Homeowner associations are fairly common throughout Michigan and the United States. They are typically private associations formed by a developer who plats a subdivision to manage the development, and to enforce the restrictive covenants recorded to benefit and burden the land. They are also used in condominium projects and formed to manage the properties once the development is completed. When attempting to clarify what rules actually bind the homeowners, one should look to articles of incorporation, bylaws, deeds, and restrictive covenants. These documents each tell a story, and are intertwined with one another, to provide the rules and regulations of both the homeowners, and the association board.
A recent case out of the Michigan Court of Appeals helped clarify what role homeowner association bylaws have and who they are binding upon. MJ Development Company, Inc. v Inn at Bay Harbor Assoc., unpublished opinion of the Court of Appeals, decided Feb 23, 2017, (Docket No. 330496), addressed whether a homeowner association’s bylaws created a contractual right that bound the board and restricted its powers. In MJ Development, the plaintiff brought a breach of contract claim against the Association claiming that it violated the terms of its bylaws when it initiated work on various projects, and on the handling of a special assessment.
The court reaffirmed that bylaws constitute a binding contract in stating “when validly promulgated, an entity’s bylaws or similar governing instrument will constitute a binding contractual agreement between the entity and its members.” Citation omitted.
Next the court agreed in the application of the business judgment rule to review the decision made by the association’s board. The review of the association’s board was limited to whether the board’s actions were authorized, and whether the actions were taken in good faith and in furtherance of the legitimate interests of the condominium. So, long as the board acts within the scope of its authority and in good faith, the courts will not substitute their judgment for that of the board’s.
In this particular case, the relevant bylaws provided the Association in its sole discretion could “provide additions to the Common Elements not exceeding $10,000 annually for the entire Condominium Project.” The Court found the Association was authorized to fund and replace an old fireplace, though the new fireplace exceeded the cost of $10,000. The court parsed the language and determined the replacement of the fireplace did not constitute an addition, but was maintenance authorized by the bylaws. It also determined work in excess of $38,000 to the gutters and downspouts was maintenance of the common elements under the bylaws.
Finally, the court analyzed a special assessment project for which the association requested approval but not funding. The members disapproved of the project, and the funds were used for other approved projects. The Court found this was in compliance of the bylaws because the funds were not used for the failed assessment project, but for other authorized projects.
This case illustrates the importance of properly adopting governing documents such as bylaws, and going back to them to ensure that they are being properly implemented and subsequently applied.
Dalton & Tomich, PLC has successfully represented homeowners associations. Should your association need assistance interpreting their governing documents, contact one of our attorneys.
The business and employment attorneys of Dalton & Tomich take your business just as seriously as you do. Attorneys Zana Tomich and Noel Sterett are trusted by closely held family businesses and others across Michigan and Northern Illinois as invaluable partners and counselors. We guarantee all your calls and emails will be returned within one business day so you can focus on what you do best: running your business.
Having worked with Zana for 10 years, I can attest to her professionalism, her pragmatism, and most importantly, her integrity. I always get sound, thoughtful advice and guidance. From routine filings & updates to the highly unexpected, Zana’s there to help, always responding quickly and […]Read More
We highly recommend Dalton & Tomich! As a start-up firm that has rapidly grown across the country in under 5 years, Dalton & Tomich has been integral to our sound, credible, and excellent in standard infrastructure. As we’ve scaled, Zana has been right by our […]Read More
As a professional photographer in the wedding industry, reliable communication is very important to me. Noel was very knowledgeable and quick to respond to all of my questions and not just that, he also gave me suggestions when reviewing and updating my contract. The entire […]Read More
Zana’s expert guidance has helped us to move forward with clarity and confidence in our business endeavors. She helped us create a new business entity, and a few years later to navigate a tricky buyout—all with a clear path forward for business growth. Her calm […]Read More
Noel’s guidance was much appreciated when redrafting my client contract. He was very professional, respectful of my time and potential costs, and was sincere with his advice. I trusted that he had the highest good for my business in mind. I will seek out his […]Read More
Zana’s expertise in employee law has helped us refine and build a stronger operations and hiring strategy at my company. As a business owner of a small and fast growing company, I very much appreciate Zana’s ability to always step into any situation quickly and […]Read More