If Not Now, When? (Will You Amend Your Documents)

IF NOT NOW, WHEN?
(Will You Amend Your Documents)


By: Robert M. Meisner, Esq.

Those of you who are members of a Board of Directors may appreciate the need to upgrade your condominium documents, but may also recognize the often quoted phrase made by certain members of your Board who do not wish to spend money to the effect that “if it ain’t broke, don’t fix it”. That is often the excuse given by Board members who believe that their most important job is to spend as little money as possible disregarding their responsibilities as fiduciaries to run the business of the Association in a proper and business like fashion. Incident to that fiduciary obligation is the need to upgrade the condominium documents when necessary.

Many of you, no doubt, have condominium documents which have not been upgraded since changes to the Nonprofit Corporation Act have allowed Associations to limit the liability of the volunteer directors, volunteer officers, and other volunteer members. Failing to take advantage of this clause in the Michigan Nonprofit Corporation Act is tantamount to negligence per se and, in some instances, precludes you from receiving a reduction in your insurance premium (more to be said about insurance premiums later). Additionally, the Michigan Condominium Act has been modified in numerous ways since the second general statute was established in 1978. If you have a condominium document that was established under the original Horizontal Real Property Act of 1963, which has not been amended, a good argument could be made that the Board has been derelict in its duties in not ensuring that it brings its documents up to speed. Even if your documents were established after January 1, 1978, you may still have antiquated documents which do not take advantage of changes to the Condominium Statute and other statutory and case law decisions which impact on the orderly operation of the Association. Additionally, since all condominium documents are not created equally, some documents are better drafted than others and contain protections for condominium associations which should be in every condominium document.

What may be the most motivating factor for Associations to consider revamping the documents is the recent escalation in insurance premiums with the resultant increase in Association assessments putting a real crimp on Association budgets. Many condominium documents contain old and standardized insurance provisions which provide for insurance coverage paid for by the Association beyond its responsibilities for the maintenance repair and replacement of common elements. Additionally, many condominium documents provide that even if a co-owner is negligent in causing damage to the common element, that the insurance company for the Association will still have responsibility for covering the loss except to the extent of the deductible which must be paid by the co-owner.

There is a movement, of course, to change these insurance provisions to limit the exposure of the Association for claims brought by co-owners for damage to items which are not necessarily common element related. Moreover, the repair responsibilities may also have to be shifted in the condominium documents.

This alone should be a motivating factor for any Association to consider revising their condominium documents. However, if your documents were poorly drafted and/or are antiquated in the sense that they do not take advantage of procedures and policies adopted by prudent Associations and the governance of their Association affairs, you should immediately consult with your Association attorney who presumably has knowledge about protections which can be afforded to Associations to assist in enforcing the condominium bylaws, collecting assessments, and recouping attorney fees and costs. The Condominium Act has facilitated the ability to amend condominium documents in regard to mortgagee approval and there is no reason why an Association should not attempt to update its documents particularly if same have not been reviewed for over ten (10) years. In choosing an attorney to assist in this process, the Association should consider the experience and expertise of an attorney who has knowledge of the inter-workings of the Association and the need to address issues including changes in the restriction section of the bylaws to address problems that have or are likely to arise. In any event, the importance of upgrading your condominium documents for the protection of the co-owners, the successful enforcement of the documents and the governance of the Association cannot be over emphasized.