Michigan Court Rules in Favor of Condominium Association in Interpreting Newly-Amended MCL 559.167 (SB 610)

Kevin Hirzel_8x10@300Kevin Hirzel recently scored an important victory for a Michigan condominium associations.  The Oakland County Circuit Court held that the  MCL 559.167, as amended by 2016 PA 233, does not recreate “need not be built” units that were eliminated under the prior version of MCL 559.167.  The ruling will have an impact on any condominium projects that contain unconstructed “need not be built” units and also meet one of the following two (2) requirements:

 1.Construction of the condominium was commenced prior to September 21, 2006; or

2. An amendment to the master deed that expanded the condominium, contracted the condominium or exercised a right of convertibility was recorded prior to September 21, 2010.

As the court held in Cove Creek, if a condominium meets these requirements, a developer or successor developer automatically lost the right to construct the “need not be built” units and the land on which the units were located will remain as common elements owned by the co-owners. If a condominium does not meet the above requirements, it will be subject to the new “reversion” requirements contained in the 2016 amendment to MCL 559.167, and the “need not be built” units will remain in the condominium until the “reversion” requirements are satisfied.

History of MCL 559.167

As previously discussed in Senate Bill 610 Passes: Is the amendment to MCL 559.167 of the Michigan Condominium Act constitutional?, MCL 559.167 was enacted in 2001 in order to provide an end date for the development of condominiums. MCL 559.167(3) required that a developer, its successors or assigns either complete any units identified as “need not be built” on the condominium subdivision plan within ten (10) years of the date of commencement of construction or within six (6) years of exercising a right of conversion, expansion or contraction.  If the developer, its successors or assigns did not complete the “need not be built” units with the statutory time periods, the right to construct the units would automatically terminate and the undeveloped land would remain as common elements if it was not withdrawn from the condominium.

In contrast, the 2016 amendments to MCL 559.167, which became effective on September 21, 2016, created a new “reversion” process to eliminate “need not be built” units after the expiration of the six (6) year or ten (10) year statutory time periods. Newly created MCL 559.167(4) now requires 2/3 of the co-owners that are in good standing to vote to approve a “reversion” of “need not be built” units to common elements by adopting a declaration that will be recorded in the register of deeds after the expiration of the statutory time periods. If 2/3 co-owner approval is obtained, the condominium association must then send the declaration to a developer or successor developer at its last known address.  The developer or successor developer may withdraw the land on which the units were to be located or amend the master deed to make the units “must be built” within the sixty (60) day time period.   If the developer or successor developer fails to withdraw the land or amend the master deed within sixty (60) days, the condominium association may record the declaration, which becomes effective upon recording and the right to construct the “need not be built” units will be eliminated.

Cove Creek Condominium Association v Vistal Land & Home Development, L.L.C., et al.

One of the most important questions surrounding the 2016 amendment to MCL 559.167 was whether 2016 PA 233 would be applied retroactively or only prospectively. Specifically, newly created MCL 559.167(5) states, “A reversion under subsection (4), whether occurring before or after the date of the 2016 amendatory act that added this subsection, is not effective unless the election, notice, and recording requirements of subsection (4) have been met.” In Cove Creek Condominium Association v Vistal Land & Home Development, L.L.C., et al., Oakland County Circuit Court Case No. 16-155706-CH (Order Granting Summary Disposition, Dated February 10, 2017) the court held that MCL 559.167, as amended by 2016 PA 233, did not retroactively recreate “need not be built” units that had previously been eliminated from the Cove Creek Condominium (the “Condominium”). The court held that the co-owners’ vested ownership interest in the common elements that was acquired under MCL 559.167, as amended by 2002 PA 283, remained intact.

Facts

The Condominium was established by the recording of the Master Deed in the Oakland County Register of Deeds on April 21, 1989. Lifestyle Homes, a co-partnership, was the developer of the Condominium, which was originally to be composed of 31 units.  On May 11, 1989 Lifestyle Homes recorded the First Amended to the Master Deed indicating that Cove Creek Limited Partnership (“Cove Creek, LP”) was now the developer. On May 17, 1989, Lifestyle executed a deed transferring all of its interest in the Condominium to Cove Creek, LP.  Units 1-14 have never been constructed and were identified as “need not be built” on the condominium subdivision plan.  Units 15-31 were constructed and sold to non-developer co-owners.  Construction of the condominium commenced prior to October 27, 1989, as this was the date that the first constructed unit was conveyed to a non-developer co-owner.

On September 15, 2004, Cove Creek, LP executed a deed attempting to convey units 1-14 to Vistal Cothery, LLC. On November 6, 2006, Vistal Cothery, LLC attempted to deed units 1-14 to Vistal Land & Home Development, LLC (“VLHD, LLC”).  On October 31, 2016, VLDH, LLC attempted to deed units 1-14 to the America and Maria Cervi Living Trust (the “Trust”).  On November 3, 2016, the Trust advised the Cove Creek Condominium Association that it had withdrawn “need not be built” units 1-14 from the Condominium pursuant to MCL 559.167, as amended by 2016 PA 233.

Interpretation of the Plain Language of MCL 559.167

The defendants argued that MCL 559.167, as amended by 2016 PA 233, repealed and replaced all prior versions of MCL 559.167 on September 21, 2016.  The Court held that defendants’ argument failed for several reasons.  First, the court held that MCL 559.167, as amended by 2002 PA 283, eliminated any rights to construct units 1-14.  The court held that the time period to construct or withdraw units 1-14 ended no later than October 27, 1999.  The court held that even if the ten (10) year period did not begin to run until 2002, when 2002 PA 283 was enacted, that the time period to construct units 1-14 expired no later 2012.  Accordingly, the court held that the enactment of 2016 PA 233 did not change the fact that the right to construct units 1-14 ceased to exist no later than 2012.

The court also held that the plain language of MCL 559.167, as amended by 2016 PA 233, evidenced the legislature’s intent that 2016 PA 233 is not retroactive.  The court recognized that the term “reversion” was not contained in any prior version of MCL 559.167, and that a “reversion”, i.e. the 2/3 co-owner vote and recording of a declaration, could not have occurred prior to September 21, 2016, the date that 2016 PA 233 became effective.  Rather, the court acknowledged that the co-owners acquired vested rights under MCL 559.167(3), as amended by 2002 PA 283, no later than 2012.  Given that the co-owners acquired their rights under 2002 PA 283, newly created MCL 559.167(5) was inapplicable as it only applied to “A reversion under subsection (4)”.

The court also held that even if a “reversion” could have occurred prior to September 21, 2016, the plain language of MCL 559.167(5) indicates that it would not undo a completed “reversion”.  The court held that defendants’ interpretation attempted to substitute the word “occurred”, which is a past participle, for the word “occurring”, which is a present participle, in MCL 559.167(5).  The court held that the use of the word “occurring”, a present participle, meant that 2016 PA 233 only applied to condominiums in which the statutory time periods were running, but had not yet been completed.  However, if the 6 or 10 year statutory time periods had already expired, any “reversion” would have already occurred, i.e. been completed, and 2016 PA 233 would not apply.

Constitutionality of retroactive application of MCL 559.167, as amended by 2016 PA 233

The court also ruled that defendants’ interpretation of MCL 559.167, as amended by 2016 PA 233, would render MCL 559.167 unconstitutional and that Michigan courts have an obligation to interpret a statute to be constitutional if possible.  Specifically, the court relied on Gorte v Dept of Transp, 202 Mich App 161, 164; 507 NW2d 797, 799 (1993). In Gorte, the plaintiff filed a complaint for adverse possession against the state on March 3, 1988 claiming that he held title to land via adverse possession from the state. Id. at 164.  MCL 600.5821 was amended to preclude adverse possession claims against the state and became effective on March 1, 1988, prior to the filing of the lawsuit. Id.  The trial court held that since 1966, plaintiff and his predecessors had adversely possessed the disputed acreage and that the amendment to MCL 600.5821 did not bar plaintiff’s adverse possession claim because he had a vested property right before March 1, 1988. Id.  In affirming the trial court, the Court of Appeals held:

…a statute may not be applied retroactively if it abrogates or impairs vested rights. In re Certified Questions, 416 Mich. 558, 572, 331 N.W.2d 456 (1982)…where a period of limitation has expired, the rights afforded by that statute are vested and the action in question is barred. Russo, supra, 439 Mich. at 594–595, 487 N.W.2d 698. Thus, § 5821, as amended, cannot be applied to plaintiffs if it would abrogate or impair a vested right.

Defendant argues that, in amending § 5821, the Legislature intended to void not only causes of action accruing after the effective date of the statute, but also causes of action for adverse possession against the state that could have been asserted before March 1, 1988, but were not….We are constrained, however, to follow the rules of statutory construction that dictate that a statute of limitations may not be applied retroactively to take away vested rights. We therefore interpret § 5821, as amended, to preclude the running of the period of limitation against the state for purposes of adverse possession after the effective date of the statute. We further interpret § 5821 as inapplicable where applying the statute would abrogate or impair vested rights.

Because the statute cannot be applied if it would abrogate or impair a vested right, it is necessary to determine when a claim of title to property by adverse possession vests. Generally, the expiration of a period of limitation vests the rights of the claimant. Russo, supra….Defendant argues the contrary view, that plaintiffs’ possession of the property merely gave plaintiffs the ability, before the amendment of § 5821, to raise the expiration of the period of limitation as a defense to defendant’s assertion of title. Contrary to defendant’s arguments, however, Michigan courts have followed the general rule that the expiration of the period of limitation terminates the title of those who slept on their rights and vests title in the party claiming adverse possession….Thus, assuming all other elements have been established, one gains title by adverse possession when the period of limitation expires, not when an action regarding the title to the property is brought.

Id. at 167-169 (emphasis added).

The court held that similar to the adverse possession statute, Gorte makes clear that the vested rights of the co-owners cannot be constitutionally abrogated under MCL 559.167, as amended by 2016 PA 233.

MCL 559.167, as amended by 2002 PA 283, eliminates “need not be built” units by operation of law

Finally, the court rejected the defendants’ argument that some form of recording or a replat is required to eliminate the right to construct units under MCL 557.167, as amended by 2002 PA 283. The court relied on the plain language of the statute as well as the statute of frauds, MCL 566.106.  Specifically, the court held that the right to construct “need not be built” units is eliminated by operation of law and that a property interest created by operation of law is not subject to the statute of frauds.  As such, the court granted summary disposition in favor of the Cove Creek Condominium Association and held that the “need not be built” units ceased to exist and that the defendants could not withdraw the undeveloped land from the condominium in 2016.

Conclusion

            While Cove Creek Condominium Association v Vistal Land & Home Development, L.L.C., et al., Oakland County Circuit Court Case No. 16-155706-CH (Order Granting Summary Disposition, Dated February 10, 2017) is only a circuit court opinion, it certainly provides a significant amount of guidance in interpreting MCL 559.167.  Until there is a published court of appeals opinion that interprets MCL 559.167, attorneys, co-owners, condominium associations, developers, successor developers and title companies should be aware of the following takeaways from the Cove Creek case:

  1. MCL 559.167, as amended by 2002 PA 283, applies to ALL condominiums that existed at the time the statute was enacted, not just condominiums that were created on or after the effective date of 2002 PA 283.
  2. “Need not be built” condominium units are automatically eliminated by operation of law under MCL 559.167, as amended by 2002 PA 283, and a replat or recording of any additional documents is not necessary.
  3. Vested rights in the common elements acquired by the co-owners under MCL 559.167, as amended by 2002 PA 283, cannot constitutionally be eliminated by 2016 PA 233.
  4. The co-owner voting “reversion” process, and the additional 60 day time period for a developer to withdraw “need not be built” units that was created by 2016 PA 233 only applies to condominiums in which the six (6) or ten (10) year statutory periods had not expired prior to September 21, 2016 or to condominiums created after September 21, 2016.

Kevin Hirzel is a Partner in our Livonia and Clinton Township offices and leads the Community Association Practice Group. He frequently represents Builders, Community Associations, Condominium Associations, Cooperatives, Co-Owners, Developers, Homeowner Associations, Investors, Property Owners and Property Managers throughout the State of Michigan. Mr. Hirzel can be contacted at (734) 261-2400 or khirzel@cmda-law.com. Please view The Michigan Community Association Law Blog at http://micondolaw.com for additional resources on Michigan Community Association Law.