The Growth of Community Associations

Matt Heron colorA community association is a group of owners who have agreed to share certain aspects of their community. In Cohan v Riverside Park Place Condo Ass’n, Inc, 123 Mich App 743, 746–748 (1983), relating to a condominium, the Michigan Court of Appeals described this relationship as follows:

Every man may justly consider his home his castle and himself as the king thereof; nevertheless his sovereign fiat to use his property as he pleases must yield, at least in degree, where ownership is in common or cooperation with others. The benefits of condominium living and ownership demand no less. The individual ought not to be permitted to disrupt the integrity of the common scheme through his desire for change, however laudable that change might be.  Cohan, 123 Mich App at 748.

With a condominium, there is shared ownership of common elements. The concept of a community association, however, is not limited to communities which share common ownership. Many homeowners share only the limitations and covenants contained in deed restrictions and yet still benefit from a community association. As to both types of such community associations, owners give up a certain level of control in order to live within a common community; however, it is most likely because of this shared control that community association living has seen tremendous growth since they first started to become popular in the early 1970s.

As of 2012, more than 63 million people lived in community associations throughout the United States, and 24% of all homes in the U.S. are in community associations. Community associations have grown from 701,000 housing units in 1970 to nearly 26 million housing units in 2012. The value of all homes in community associations as of 2012 ($4.237 trillion) exceeded the gross domestic product of all countries in the world except for the United States ($17.419 trillion); China ($10.355 trillion), and Japan ($4.601 trillion). In 2012 community associations collected $51 billion in assessments, and spent over $20 billion from accumulated reserve funds for capital improvements. The value of the time spent each year by association board and committee members, which is almost always performed on a volunteer basis, is $1.6 billion. In other words, community associations have grown to constitute a significant aspect of our economy and everyday living.

California and Florida lead the way in sheer numbers, with these two states having 88,500 community associations between them, or over a quarter (27.3%) of all associations in the U.S. Michigan has 7,900 community associations, or 2.4% of all U.S. associations. Homeowner associations account for about 50% of associations, condominiums about 45-48%, and cooperatives 3-5%.

There are several reasons why people like living in community associations. From a monetary perspective, community associations help maintain property values, minimize social costs by reducing the amount each resident needs to spend for common expenditures, and expand affordable home ownership. From an aesthetic perspective, community associations help maintain a community’s appeal by landscaping common areas and requiring owners to adhere to agreed standards on a home’s appearance and limitations on use. According to the Foundation for Community Association Research, more than 92% of residents rate their living experience as positive (70%) or neutral (22%), and 81% of residents say that they get a “great” or “good” return on their investment. Since community associations are almost always governed by residents with a vested interest in the longevity of the community, resident satisfaction should remain relatively constant as the number of community associations continues to grow.

Matthew Heron is an attorney in our Livonia office where he concentrates his practice on commercial litigation and real estate, including community association, condominium law, real estate litigation, and zoning and land use. He may be reached at (734) 261-2400 or mheron@cmda-law.com.

Hirzel to Present at Annual CAI Conference and Expo

Kevin Hirzel_8x10@300On Friday March 4, 2016, Kevin M. Hirzel, a partner in our Livonia and Clinton Township offices, will be presenting at the 2016 Community Associations Institute’s (CAI) Conference and Expo at the Suburban Collection Showplace in Novi.

Mr. Hirzel is Chairman of the Legislative Action Committee for CAI’s Michigan Chapter and will be presenting on how the significant changes made to the Michigan Nonprofit Corporation Act in 2015 impact community associations in Michigan.  Specifically, he will be discussing committees, director and officer liability, updates to governing documents, electronic participation in meetings, voting, document inspection requests and more.

If you are attending the Conference, please consider attending Mr. Hirzel’s presentation at 11:15 a.m. in Room A and also stop by and visit several attorneys from our Firm at the Expo.

Kevin Hirzel is a partner in our Livonia and Clinton Township offices where he concentrates his practice on commercial litigation, community association law, condominium law, construction law, real estate law, and probate and estate planning. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.

Does the Board of a Condominium Association or HOA have a Duty to Enforce the Master Deed, Bylaws or Other Restrictive Covenants as Written?

Kevin Hirzel_8x10@300In Michigan, the terms of a master deed, bylaws or other restrictive covenants are contractual in nature. The Michigan Courts have generally held that a master deed, bylaws or other restrictive covenants are to be enforced as written. Terrien v Zwit, 467 Mich 56, 65; 648 NW2d 602, 607 (2002).

The governing documents often require a board to enforce the governing documents. Similarly, the terms of the governing documents and the Michigan Condominium Act require every owner to “…comply with the master deed, bylaws, and rules and regulations of the condominium project…” MCL 559.165. As a general rule, the board of a condominium or homeowner association is required to enforce the governing documents as written.

The Michigan Nonprofit Corporation Act, specifically MCL 450.2541, imposes a duty on a director of nonprofit corporation to act in good faith and with the care of an ordinarily prudent person. The Michigan Supreme Court has previously held that acts of directors that are ultra vires subject a director to liability as they cannot be in good faith, reasonably prudent and/or in the best interests of the corporation. Dodge v Ford Motor Co, 204 Mich 459, 489; 170 NW 668, 678 (1919).In the context of community associations, numerous courts have held that directors are subject to liability for failing to comply with the plain language of the governing documents. The South Carolina Supreme Court recently stated as follows:

“[A] corporation may exercise only those powers which are granted to it by law, by its charter or articles of incorporation, and by any bylaws made pursuant thereto; acts beyond the scope of the powers so granted are ultra vires.” The business judgment rule only applies to intra vires acts, not ultra vires ones. A homeowners association is bound to follow its covenants and bylaws and cannot defend something that violates those documents on the basis that is a reasonable alternative.

Fisher v Shipyard Vill Council of Co-Owners, Inc, 409 SC 164, 180-81; 760 SE2d 121, 129-30 (2014).

It is likely that Michigan Courts would follow suit and hold that a director’s failure to enforce the plain language of the governing documents is a breach of fiduciary duty. As with any rule, there will always be exceptions. Potential exceptions to the enforcement of the plain language of the governing documents, include, but are not limited to:

  • Reasonable Accommodations. The Michigan Condominium Act and the Fair Housing Act require the Board of Directors to provide a reasonable accommodation to someone with a disability, even if the accommodation is contrary to the language of the governing documents.
  • The governing documents were not validly enacted and/or violate Michigan Law or Federal Law.
  • The terms of the governing documents are not required to be enforced based on: (1) technical violations and absence of substantial injury, (2) changed conditions, and (3) limitations and laches. See Webb v Smith, 224 Mich App 203, 211; 568 NW2d 378, 382 (1997). The cases in which these exceptions have been applied are highly fact specific, and a Board of Directors should use caution before relying on one of the above circumstances to avoid enforcement of an association’s governing documents.

As a general rule, a community association should enforce its governing documents according to the plain language. If a board believes that there may be a valid reason not to enforce the governing documents as written, the board should consult with an attorney to obtain an opinion as to whether or not there is a legal justification for deviating from the enforcement of the governing documents. Pursuant to MCL 450.2541, a board that relies on the opinion of counsel, will likely have the protections of the business judgment rule and be deemed to have been acting in good faith and in the best interests of the association. In contrast, a board that arbitrarily decides not to enforce certain provisions of the governing documents, or makes decisions without the opinion of legal counsel, is subjecting themselves to potential liability.

Kevin Hirzel is a partner in our Livonia and Clinton Township offices where he concentrates his practice on commercial litigation, community association law, condominium law, construction law, real estate law, and probate and estate planning. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.

Acho Keynote Speaker at Sports and Entertainment Law Symposium

Jim AchoJim Acho, a partner in our Livonia office, was a keynote speaker at the 2016 Sports and Entertainment Law Symposium hosted jointly by the Chaldean American Bar Association and Sommer Schwartz, P.C.  Mr. Acho discussed highlights of his law career, including being nominated to run as a candidate for the position of Executive Director of the National Football League Players Association (NFLPA) in 2015.  Entertainment lawyer Jay Yasso of Sommer Schwartz, P.C. also spoke at the event.

Mr. Acho concentrates his practice on sports and entertainment law, labor and employment law, law enforcement defense, and plaintiff’s personal injury.  He may be reached at (734) 261-2400 or jacho@cmda-law.com.

In the Wake of Two Recent Rulings, Attorneys Offer Advice to Law Enforcement on Avoiding Liability

MACPlogoJim Acho, Doug Curlew and Jennifer Richards, all attorneys in our Livonia office, co-wrote an article highlighting two recent cases that impact law enforcement agencies. The article was published in the Michigan Association of Chiefs of Police’s publication Michigan Police Chiefs.

The article, “Unfavorable Outcome Affects Law Enforcement” summarizes two recent cases from the United States Court of Appeals for the Sixth Circuit that resulted in rulings against law enforcement agencies. The first case deals with whether officers were justified in failing to obtain a warrant and whether the use of tear gas was excessive force during an all-night standoff. The second case deals with whether tight handcuffs constituted excessive force. The article includes advice on what law enforcement should do to avoid liability in similar situations.

Jim Acho focuses his practice on sports and entertainment law, labor and employment law, law enforcement defense and plaintiff’s personal injury. He may be reached at (734) 261-2400 or jacho@cmda-law.com. Doug Curlew focuses his practice on law enforcement defense, litigation and appeals and insurance defense. He may be reached at (734) 261-2400 or dcurlew@cmda-law.com. Jennifer Richards focuses her practice on appeals, law enforcement defense, municipal law and insurance defense. She may be reached at (734) 261-2400 or jrichards@cmda-law.com.