Modernizing Condo Bylaws: Insurance, Short-Term Rentals, and Governance

Modernizing Condo Bylaws: Insurance, Short-Term Rentals, and Governance

In the past five years, the landscape of community association law in southeast Michigan has shifted dramatically. For attorneys representing condominium associations and co-owners in Oakland County, it has become evident that governing documents drafted 20 or 30 years ago are increasingly inadequate to address the realities of modern ownership.

Condominium boards are now grappling with unforeseen pressures that threaten the stability of their associations. This includes the rapid expansion of the sharing economy, a hardening insurance market, and the post-pandemic necessity of digital governance. These converging factors have created a crisis that older documents just can’t resolve. It’s no longer sufficient for legal counsel to view bylaws as static documents. Instead, we have to look at them as active risk-management tools that require modernization to ensure the financial and social viability of these communities.

The Insurance Crisis: Who Pays the Bill?

Currently, condominium associations are facing a budget-breaker in the form of skyrocketing insurance costs related to coverage for common elements in their communities. In southeast Michigan, we are witnessing a market in which premiums are rising aggressively. To make matters worse, carriers are demanding much higher deductibles just to write a policy. It’s now common to see per-occurrence deductibles jump from a manageable $5,000 to a budget-shattering $25,000 or even $50,000.

The legal conflict arises when bylaws drafted in the 1980s or ’90s fail to say who is responsible for these high deductibles. Older documents often contain vague provisions that simply state that the association acts as the primary insurer for the buildings. They rarely address who pays the deductible when a claim is made on the master policy for damage inside a specific unit. Without a specific insurance deductible provision, the association — and, by extension, all of the residents — absorb the cost as a general expense.

Consider this scenario: A toilet overflows in a third-floor unit, causing $40,000 in damage to the units below. If the deductible is $25,000, a traditional bylaw might force all co-owners to subsidize that deductible through their monthly assessment or, if necessary, special assessment dues. This creates immediate friction and finger-pointing. Why should the responsible owner on the first floor pay for the negligence of the owner on the third floor? These types of matters come up often in my practice and a lot of times end up in litigation, which may include competing insurance carriers quibbling over the details.

Attorneys should advise clients to amend out-of-date bylaws to clearly define negligence versus strict liability when it comes to these issues. Condo bylaws have to be carefully rewritten to outline financial responsibility clearly. A modern insurance deductible bylaw ensures that the party responsible for the maintenance of the thing that broke (like the toilet) is responsible for the insurance deductible. This protects the association’s operating budget from being decimated by repeated claims and keeps the peace between neighbors.

The Short-Term Rental Dilemma: Zoning, Use, and Livability

In my practice, I have seen community association clients struggle to enforce residential restrictions against the rapid rise of short-term rentals (STRs). Platforms like Airbnb and Vrbo have turned residential units into de facto hotels. While this may be lucrative for one owner, it often falls upon the association board, its attorneys, and managing agents to deal with the fallout.

Socially speaking, this certainly hits close to home. It affects how neighbors connect, how safe they feel, and the pride they take in where they live. When transient guests replace long-term neighbors, the complex web of relationships that holds a community together begins to fray. Residents often report increased noise, security concerns regarding door codes, and a general loss of community cohesion. Some older bylaws that I have reviewed restrict usage to residential purposes only. However, co-owners sometimes argue that their Airbnb guests are using the unit for a residential purpose (i.e., sleeping and eating) even if they are staying for only two nights. To avoid ambiguity and expensive litigation, modern bylaws need to be explicit to address these situations.

If an association wants to restrict STRs, the governing documents should define the minimum lease term — for example, requiring that no leasehold relationships be created for a period of less than thirty days. The association should require that all leases be in writing and provided to the board for review. A total ban is not always the answer. Some communities may prefer a cap on the number of rentals to preserve financing eligibility while allowing some flexibility for owners. Legal counsel serves as a strategic advisor by helping clients anticipate potential pitfalls and crafting flexible provisions that protect the residential character of the community without infringing excessively on property rights.

Governance in the Digital Age

The COVID-19 pandemic presented huge challenges for everyone, as we know all too well. For community associations, it exposed just how old-fashioned many governance provisions were, specifically those requiring in-person meetings and paper ballots. During the height of the pandemic, many boards were stuck. They were unable to hold elections or pass budgets because their bylaws didn’t allow for electronic voting or virtual meetings. While the Michigan Nonprofit Corporation Act (MCL 450.2101 et. seq.) generally allows for remote communication, specific bylaw amendments are usually needed to override conflicting, restrictive language found in older condominium documents. Modern governance provisions should explicitly authorize the following:

• Virtual board and association meetings via video conference;
• Electronic notice delivery to reduce significant postage and printing costs;
• Online voting systems to ensure a quorum is achieved.

Adopting these technologies is about more than just convenience. Think of digital voting as a virtual “green space,” as it encourages the same level of community involvement by tearing down the barriers that keep co-owners from participating. It opens the door for everyone — whether they are traveling for work or just can’t make it in person — to have a say in how their biggest investment is run. This way, more owners get a seat at the table.

The Role of Counsel: From Drafter to Strategic Advisor

Condo law practitioners have to be creative problem-solvers these days and move beyond merely reviewing documents for compliance. They should advise boards on resiliency and draft documents that can withstand the test of time and changing technology. Basically, we need to assume that high insurance rates are here to stay, the rental market will keep changing, and digital communication is simply how business gets done now.

By getting a handle on why things are changing — whether it’s money, social shifts, or tech — we can help communities stay afloat. It comes down to simple math. Pay to update the documents now or pay a fortune to defend a bad lawsuit later. We have a chance to fix the root of the problem here. If we help boards modernize their documents, we save them from future legal battles. It’s about setting clear ground rules for insurance, STRs, and digital meetings so these communities can stand on their own two feet rather than getting bogged down in court.

John D. Gwyn is an attorney at CMDA Law. He focuses his practice on real estate law, community association law, commercial litigation, and municipal law. He represents developers and condominium and homeowners’ associations with matters involving real estate, contract, and construction issues. He currently serves as a member of the Oakland County Bar Association’s Real Estate Committee. Gwyn is a contributor to the Institute of Continuing Legal Education and presented an on-demand seminar on short-term rentals. He may be reached at (734) 261-2400 or jgwyn@cmda-law.com.

This article was originally published in the Oakland County Bar Association and printed in Laches Magazine.