A new unpublished Michigan Court of Appeals decision provides an instructive example of how courts will sometimes use a simple dictionary in order to determine what words mean. In MJ Development Company, Inc. v. Inn at Bay Harbor Association (Not reported in N.W.2d, 2017 WL 726591), the decision was based on the following bylaw provisions:
(a) Should the Association at any time decide, in its sole discretion: (1) that the assessments levied are or may prove to be insufficient (a) to pay the costs of operation and management of the Condominium, (b) to provide replacements of existing Common Elements, (c) to provide additions to the Common Elements not exceeding $10,000 annually for the entire Condominium Project… the Association shall have the authority to increase the general assessment…
(b) Special assessments, in addition to those required in subparagraph (a) above, may be made by the Association from time to time and approved by the Co-owners as hereinafter provided to meet other requirements of the Association, including, but not limited to: (1) assessments for additions to the Common Elements of a cost exceeding $10,000 for the entire Condominium Project per year.
The plaintiff developer objected to three actions taken by the association: (1) constructing a new fireplace in the lobby, which it characterized as an “addition” as opposed to a “replacement”; (2) work on gutters and downspouts, which it characterized as “additions”; and (3) reallocation of money in an unapproved special assessment.
First, at a cost exceeding $10,000, the association had replaced an electric fireplace attached to the wall with a framed opening in a chimney designed to accommodate an open wood fire. The court disagreed that this was an “addition” and found that “replacements do not have to be of the same specific character.” The court referenced Webster’s College Dictionary definition of “replace”:
replace… 1. to assume the function of; substitute for: to replace gas lights with electric lights. 2. to provide a substitute for: to replace a broken dish. [Emphasis in court’s opinion]
The court contrasted the above definition with the definition of “addition” which includes “something added” and alternatively as an example “a wing, room, etc., added to a building.”
Next, in addressing the work on gutters and downspouts which cost approximately $38,000, the court found that gutters and downspouts have a maintenance function, “as they serve a vital role of diverting rain water away from buildings and structures, which acts to keep the property ‘in good condition’.” Here, the court relied on a different bylaw provision that allows general funds to be used for maintenance and a dictionary definition of maintenance as “the upkeep of property or equipment.” So, the question of whether this work constituted an addition or replacement was immaterial.
Finally, $140,000 had been allocated for a new service elevator in the following year’s budget. But the budget assumed that a special assessment for same would be approved by the co-owners, as it would indeed be an “addition” requiring approval by the co-owners pursuant to the above bylaw provisions. As a letter to the co-owners explained, “In anticipation of your support, the portion of the cost for this project to be paid by the HOA has been budgeted… No additional funding will be necessary.” When the vote failed, the money that was originally meant for the elevator was “simply used for other authorized projects” that did not require a co-owner vote to approve. The court found no problem with this, so in effect, the co-owners were not voting on whether they would have to pay the $140,000 but instead were voting only on whether the money should be used for a new service elevator.
Once the board is no longer controlled by the developer, the period of time in which the developer still owns units and is trying to sell them may vary considerably in length, possibly as much as several years. During this time, it is common for the developer, such as the plaintiff in this case, to oppose boards of directors that want to spend money on common elements. This is understandable, as the developer has an ultimate goal of selling all of its interest in the development, the developer does not enjoy the benefits of the common element amenities, and the amount of an additional or special assessment will likely be greater than any possible increase in unit sale prices that may be realized as a result.
Although this is an unpublished decision and therefore cannot be cited as precedent, this case makes clear that developers should be extremely careful with respect to how their assessment provisions are drafted. Developers and associations should also consider how basic definitions of the words in the bylaws may be considered in a court’s final decision. It is also easy to see the value in seeking an attorney’s opinion as to whether co-owner approval may be required for an expense or special assessment, or whether the purpose would be considered within the board’s sole discretion to pursue without co-owner approval.
By Robert Meisner, Esq. and Mark Petrie, Legal Assistant
The Meisner Law Group, P.C. has been at the forefront of this issue since the 1970’s, ensuring that courts recognize our community association clients’ ability to assess and expend funds in accordance with their governing documents. If your association requires guidance, contact us at 248.644.4433 or firstname.lastname@example.org.