Court Requires More Disclosure for Michigan Condos and HOAs

Bafna v Echo Valley Condominium Association

A Michigan Court of Appeals decision suggests courts will view Michigan owner requests to inspect condominium, homeowner, and community association documents quite broadly and will generally frown on refusing to allow inspections absent very compelling reasons.  While some legal questions remain, and cases like this will depend on their specific facts, the trend appears to be in favor of more owner access to information, not less.

Bafna v Echo Valley Condo Ass’n, No 353785 (Mich Ct App Oct 28, 2021) (unpublished) was a split decision, with two Michigan Court of Appeals Justices ruling in favor of the records-inspecting owner, and a dissenting Justice indicating they would have reversed the trial court and remanded for further proceedings.

In this case, a Michigan condo owner made “numerous and longwinded” requests to inspect various condominium association documents, including documents related to: (A) past litigation costs incurred in lawsuits against the owner; (B) information on swimming pool access bands and costs; (C) lightbulb replacement invoices; (D) board minutes; (E) information on when the owner’s checks arrived at the Association’s offices; and (F) and financial statements.

The condominium association contended that, at the time the requests were made, the owner failed to establish a proper purpose for inspection as required by the Michigan Nonprofit Corporation Act at MCL 450.2487(2).  Specifically, the requests were “difficult to follow” and, in short, the condominium association argued that it should not have to wade through difficult or impossible to understand requests to determine whether a proper purpose for inspection was established.  Instead, the condominium association claimed that the owner had inappropriately sought records based on idle curiosity or mere speculation of mismanagement.

MCL 450.2487 (2) defines a “proper purpose” as  “a purpose that is reasonably related to a person’s interest as a shareholder or member.”  In Bafna, the majority opinion appears to have set the bar low as to what counts as a proper purpose, concluding that if an owner sought information that might relate to how owner dues are being used, that would be sufficient to establish a proper purpose.  Thus, requests for past litigation costs involving the owner should have been allowed because owner dues went to paying such costs.  Questioning whether a lock and key system would be cheaper than a swimming band fob access system meant the owner could review all records related to key fobs.  Whether the Association accepted the owner’s suggestion that owners themselves replace lightbulbs throughout the condominium was enough for him to be provided with lightbulb cost related documents, as well as board minutes discussing light bulbs.

According to the Bafna majority opinion, Board meeting minutes, to the extent they impacted decisions affecting owner dues, should have been produced. In practice, that would mean practically all board meeting minutes should be provided if an owner wants to know how dues are being spent.  The Court also determined that documents verifying when the owner’s checks arrived at the association’s offices had to be produced.  And certain financial records specified in MCL MCL 450.2487 (1) must always be produced (the association did not contest this).

What this case did not decide, however, is the question of whether the Michigan Nonprofit Corporation Act’s more detailed inspection provisions control (which have very specific request procedures, timelines, and legal remedies spelled out) and supersede the Michigan Condominium Act’s more general provision at MCL 559.157 (which itself merely says books and records must be made available for inspection at “convenient times.”).  The majority opinion simply held that, regardless of the answer to that question, the owner had satisfied the Michigan Nonprofit Corporation Act provisions.

The majority opinion also made a decision that the dissent expressly rejected, namely that even if the owner’s pre-litigation requests for inspection were incomprehensible or lacked an understandable proper purpose, it was enough for the owner to “clarify” the requests in the lawsuit filed by the owner.  But the dissent noted that MCL 450.2487(3) (which provides the right to sue to compel inspection) “makes clear that a complaint to compel inspection cannot serve as the record-inspection request.”

The outcome in Bafna suggests a potential shift in judicial views of the right to inspect Michigan nonprofit condominium, community, and homeowner association records.  Courts may be trending in favor of a broad right to inspect so long as there is some marginal relation between the request and how community, condo, and homeowner association funds are being spent by the board.  Technical legal questions remain regarding whether the Michigan Nonprofit Corporation Act or the Michigan Condominium Act controls this issue, or whether courts should restrict review to the original requests themselves as opposed to clarifications made in a legal complaint.

The bottom line is that if Bafna is the beginning of a legal trend, Michigan condo, homeowner, and community associations should be prepared to entertain a larger and more voluminous level of records inspection requests from owners, and expect to find a chilly and potentially hostile reception in Michigan courts should the association refuse to broadly open up the books for inspection.