We have previously written about Michigan HB 4446, advocating for removal of the exemption for developers in the bill, or in the alternative, abandoning it. Now, a new Massachusetts Supreme Court ruling in Trustees of the Cambridge Point Condominium Trust vs. Cambridge Point, LLC has been published, where the court found an anti-litigation provision in the condominium documents to be contrary to public policy.
Massachusetts law recognizes an implied warranty of safety and habitability of homes as a matter of public policy. This means that, for example, a developer does not necessarily have to provide a warranty of safety and habitability in a sales contract in order for such a warranty to apply. And contracts cannot waive that implied warranty. The court states:
“In order to effectuate this public policy, we have consistently recognized the rights of individuals to obtain legal redress when their homes fail to meet minimum standards. These rights — whether grounded in the implied warranty of habitability or in the building code… are so vital that we have consistently held that they cannot be waived.
This clear expression of public policy leads us to conclude that a condominium bylaw provision that effectively limits the ability of unit owners to obtain legal redress for violations of these rights must be carefully scrutinized to determine whether it contravenes that public policy. “
Proponents of the exemption for developers in HB 4446 may point to the fact that in Cambridge Point, 80% approval was required and the developer-related entities owned more than 20% of the units, making it impossible to achieve litigation approval. HB 4446 allows governing documents to provide for 2/3 co-owner approval of litigation against developers for money judgments. However, as just about anyone who has practiced in the field of condominium law knows, it is extraordinarily difficult to get that level of co-owner approval.
“Even if the developers or their affiliates did not retain a twenty per cent ownership interest, the provisions of § 1(o), in their entirety, make it extraordinarily difficult for the trustees to sue the developer for defective construction and design of common areas or facilities. First, the bylaw provisions require the consent of at least eighty per cent of all unit owners, so if the developers retain any ownership interest in the units, the trustees would need to obtain the consent of more than eighty per cent of the unit owners who are not affiliated with the developers — and perhaps all of them, if the developers have retained nearly twenty per cent of the units. Second, because the trustees must obtain the affirmative consent of at least eighty per cent of all unit owners, any unit owner who fails to respond to the request for written consent is treated as if he or she refused such consent, regardless of whether the unit owner is ill, has rented out the unit and is presently unavailable, or is simply unwilling to make a decision.” [Emphasis added.]
In summary, the court states:
“We conclude that it is overreaching for a developer to impose a condition precedent that, for all practical purposes, makes it extraordinarily difficult or even impossible for the trustees to initiate any litigation against the developers…” [Emphasis added.]
It is unfortunate that Tuscany Grove Association v. Peraino 311 Mich.App. 389, 875 N.W.2d 234 was a bylaw enforcement action against a co-owner instead of a construction defect action, because these matters of public policy could not be properly considered by the Michigan Court of Appeals with respect to a developer defendant. The court in Tuscany Grove found the anti-litigation provision in the condominium documents to be enforceable.
Like Massachusetts, Michigan recognizes a common law implied warranty of safety and habitability of homes (in Michigan, with respect to new construction) which cannot be waived by contract (e.g. the condominium documents). The exemption for developers in HB 4446, which would specifically allow anti-litigation provisions to apply with respect to claims against developers, is clearly contrary to our established public policy and should not become law.