Appeals Court Decision Affects Michigan Condo Developers

Michigan Condominium Owners of Units in Incomplete Condominiums Take Note – Significant Court of Appeals Victory Confirms Developers Who Drag Their Feet on Developing a Condominium in Michigan May Lose All Development Rights, Leaving the Undeveloped Land for the Condominium Owners

Elizabeth Trace Condominium Association v American Global Enterprises, Inc.

 
The condominium association attorneys at Makower Abbate Guerra Wegner Vollmer won a significant published decision relevant to any Michigan condominium established ten or more years ago. Elizabeth Trace Condominium Ass’n v American Global Enterprises, Inc., ___ Mich App ___, No 355243 (2022) is the most recent in a series of Michigan Court of Appeals cases interpreting Section 67 of the Michigan Condominium Act that MAGWV has won on behalf of condominium associations. These victories demonstrate MAGWV’s unparalleled expertise and experience in this field of law.

The first such case was Wellesley Gardens v Manek, No 344190 (Mich Ct App Jan 9, 2020), a 2020 Court of Appeals decision that confirmed unbuilt “need not be built” condominium units had disappeared automatically in 2011. The fact that the units had been foreclosed upon and sold for property tax delinquency after 2011 did not change that fact.

Next was Lakeside Estates Condo Prop Owners Ass’n v Sugar Springs Development Co, No 354451 (Mich Ct App Sept 16, 2021), a 2021 case that rejected a developer’s due process defense and once again confirmed that a developer’s failure to build in a timely manner will result in the loss of all building rights and title to the unbuilt units. This case also rejected the developer’s attempt to avoid the Section 67 development cutoff by recording master deed amendments giving itself more time to build.

Now, in Elizabeth Trace, the Court of Appeals has once again confirmed that developer inaction may result in loss of development rights, and this is true even if the owner of the undeveloped units is not a “developer” as that term is defined in the Condominium Act.

Co-owners living in incomplete Condominiums over ten years old should take note of this line of cases and immediately seek experienced legal counsel, as the undeveloped land in their community might already legally belong to the Co-owners and not the developer or owner of the unbuilt units.  If that is the case, the Co-owners can use the land however they please because it belongs to them, whether it be through sale or development, use as park land, new amenities, or combinations of these.  There is significant and real value in undeveloped land that could be realized by such Co-owners and their Condominium Association – but only if they take prompt legal action.  What follows is a summary of Elizabeth Trace.

Summary of Elizabeth Trace Condominium Ass’n v American Global Enterprises

Despite being created in 2004, the Elizabeth Trace Condominium was still less than half complete as of 2018.  Through a series of transactions, the original developer transferred the unbuilt units, which were foreclosed on by a bank following the 2008 recession, and then sold to a new developer in 2012.  Note that this was very common occurrence around that time.  The new developer sat on the undeveloped land for six more years until, in 2018, the Association conferred with condominium lawyers at MAGWV.

Because they were experienced community association attorneys, the lawyers at MAGWV immediately realized that the unbuilt units in this Condominium had ceased to exist as of 2014 (ten years after development began), and that the new developer no longer had rights to build new units at all.  This is because, under the Condominium Act, Section 67 (MCL 559.167), developers generally had a limited period of time to do one of the following: (A) build all “need not be built” units; or (B) remove the “need not be built” units from the Condominium or convert them to “must be built.” If neither of those happened, the rights to build units ceased to exist along with the units themselves.

This law was meant to protect Co-owners from this very situation – long incomplete development, and developers who sit on their hands for years while owners look at vacant, empty, and unsightly lots.  Co-owners and Associations in these situations find themselves unable to properly plan for long term maintenance and repair of common elements because: (A) they never know if development will start up again and damage infrastructure, and (B) there are fewer Co-owners paying dues but still just as much infrastructure for the Association to maintain, leading to Co-owners paying more than their fair share over time.

In this published decision, the Michigan Court of Appeals confirmed that the new developer in Elizabeth Trace – by failing to take any action to avoid the units disappearing within the relevant timeframe – lost all rights to build in 2014, and the unbuilt units ceased to exist.  All that was left was the undeveloped vacant land – land owned entirely by the Co-owners of the Association.

The Court of Appeals also established binding precedent that this result would have occurred regardless of whether the new developer was, in fact and legally speaking, a “developer” under the Condominium Act.  This means that in incomplete condominiums, even if there is no “developer” around anymore, or if there are only a few undeveloped “need not be built” units left owned by small builders or even individuals, they will still disappear under this law.

This ruling impacts Michigan condominium associations, owners, developers, and real estate speculators and tax foreclosure buyers who might be tempted to purchase unbuilt units for pennies on the dollar, only to find later that they actually purchased nothing of value.

Co-owners of Incomplete Michigan Condominiums, Developers, and Purchasers Looking to Buy Unbuilt Condominium Units Should Confer with Legal Counsel

If you are a Co-owner or Condominium Association in Michigan and your development has sat incomplete for a number of years, you should immediately contact experienced counsel familiar with community association law, which is exactly what the lawyers at MAGWV focus their practice on as shown by this recent significant Court of Appeals victory.  Moreover, developers, real estate speculators, or purchasers looking to buy unbuilt condominium units in Michigan with an eye towards new construction should likewise consider contacting lawyers such as those at MAGWV, because an ill-advised purchase of unbuilt units in a condominium subject to Section 67 could turn out to be a worthless investment.