By Robert Meisner and M. Katherine Michael
I. Significant Advantages to Having Updated Governing Documents.
The documents of a Condominium Project establish the Condominium Project from a legal (title) standpoint, and create the framework for the governance of the Condominium Project. A properly governed Condominium Project can significantly enhance Unit re-sale marketability and real estate appreciation, as well as greatly reduce “headaches” caused by a problematic living environment rife with legal challenges and financial liabilities. The ability of a Condominium Association and its Board of Directors to effectively operate and administer the Condominium is also affected by the manner in which the provisions of the Condominium Documents are worded and how those provisions work together, within and throughout the various documents.
II. Changes in the Laws Create a Need to Amend.
Before 1978, hundreds of Michigan Condominiums were established by Condominium Documents which were drafted to comport with the Horizontal Real Property Act of 1963. These pre-1978 Condominium Documents are dangerously antiquated now and, in many instances, contain provisions that are considered illegal and unenforceable by today’s standards and laws. A Board of Directors of a pre-1978 Condominium should presume their Condominium Documents are in need of updating and should contact an attorney specializing in Condominium law to advise the Board on how to initiate that process.
In 1978, the Michigan Condominium Act No. 59 was enacted, and progressive Condominium Document draftspersons began to incorporate the many good provisions allowed by that new Act. However, some 1978 (and later) Condominiums continued to be established using the old, outdated provisions. Throughout the years following the enactment of the 1978 Michigan Condominium Act, several important amendments to that Act were passed which have allowed condominiums to realize certain advantages through passing amendments to their documents. (These will be discussed in more detail below.) Also, many other new and important laws affecting Condominiums were being enacted, such as the Federal Fair Housing Act, the 1996 Federal Telecommunications Act and the resultant Federal Communications Commission (FCC) Rules addressing consumers’ rights and limitations to erect satellites and antennas, several amendments to the Michigan Nonprofit Corporation Act addressing, for example, limiting unwarranted liability of officers, directors and volunteers; permitting the taking of a membership vote on certain actions without convening a meeting; and more.
Additionally, other factors have propelled our redrafting of Condominium Document provisions, such as community association case law decisions, including the Michigan Court of Appeals case that disallowed rule restrictions on dogs based upon size alone; societal trends such as allowing (while limiting certain aspects) home businesses and family day care homes; and concerns for safer living environments.
On January 1, 2001, the 1978 Michigan Condominium Act was significantly amended by enacting many new and modified provisions drafted and proposed by community law attorneys, such as this co-author, Robert M. Meisner, Esq. The widespread effect has now resulted in a multitude of good changes and updates being made in Condominium Document provisions through amendments.
III. Which Documents Should We Amend?
In determining the need for amending the Condominium Documents, it is wise to undertake a “Legal Audit” to: (1) ensure that all legal requirements have been met and followed (i.e., properly establishing the Condominium and the Condominium Association, and that the required governmental filings have been submitted), and (2) determining the overall effectiveness of the Condominium Documents in terms of ensuring they are clear, reasonable and suited to the individual needs of your project, while dealing with critical issues such as insurance coverage, restrictions, collection of assessments, clear and specific pronouncement of prohibitions, enforcement procedures, and director and officer indemnification, among other things.
Amending the Bylaws.
The most widely desired amendment is to the Condominium Bylaws. This is due to the heavy reliance on the Condominium Bylaws for the day to day operation of the Condominium. The “state of the art” set of Condominium Bylaws also now incorporates the provisions of the Corporate Bylaws, thereby creating one cohesive, consistent document containing all Bylaw provisions (the “Bylaws”). If several provisions of the Bylaws are being amended, it is often preferable to not only amend the Bylaws, but to restate the entire document so that you have one entirely new set to use, rather than a piecemeal approach whereby some of the old Bylaw provisions would still be applicable, while other provisions are superseded by amendments. In deciding whether to amend the Bylaws, you want to ask yourself the following questions:
How many years has it been since our Bylaws were created, or amended, and how many laws have been passed and/or changed since then?
Would you like to improve Unit re-sale marketability and real estate appreciation, and strengthen the Condominium against potential legal challenges and financial liabilities that could be thwarted through good document provisions?
Do you have financial difficulties that are caused by delinquent assessments, inadequate budget or reserves, or non-recoverable attorney fees incurred in pursuing bylaw infractions, and do the Bylaws not seem to provide any remedies or a roadmap for relief?
Do your Bylaw provisions seem to be contrary to public policy, such as prohibiting the flying of the American flag, prohibiting family day care homes, allowing transient tenants, discriminating against children or single people?
Do you have problems around the Condominium community such as parking, pet owners not cleaning up after their dogs or not keeping them leashed at all times, common elements not being properly maintained, satellites and antennas indiscriminately erected, and the Bylaws do not provide remedies, direction or relief?
Do you have trouble getting the co-owners to attend meetings, satisfying the quorum requirements, passing votes on important issues, keeping members on the Board of Directors, getting people to volunteer for the Board, and your documents lack reasonable notice or quorum requirements, or lack the protective indemnification, limitation of director and officer liability, and the director and officer insurance coverage provisions?
Are there clear procedures in your Bylaws for dealing with insurance proceeds, Association funds, eminent domain and other factors which serve to protect the owners’ collective investment?
Do your Bylaws contain outdated provisions regarding the Developer’s rights, and references to governmental agencies or governmental documents which may have been abolished such as GNMA, or an old Regulatory Agreement, or an unenforceable and potentially discriminatory right of first refusal Unit re-sale provision?
Many of the above mentioned problems can be protected against, avoided and/or significantly reduced through the adoption of the proper Bylaw amendments. A vote of approval of a certain percentage of the co-owners and, possibly, of the mortgagees would be required prior to amending the Bylaws. There is an art to getting these documents approved, but it can be done through careful planning and Board dedication.
Amending the Master Deed.
Although not as heavily relied upon on a day to day basis, the Master Deed is the most important of the Condominium Documents. The Master Deed legally establishes the Condominium, sets forth the basis of ownership of the Unit space, defines the Common Elements, establishes the maintenance, repair and replacement responsibilities between the Association vis-a-vis the co-owners; creates and identifies the easements; defines the terms used throughout the Master Deed and Bylaws; and it provides approval guidelines for amending the Condominium Documents and terminating the Condominium. Your Master Deed could be amended, by way of example, to clarify and/or change Common Element maintenance, repair and replacement responsibilities, to update the easement Article regarding telecommunications, security, encroachment, utilities and maintenance, and to update the amendment requirements which have been substantially changed pursuant to the 2001 amendments to the Michigan Condominium Act. Other problems common in Master Deeds are that they contain obsolete developer provisions, or the Condominium may have been developed in phases and the Consolidating Master Deed was never filed or is improper. But, do not let any purported unanimous amendment approval requirement deter you from amending your documents, since those onerous unanimous approval requirements have been declared void and superseded by lesser requirements set forth in the Michigan Condominium Act, as amended. Amendments to the Master Deed and to the Condominium Bylaws must be recorded in the county Register of Deeds office.
Amending the Condominium Subdivision Plan.
It is also prudent to have an expert review your Condominium Subdivision Plan to ensure the necessary easements are properly set forth, to record “as-built” plans in compliance with the Condominium Act if the Developer has failed to do so, to re-create legible sheets of plans faded by years of re-copying, to change Common Elements to conform to the Master Deed and/or the actual practices of the Association, and any other purpose deemed necessary by your Condominium attorney. Amendments to the Condominium Subdivision Plan generally require the approval of a percentage of the co-owners (and possibly of the mortgagees). The Condominium Subdivision Plan is an Exhibit to the Master Deed and must be recorded as such in the county Register of Deeds office.
Amending the Articles of Incorporation.
This document provides the fundamental basis for establishing the Condominium Association as a viable corporate entity in the eyes of the State of Michigan. Often, the necessities to preserve the good standing of the Corporation are neglected, and the Corporation becomes automatically dissolved for failure to file the annual Information Update reports. This can be very dangerous since the actions of the Condominium Association and/or its Board of Directors could be deemed illegal and/or invalid. The legal audit should ensure that the corporation is in good standing and that the resident agent and the registered office address are correct. Secondly, the Articles of Incorporation should be reviewed to determine if the proper provisions for limiting the liability of the directors, officers and volunteers have been included. There is no reason for these volunteer co-owners to unnecessarily “stick their necks out” from a liability standpoint, and good protection may encourage more co-owners to step up and volunteer their time and could save the Association on insurance premiums. Additionally, allowing for the taking of certain corporate actions through a voting process which does not require the calling and conduct of meetings should be included, the purposes of the corporation should be examined and track with the Bylaws, and the membership provisions should be likewise reviewed. A vote of the members of the Condominium Association is required to amend the Articles of Incorporation. To become valid, amendments to the Articles of Incorporation must be filed with the State of Michigan Department of Licensing and Regulatory Affairs.
Rules and Regulations.
If any additional policies, procedures or clarification of the Condominium Documents are desired, new rules and regulations should be drafted and adopted to implement the existing “structural law” already set forth in the current Condominium Document provisions. Any existing rules and regulations should be amended if they conflict with any of the changes in the laws discussed above, or with any of the Condominium Document provisions. Rules and regulations can consist of delinquent assessment collection procedures, bylaw enforcement procedures, fine procedures, pet policies, procedures governing the use of common elements such as parking areas, trash pick-up, and amenities such as a pools, clubhouses, park areas, and lakes, among other things. Some Bylaws require that rules be approved by a vote of the co-owners, while other Bylaws give the co-owners the right of revocation. You may want to consider recording your rules and regulations with the County Register of Deeds office so that the co-owners and new purchasers are on constructive notice of their existence, just like the other Condominium Documents, but confer with your Condominium attorney to determine whether what you have is properly classified as a rule as opposed to a Bylaw and visa versa.
Conducting a Critique of Existing Documents.
If you would like a more customized approach to determining specifically what amendments your Condominium Documents could benefit from, you should request your Condominium attorney to review your documents and to provide the Board of Directors with a written critique which should include: (1) a listing of all current pending Condominium Documents affecting your project which have been obtained and reviewed; (2) a detailed description or checklist of the problematic provisions within each of the documents and an explanation of the amendment recommendation; and (3) a summary of the amendment requirements and the amendment process to assist the Board in planning for the time and costs which are anticipated.
Since most amendments to the various documents require the approval of a certain percentage of the co-owners, and in many instances of the mortgagees, we recommend that the most efficient and cost effective approach to amending the Condominium Documents would be to prepare, propose and seek to pass all of the document amendments together. Each document can be individually amended, if necessary, as well.
IV. Summary – Amending Can Be the Key to Your Prosperity.
In summary, if your documents were drafted prior to 2001 and have not been amended to take advantage of all of the changes in the laws, chances are your community could greatly benefit by a legal audit to determine how you can amend your documents. Even documents drafted in 2001 (and later) could benefit from amendments if important provisions were omitted and/or the Condominium is experiencing some of the problems discussed above in this Article.