As regular readers of our blog will recall, we have provided extensive analysis of HB 4919 (2015), which was introduced in the prior legislative session. While the initial version of the legislation was positive, unfortunately it was later amended such that the bill actually represented a threat for certain Michigan condominium associations. Now, that amended version has been reintroduced in the new legislative session as HB 4446.

We request that you contact the House Judiciary Committee Chair, Representative Jim Runestad immediately to oppose HB 4446 and advocate for a return to the original language of HB 4919 as submitted in September 2015, or that the bill be otherwise killed. Sample text suggested for your use follows:

Dear Representative Runestad:

I am writing to oppose HB 4446, which is substantively the same as the amended version of HB 4919 from the prior legislative session. I support a return to the original language of HB 4919 as introduced in September 2015. Short of that, the bill should not be allowed to move forward.

Of concern is the special exemption for condominium developers included in the amended version of HB 4919 and HB 4446, which cannot be justified on any basis and in fact represents a threat for Michigan condominium associations. If HB 4446 becomes law, circumstances will be worse than they are now. The exemption with respect to developers provided in HB 4446 would result in the codification of a law which would establish, perhaps irrevocably, recognition of anti-litigation provisions in condominium governing documents as reasonable with respect to developers, whereas currently there is still a chance that our courts may eventually recognize that anti-litigation provisions (which are drafted by the developers themselves) are unconscionable.

Proponents of this bill have stated that the exemption for developers was necessary in order to appease certain special interest lobbying groups. However, appeasing special interests is not good public policy – the question is what is good for Michigan’s constituents. Additionally, there is no real benefit left for condominium associations, particularly because most condominium Bylaws containing the anti-litigation provisions in question already state that the provisions do not apply to collection of assessments or enforcement of Bylaws or can otherwise be narrowly construed.

In closing, I implore you to consider your constituents’ consumer rights, rights of access to the courts, and basic common sense, which should lead you to conclude that anti-litigation provisions drafted by developers for their own benefit have nothing to do with protecting the financial interests of condominium co-owners.

Please oppose HB 4446 and advocate for a return to the original language of HB 4919 as drafted in September 2015; otherwise, please kill the legislation.

 

Further background information about this bill follows below. You may also wish to view our recorded Webinar on HB 4919. Thank you in advance for advocating on behalf of Michigan’s condominium associations.

Michigan Condominium Boards of Directors Have Limited Power to Litigate

When drafting original governing documents such as Articles of Incorporation and Bylaws, condominium developers and their attorneys follow a common practice of including a requirement that at least 2/3 of the association members must vote to approve any commencement of litigation against the developer. Usually, a strict formal process for obtaining approval is prescribed which can serve as a basis for a developer to object if not followed to the letter.

In a few limited cases, governing documents may require the 2/3 approval before any kind of litigation may be commenced. The controversial 2015 Michigan Court of Appeals decision, Tuscany Grove Association v. Perainoconfirmed that the language of such a provision controls over the board’s authority to enforce the governing documents on behalf of the association, in this case with respect to an architectural improvement violation of the Bylaws. The case was dismissed due to lack of the 2/3 approval. Our firm continues its efforts to differentiate, distinguish or otherwise reverse the decision in Tuscany Grove through the court process.

While certainly beneficial to developers that avoid litigation as a result of co-owner voter apathy or a lack of understanding of construction defect issues and financial shortfall claims, these 2/3 approval requirements are unnecessary and unfairly handcuff boards of directors that would otherwise pursue reasonable construction defect and financial shortfall claims against developers or other claims against vendors and third parties. Imagine if the board of directors of any for-profit stock company had to get the approval of 2/3 of its shareholders before commencing litigation. It would be ridiculous, of course, so it begs the question, why should the board of directors of a condominium nonprofit corporation have to do so?

HB 4919 Original Language Would Have Eliminated All 2/3 Approval Requirements for Litigation

In September 2015, Representative Klint Kesto introduced HB 4919, which would add the following pertinent language to MCL 559.160:

“(2) The Board of Directors of an association of co-owners has the power to assert, defend, or settle claims on behalf of all co-owners in connection with the condominium project.

(3) The Articles of Incorporation for an association of co-owners and the condominium documents shall not restrict the power of the Board of Directors granted under subsection (2). Any provision in the Articles of Incorporation or the condominium documents that requires a vote of the co-owners to authorize the Board of Directors of an association of co-owners to incur legal fees and costs in the exercise of the power granted under subsection (2) or that otherwise seeks to restrict that power is void.”

Clearly, this would have been beneficial to all condominium co-owners. In our experience, board members only enter into litigation after careful consideration of the risks and potential rewards. As they obviously own property in the condominium and often live there, directors’ interests are closely aligned with the association, and they do not need an additional check on their judgment in connection with litigation by a 2/3 member approval. Developers should not be allowed to include such self-serving provisions in condominium governing documents.

Unfortunately, as described above, the original language of HB 4919 was amended to provide a special exemption for developers, and the drafter of the original legislation has included this special exemption in the new HB 4446. Please take action as described above to advocate for Michigan’s condominium associations.