Michigan condominium associations with annual revenues greater than $20,000 are required under the Michigan Condominium Act to submit their financial records for an annual audit or review by a Certified Public Accountant. However, many condominium associations do not know that the co-owners may vote to opt out of this requirement on an annual basis, by majority vote, pursuant to MCL 559.157(3).
MCL 559.157(1) provides that “the books, records, contracts, and financial statements concerning the administration and operation of the condominium project shall be available for examination by any of the co-owners and their mortgagees at convenient times.” This guarantee of transparency for the co-owners in the Act means that co-owners may be able to reasonably confirm for themselves that the finances of the association are being handled appropriately, in which case the Act also allows for the above-described flexibility of the co-owners being able to forego the formal review/audit (and the associated costs) by majority vote.
We caution, however, that foregoing a formal review/audit by a CPA does carry risks, and co-owners who want to keep their assessments as low as possible may not necessarily understand the value of a CPA’s services. Even if a Board of Directors is managing the finances in accordance with its fiduciary duties and the highest ethical standards, mistakes can happen, and they can have serious financial consequences for the association and its co-owners. Also, this is new statute that was only just signed into law in 2014, so it is difficult to gauge the level of risk, and associations opting out under this statute may end up being test cases.
It is for these reasons that we generally advise our condominium association clients with annual revenues greater than $20,000 (and most larger homeowner association clients, even though this law does not specifically apply to them) that they should take a conservative approach; they should have a formal review/audit performed every year and should not submit this question to the co-owners for approval. Also, keep in mind that imprudent changes to the Michigan Nonprofit Corporation Act make it near impossible to hold unscrupulous directors liable for their misdeeds.
If your Board of Directors is considering opting out, contact experienced legal counsel first for guidance on whether it is advisable for your association to do so.
By Robert M. Meisner, Esq. and Mark Petrie, Legal Assistant, The Meisner Law Group, P.C.