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Michigan Court of Appeals evaluates Business Judgment Rule and Use of Assessments under Bylaws

A recent unpublished case from the Michigan Court of Appeals has particular relevance for condominium associations operating in Michigan. First, the Court ruled that decisions of the Board will be evaluated under the “business judgment rule”, meaning that if the Board acts in good faith and within the scope of its authority under the purposes of the corporation, the court will not substitute its judgment for that exercised by the Board. Second, the Court supported expenditures made by the Board for replacing existing Common Elements under the framework found in many communities throughout Michigan. In this case, the Association performed work related to the gutters and downspouts and installed an open fire gas fireplace in place of an existing electric fireplace. The Plaintiff argued that this work was an addition to the Common Elements and the expenditures required approval of the community. The Board argued it had the right to spend money to replace these items without approval of the Co-owners. The Court determined that replacements “do not have to be of the same specific character” or “functionality.” It was held “the new fireplace ‘assume[d] the function’ and was a ‘substitute for’ the prior fireplace." The fact that an electric fireplace was replaced with a gas one was not found to be an "addition." Second, adding gutters and downspouts was not found to be an “addition” requiring a special assessment approval but rather is part of “maintenance” permitting the Board of Directors to assess via its normal budget (specifically, gutters “serve the vital role of diverting rain water away from buildings and structures, which acts to keep the property ‘in good condition’”, and are therefore considered “maintenance of the common elements under the bylaws…” Finally, the court addressed whether money collected via an unapproved special assessment project could be utilized for other authorized items. Here, the Association's annual budget had included a special assessment for installation of a service elevator. When the special assessment was not approved by the requisite number of co-owners, the Board used the money collected for other authorized projects. This expenditure was held to be in compliance with the Bylaws since nothing was spent on constructing an elevator. MJ Development Company, Inc. v Inn at Bay Harbor Association, 330496 (unpublished, February 23, 2017).


Jeff Vollmer participates in ICLE seminar focused on Member-Controlled Community Associations.


Jeff Vollmer, along with fellow attorneys Greg Gamalski and Mary Ann O’Neil, are featured in a seminar now available on the Institute of Continuing Legal Education (ICLE) website. This presentation covers a wide range of issues affecting community associations and is available as a learning tool for other attorneys throughout Michigan.


The Annual CAI Seminar is right around the corner”

The annual CAI-Michigan Conference and Expo is Friday March 10, 2017 at the Suburban Collection Showplace. The conference provides an excellent opportunity to meet the members of our firm and a great educational experience for all those interested in community association law. There are a variety of educational sessions in the morning and the afternoon. Visit our booth at the exhibitor’s hall and networking event in the morning between 9:50 and 11:10 a.m. and in the afternoon between 1:45 and 2:40 p.m. More information, including registration information, can be found at the CAI Michigan 2017 Conference and Expo Website.
 
“Electronic Signatures for Document Amendments”

As of March 21, 2017, amending Subdivision Declarations will be slightly easier and more affordable because Governor Snyder signed into law Public Act 355 of 2016. This law adds new Section 5a to the Uniform Electronic Transactions Act (“UETA”). The new Section provides that in single developments containing more than 250 lots or parcels, owners may consent to an amendment of the governing documents by an electronic signature. This ability is only permitted when the owners are otherwise legally able to amend the documents. The UETA defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” Although the language is broad and provides that a signature can be shown as that of the entitled person in any manner, Subdivision and Homeowner Associations should consider having a system in place which can be used to verify the signature is genuine by using a third-party web service or by having verified email addresses on record.
 
“Legal Update – Medical Marihuana and Residential Leasing”

On January 10, 2017, Governor Rick Snyder signed Senate Bill 72 into law which provides additional rights of landlords under the Michigan Medical Marihuana Act. The amended law, which goes into effect April 10, 2017, permits a private property owner to prohibit a tenant from smoking or cultivating marihuana on leased residential property. The new law requires that the prohibition on the smoking or cultivation of medical marihuana be contained within the written lease. The law is not retroactive and will not change the rights of tenants under a current lease. While medical marihuana remains illegal under federal law and is likely prohibited under most sets of Bylaws, Condominium Associations may also choose to amend their leasing restrictions to require that Co-owners desiring to rent or lease their Unit include this prohibition in future leases. Associations renting Units they own should also consider including this type of prohibition in any future leases.
 

 

 

 

 
     
     
 


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