In a notable decision issued on October 10, 2024, the Michigan Court of Appeals in Neuman v Long Lake Shores Ass’n, No 368648 (Mich Ct App Oct 10, 2024) upheld a trial court ruling in favor of MAGWV’s association client in a contractual dispute brought by a group of residents. The plaintiffs had challenged the HOA’s authority to contract with a property management company, claiming that it violated the association’s bylaws. However, both the trial court and the appellate court sided with the association, affirming its actions were within its legal rights.
The Dispute: Authority of the Board to Hire a Management Company
The controversy centered around whether the association’s board of directors had overstepped its authority by hiring a third-party property management company for an annual fee. The plaintiffs argued that the association’s bylaws prohibited hiring “agents” for compensation and that the management company should be considered an agent under this provision.
The board, however, maintained that the management company was not an agent in a narrow legal sense but rather a common contractor or vendor. It argued that the bylaws gave the board the authority to hire third-party companies to assist in managing the subdivision’s business and property, provided the board retained ultimate decision-making authority.
Key Court Findings
The appellate court thoroughly examined the bylaws and found them unambiguous. It concluded that the term “agent,” as used in the bylaws, referred to individuals appointed by the board to act on its behalf, not to outside contractors. Moreover, the court emphasized that the board had not overstepped its authority since the contract with the property manager was approved by a vote of the association’s members at its annual meeting when they voted to raise dues to pay for the manager.
The court also pointed out that the property manager was hired through a formal contract, not appointed as an agent, and that the contract was designed to assist the board in fulfilling its duties without transferring control of the association’s operations.
Impact of the Ruling
This decision reinforces the autonomy of homeowners association boards to engage professional management services to meet their obligations effectively, provided they act within the scope of their governing documents. It also underscores the importance of clear and precise bylaws, which the court relied upon to interpret the board’s authority. Older governing documents may contain terms that are not well-defined and could become the subject of litigation, which is one of the major reasons that associations decide to amend and restate their governing documents.
A Statement from Legal Counsel
Attorney Todd J. Skowronski of Makower Abbate Guerra Wegner Vollmer PLLC, who represented the association, hailed the decision as a significant victory. “This ruling affirms the rights of homeowners associations to make decisions that best serve their communities while staying within the framework of their governing documents,” said Skowronski. “It also demonstrates the importance of member involvement and approval in key decisions and how that can help overcome potentially controversial decisions, as was done in this case.”
For more information or to discuss how this decision could impact your homeowners association, contact Todd J. Skowronski of Makower Abbate Guerra Wegner Vollmer PLLC at 248.254.7594 or via email to tskowronski@maglawpllc.com.
