Amending a Michigan condominium’s bylaws or a homeowners association’s declaration is often the single most expensive and time-consuming project a board of directors will undertake during its term. Boards spend months in the drafting process, building consensus, running informational meetings, and chasing down ballots. It is a genuine accomplishment when the amendment passes.
It is also the moment when the risk begins. An owner who dislikes the new restriction has every incentive to look for a defect in how the amendment was adopted, and Michigan courts will enforce the requirements of the Michigan Condominium Act and the governing documents regardless of how much blood, sweat, tears, and time went into the vote or how necessary or sensible the substance of the amendment is. An amendment that was adopted with a procedural defect, that has a retroactive effect, or that exceeds what the law permits, are the three most common mistakes that a board of directors makes in an amendment project. This article looks at each mistake in detail and identifies the common pitfalls that boards make.
Mistake #1: Notice and Voting Threshold Errors
Procedural defects in the voting phase, including improper notice, improper voting method, and an incorrect voting threshold, are among the most common mistakes boards make in amendment projects. Fortunately, they are also the easiest to avoid.
Notice: Put it in the Mail at the Right Time
Under the Michigan Nonprofit Corporation Act, MCL 450.2404(1)(a), condominium associations and HOAs are required to provide notice of a meeting at least 10 days but not more than 60 days in advance of a meeting. Most bylaws mirror these time requirements. Accordingly, boards need to properly plan when the amendment will be sent to the owners so that the notice of the meeting at which the amendment will be voted on meets these timeframes. And as a practical matter, providing sufficient time for owners to review the amendment is helpful. Often, an amendment sent to the community shortly before a vote can make owners feel rushed or that they do not have enough time to read and understand it, which can lead to a lack of participation or a large number of “no” votes.
The single most common issue with notice of an amendment is how the notice is provided. The majority of condominium and HOA bylaws require that notice be provided via first-class mail. We live in a digital age, though, where everyone has an email address. Add in the cost of postage, and boards often default to emailing all official communications to the owners. This, however, is more often than not a violation of the Michigan Nonprofit Corporation Act and most bylaws. Under MCL 450.2406a, electronic transmission (which has a technical definition in MCL 450.2106(6), but includes email) of a notice is permitted, but only when the owner “has consented.” Accordingly, unless each and every owner has opted-in to receive notices via email, there is a good chance that emailing an amendment to the owners would not satisfy MCL 450.2406a, thereby rendering the notice deficient.
Voting: Calculate the Vote Using the Correct Threshold
For Michigan condominiums, MCL 559.190(2) provides that the master deed, bylaws, and condominium subdivision plan may be amended with the consent of not less than two-thirds of the votes of the co-owners and mortgagees. The critical detail is in MCL 559.190(8): the two-thirds threshold is based on all co-owners entitled to vote as of the record date, not two-thirds of the co-owners who attend the meeting or two-thirds of the co-owners who vote. This detail has a large impact on amendment voting. In a condominium with 33 co-owners who are all entitled to vote, an amendment to the master deed or bylaws requires the approval of 22 co-owners. If only 20 co-owners attend a meeting or return their ballots, the amendment necessarily fails.
Michigan HOAs have more variance than condominium associations with the amendment threshold in their governing documents. Some declarations will require very high voting thresholds, such as 80% to 90% of the owners, while others have a lower threshold, such as 51% to 60% of the owners. But these amendment thresholds are similar to condominium associations in that the stated percentage is based on all owners. HOA bylaws may have a reduced approval threshold based on a number or percentage of the owners who attend a meeting or who submit a ballot. Because of this variability, an HOA board should carefully review the governing documents to determine the necessary number of approvals and whether the approvals are based on all owners or just those who vote at a meeting. Remember: there is a difference between the phrases “51% of the owners” and “51% of the owners at a meeting.”
Mistake #2: Bylaw Amendments with Retroactive Effect
One common drafting mistake occurs when an amendment purports to have a retroactive effect or, in other words, attempts to implement a change that affects an owner’s property that was otherwise in compliance with the pre-amendment governing document.
Before going further, it is important to clarify the concept of retroactive effects. An amendment that affects owners going forward is generally enforceable, as owners purchased their unit or lot subject to the master deed and bylaws or declaration, which contain an amendment provision. However, an amendment that reaches back to alter rights that have already vested in reliance on the then-effective governing documents is a different matter. One example of these types of amendments is addressed in Section 112 of the Michigan Condominium Act, MCL 559.212, which prohibits an amendment to a condominium association’s bylaws that affects the rights of a co-owner or tenant under a current lease:
After the transitional control date, the association of co-owners may amend the condominium documents as to the rental of condominium units or terms of occupancy. The amendment shall not affect the rights of any lessors or lessees under a written lease otherwise in compliance with this section and executed before the effective date of the amendment, or condominium units that are owned or leased by the developer.
Another broad example of amendments that could have a retroactive effect relates to architectural authority. Most condominium associations’ bylaws and homeowners associations’ declarations contain some level of architectural authority for the board of directors or an architectural control committee to exercise. There are typically also restrictions on the types of structures or improvements that can be made to a unit or lot. For example, the declaration may state that fences are permitted subject to approval by the board of directors. Under this provision, an owner may install a fence that has been approved by the board. If the declaration is amended to prohibit fences, the board may believe it has authority to require the owner to remove the fence, even though the fence was installed with the board’s approval. However, the owner likely has a vested right in the fence: the owner installed the fence in accordance with the version of the declaration that was in effect at that time. A later amendment cannot be used to undo that approval.
Mistake #3: Amendments that Exceed Statutory Authority
It is not uncommon to hear from owners that an amendment is illegal when, in reality, the owner simply does not support the amendment. But that is not to say that amendments cannot exceed statutory authority or otherwise conflict with a statute.
Before considering what an amendment may not add, boards of condominium associations should understand that there are certain provisions in the bylaws that must be contained in the bylaws and may not be removed. Section 54 of the Michigan Condominium Act, MCL 559.154, identifies a number of provisions that must be included in every condominium association’s bylaws:
- designating who administers the affairs of the project and requiring the maintenance of detailed books and records, MCL 559.154(1);
- the treatment of tangible personal property for tax purposes, MCL 559.154(2);
- the course of action in the event of partial or complete destruction of the condominium’s buildings, MCL 559.154(3);
- the scope of expenditures and receipts affecting administration, MCL 559.154(4);
- preparation and distribution of an annual financial statement, MCL 559.154(5);
- indemnification of the board upon 10 days’ notice to the co-owners and exclusions for willful and wanton misconduct and gross negligence, MCL 559.154(6); and
- an arbitration provision for condominiums established after January 2, 2001, MCL 559.154(8), subject to the applicability limits in subsections (9) and (10).
To reiterate the mandatory nature of the provisions in MCL 559.154, MCL 559.153 states in part: “An amendment to the bylaws of any condominium project shall not eliminate the mandatory provisions required by section 54.” The article What Are the Mandatory Provisions in Condominium Bylaws discusses these provisions in more detail.
Beyond removing provisions that are required by Michigan law to be included in a condominium association’s bylaws, there are a number of amendment topics that a board may unwittingly attempt to pass that are inconsistent with Michigan law. While not exhaustive, below are some common examples of amendments that would be inconsistent with Michigan law:
- setting email as the default method of sending notices; the Michigan Nonprofit Corporation Act, MCL 450.2406a, allows email notice only when a co-owner opts in to receive emails;
- prohibiting solar panels; the Homeowners’ Energy Policy Act, MCL 559.307, states that a provision that prohibits solar panels is unenforceable;
- allowing the board of directors to have fewer than three members; the Michigan Nonprofit Corporation Act, MCL 450.2505(1)(b), requires condominium associations and homeowners associations to have at least three board members;
- provisions that are discriminatory on the basis of race, color, religion, sex, familial status, or national origin; the Fair Housing Act, 42 USC 3601 et seq., prohibits discrimination on these bases;
- creating age restrictions that do not comply with the Housing for Older Persons Act;
- for condominium associations, not requiring a board hearing before levying a fine; MCL 559.206(c) requires “notice and [a] hearing thereon” before levying a fine.
Key Takeaways for Michigan Condo and HOA Boards
The cost of a defective amendment is rarely limited to the cost of drafting the amendment itself. Issues typically surface after the amendment has been drafted, voted on, and recorded, and the association is attempting to enforce a provision in the amendment. By that time, the association has usually spent significantly more time, money, and energy defending the defect than it would have spent avoiding it. Taking the time to ensure that the substance of the amendment does not exceed or conflict with statutory authority, does not have a negative retroactive effect, and has been properly noticed and approved by the correct number of owners should avoid costly headaches in the future. The attorneys at Hirzel Law can provide the board of directors of a condominium association or homeowners association with the guidance and direction to avoid these issues.
