominium project and the separate percentages of values assigned to each individual condominium unit identifying the condominium units by the numbers assigned in the condominium subdivision plan.”

MCL 559.109(1) defines “percentage of value” as follows:

“Percentage of value” means the percentage assigned to each condominium unit in the condominium master deed. The percentage shall total 100% in the project. Percentages of value shall be determinative only with respect to those matters to which they are specifically deemed to relate either in this act or in the condominium documents. Percentages of value for each condominium unit shall be determined with reference to reasonable comparative characteristics. A master deed shall state the method or formula used by the developer in the determination of percentage of value. Factors which may be considered in determining percentage of value are any of the following comparative characteristics, as determined by the developer:

            (a) Market value.

(b) Size.

(c) Duration of a time-share estate, if applicable.

(d) Location.

(e) Allocable expenses of maintenance.

Accordingly, while the creation of a method or formula to determine percentage of value, along with assigning a percentage of value to each condominium unit is mandatory, the significance of that percentage of value is largely determined by the condominium documents.

 The Percentage of Value Determines Ownership of the Common Elements

One common misconception of condominiums is that a condominium association owns the common elements of a condominium.  However, in most cases, the co-owners own an undivided interest in the common elements based on their percentage of value.  As noted by the Michigan Court of Appeals, “Each co-owner has an undivided share in the general common elements determined by the percentage of value assigned to that co-owner’s unit, and owns the general common elements as tenants in common with the other co-owners.” Dorfman v Pierce Martin LLC, unpublished opinion of the Court of Appeals, issued September 26, 2017 (Docket No. 333428), 2017 WL 4272123, p *1.

MCL 559.137 provides as follows with respect to the interplay between percentage of value and the ownership of the common elements:

1. 1. 1. The master deed may allocate to each condominium unit an undivided interest in the common elements proportionate to its percentage of value assigned as provided in this act.
      2. If an equal percentage of value is allocated to each condominium unit, the master deed may simply state that fact and need not express the fraction or percentage so allocated.
      3. If an equal percentage of value is not assigned, the percentage of value allocated to each condominium unit shall be reflected by a table in the master deed or by an exhibit or schedule accompanying the master deed and recorded simultaneously therewith. The table shall identify the condominium units, listing them serially or grouping them together in the case of condominium units to which identical percentages of value are allocated, and setting forth the respective percentages relative to the several condominium units. The master deed or the exhibit or schedule shall set forth, with reasonable clarity, the formula upon which the percentages were allocated in the original master deed and the basis upon which the same will be reallocated in any modification of the master deed by which condominium units will be added, withdrawn, or modified, which basis may provide for reasonable flexibility if different types of condominium units are introduced into the condominium project in subsequent phases thereof.
      4. A convertible space shall be allocated a percentage of value in accordance with the formula used to derive the original percentage of value.
      5. Except to the extent otherwise expressly provided by this act, the undivided interest in the common elements allocated to any condominium unit shall not be altered, and any purported transfer, encumbrance, or other disposition of that interest without the condominium unit to which it appertains is void.
      6. The common elements shall not be subject to an action for partition unless the condominium project is terminated.

Accordingly, percentage of value is typically determinative of the ownership of the common elements.  However, as set forth in MCL 559.137, this ownership interest cannot be transferred separate and apart from a condominium unit.

The Percentage of Value May Determine the Allocation of Assessments

In most cases, the condominium bylaws will indicate that the common expenses allocated to the co-owners through regular assessments will be allocated based on percentage of value.  MCL 559.169(3) provides in pertinent part:

The amount of all common expenses not specially assessed…shall be assessed against the condominium units in proportion to the percentages of value or other provisions as may be contained in the master deed for apportionment of expenses of administration.

However, MCL 559.169(3) provides discretion for a developer of a condominium association to allocate assessments in another manner if it so desires.  By way of example, if a condominium had units with differing percentages of value, it would still be possible to charge equal assessments to all units if the condominium documents so stated.  Accordingly, while assessments are commonly determined based on percentage of value, each condominium will be different depending on the language of the condominium bylaws.

Similarly, not all expenses will be assessed to the co-owners based on percentage of value. MCL 559.169 also contemplates that expenses associated with certain limited common elements or unusual expenses that benefit less than all of the condominium units will be charged to specific units, as opposed to allocated amongst all co-owners based on the percentage of value.

                 The Percentage of Value May Determine Voting Rights of the Co-Owners 

MCL 559.154(7) of the Michigan Condominium Act provides as follows, “[t]he bylaws may allocate to each condominium unit a number of votes in the association of co-owners proportionate to the percentage of value appertaining to each condominium unit, or an equal number of votes in the association of co-owners.”  Accordingly, the condominium bylaws for each condominium must state whether votes are weighted based on percentage of value or whether each condominium unit has equal voting authority.  As such, it is common that votes on association matters, such as electing or removing directors, will need to be weighted based on the percentage of value assigned to each unit.  However, many condominium documents will simply indicate that each unit has an equal vote, as it is easier to count the votes, and percentage of value has no impact on voting power.  Accordingly, the condominium documents should be carefully reviewed to determine whether the percentage of value assigned to each unit has an impact on the voting power of each condominium unit.

Conclusion

The concept of percentage of value is often confusing for many co-owners as the percentage of value may have different applications from condominium to condominium.  In most condominiums, the percentage of value will, at the very least, be indicative of the percentage of ownership that a co-owner has in the common elements.  Similarly, many condominium associations use percentage of value to determine how common expenses are allocated through assessments.  However, whether percentage of value is used to determine assessments is determined by the specific language of the condominium bylaws.  Finally, in some condominiums, percentage of value is used to determine voting power.  The condominium units that have a greater percentage of value, have greater voting power.  This is likely due to the fact that co-owners with a higher percentage of value may be required to be a greater proportion of assessments, depending on the language of the condominium bylaws.  Accordingly, given that the significance of percentage of value varies between condominiums, it is important that a condominium association consult with counsel to ensure that they are properly applying this concept to the collection of assessments and voting.

Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. He was named a “Go To Lawyer” in Condominium and Real Estate Law by Michigan Lawyer’s Weekly. Mr. Hirzel has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2021, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel has been named a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine from 2018-2021, an award given to less than 5% of the attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 478-1800 or kevin@hirzellaw.com.