Many Michigan condominium and homeowner association directors want to know how their governing documents might be improved. In our experience, it’s highly likely that just about any community association’s governing documents would benefit from full amendment and restatement. This holds true even for newer developments because developers that draft the governing documents have little incentive to ensure that the documents contain the most advantageous provisions for operation of the association after transfer of the board to owner control. Also, restatement allows an association to address recent changes to the Michigan Nonprofit Corporation Act and the Michigan Condominium Act in the governing documents.
But what if full restatement is simply not possible right away? Maybe the association has faced recent large expenditures with repair projects, maybe time is of the essence, or maybe full restatement is not politically feasible due to opposition from uninformed association members. In these and similar cases, associations may prefer only to address a few priority amendments, which tend to fall under the following categories.
Authority to Assess and Collect
Some associations face unnecessary restrictions on the board’s power to raise regular assessments/dues and/or levy additional or special assessments. Subdivision governing documents drafted many years ago may state, for example, that assessments can be raised no more than $10 per year, and special assessments are limited to $100 per year. The provisions may not even allow the owners to approve greater amounts by a vote. These kinds of provisions unfairly handcuff the association when faced with unexpected expenditures, so if they exist, they should be at the top of the list when considering priority amendments to be addressed.
Ability to Recover Fees and Costs for Enforcement
While most enforcement provisions may allow an association to levy fines and to bring a lawsuit to enforce the governing documents, what really gives those enforcement provisions teeth is the ability to recover the association’s attorney’s fees and costs of enforcement from the defaulting owner. But that right of the association must be clearly set forth in the governing documents. Without it, boards of directors face the question of whether enforcement will be worth the cost, which may lead to larger problems such as claims that the governing documents are being selectively enforced or claims that the board has involuntarily waived the right of enforcement as a result of non-enforcement over a period of time. Ensuring that these provisions have teeth and adopting a clear enforcement policy will promote compliance throughout the community. While a complete lack of ability to recover attorney’s fees and costs is most often observed with respect to subdivisions, we also find that many condo associations can benefit from shoring up these provisions.
Authority to Litigate
Some other states such as California have enshrined the association board’s ability to enter into litigation on behalf of the association in state statute. However, there is no such applicable statute in Michigan, so developers are free to draft provisions in the governing documents that require member approval of almost any litigation. Usually, exceptions are made for enforcement of the governing documents and collection of assessments, so amendment of these types of provisions is usually only a priority for associations that may be considering a lawsuit against their developer and/or its subcontractors. But in those cases, it is certainly a high priority, as you do not want member voter apathy to be the reason you cannot pursue the developer for valid claims in court or defend a frivolous lawsuit against the association.
Condominium associations in particular may wish to consider amending their leasing provisions, especially in regard to restricting the percentage of allowed leased units in the condominium. This is a popular amendment because many believe that promotion of occupation by co-owners leads to better overall compliance with the governing documents and less of a burden on the common elements due to less turnover of residency. Additionally, many believe that co-owners will generally take better care of the common elements due to their ownership interest. It’s common for associations to set a limit for leased units somewhere between 20-30% of all units while grandfathering current lessors.
Have you ever asked yourself, “Why does the association have to cover that – it should be the owner’s responsibility” (or vice versa)? Sometimes, the maintenance and repair provisions in the governing documents just don’t seem fair, don’t align with historical practice, or they create too much of a burden for the association to manage effectively. An amendment paired with a maintenance matrix setting forth the association’s and individual owner’s responsibilities for each element can help save time and avoid some big headaches. Such a matrix can, in some cases, avoid costly and embarrassing mistakes for an association that has not yet received legal assistance on these issues.
Some governing documents fail to provide for adequate architectural control, which is one of the basic concepts that help to support property values within the community. Without them, your neighbor just might get away with permanently installing those gargoyles on their balcony and painting their home neon green! Carefully writing the architectural provisions allows the association to ensure the community will be able to enforce and preserve its intended design and character into the future.
The 2015 amendments to Michigan’s Nonprofit Corporation Act have created a situation where many boards of directors are not aware of what liability protections currently apply to them. If liability provisions existed in the Articles of Incorporation prior to the effective date of the 2015 amendments, the applicable liability provisions may have been automatically changed by law to the liability provisions set forth in the 2015 amendments. And while those liability provisions have now made it more difficult to pursue directors when they abuse their position, directors have to ask themselves what is best for the association. The directors we work with realize they have no need for the liability provisions set forth in the 2015 amendments, and they pursue amendments restoring a reasonable level of protection from liability so that their associations do not face extra risk from a future director who may be less inclined to meet their fiduciary duties. Additional nefarious changes to the Nonprofit Corporation Act should also be addressed in any amendment.
Member Action Without a Meeting
One good aspect of the 2015 amendments to the Nonprofit Corporation Act was the new provision for members to take action by ballot without a meeting pursuant to a maximum 90-day voting period. However, it must be allowed by the articles of incorporation or bylaws in order for this option to be available to an association, so this has been a popular amendment since 2015.
The examples of “piecemeal” amendments outlined above also offer an advantage in that they are easier to understand individually as opposed to pages upon pages of provisions in restated documents. So, the process of explaining them to the members is easier, and the amendments may have a better chance of being approved individually. If just a few items need to be addressed, it’s likely the short-term cost will be much less than an entire restatement as well.
All of the above said, at a certain point, the need to address a significant number of issues means that full restatement will make more sense. Restatement may in fact be more cost-effective in the long run. So before deciding which path to take, be sure to consult with your experienced community association attorney. And don’t think you can do it alone – a successful board will find the ways and means necessary to accomplish needed amendments through dedication, diligence, and sound advice.
By Robert M. Meisner and Mark Petrie