In 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 email@example.com.