Homeowners and Condominium Associations Update

Homeowners associations and condominium associations are usually organized under Michigan’s Nonprofit Corporation Act. Condominium associations are also subject to the Michigan Condominium Act and the master deed, condominium bylaws, articles of incorporation, association bylaws of the condominium, and any rules the association has adopted. Homeowners associations are usually bound by a declaration of covenants, conditions and restrictions (CCRs), articles of incorporation, bylaws, and any rules the association has adopted.

The Nonprofit Corporation Act was amended effective earlier in 2015. One of the more important changes is that members are now allowed to participate by electronic means such as telephone, Skype, FaceTime, and GoToMeeting unless the association’s articles of incorporation or bylaws expressly bar that. This reverses a 2008 amendment that barred such participation unless expressly allowed. Many documents were silent on the topic but the meaning of that silence has now been reversed. Associations would be wise to consider if they want to allow electronic participation and, if so, on what terms.

This is coupled with another change that allows voting by electronic means. Members vote, typically, on only a few items, chiefly new directors and amendments to the controlling documents. For the latter, I strongly recommend written ballots that identify the person voting and his or her lot or unit number. This assures that only one vote is cast per lot or unit and provides a written record if anyone later questions whether the amendment was properly adopted. But written ballots can be sent electronically.

The 2015 amendments also change the rules for inspection of association records. They reduce the time frame to make certain business records available for inspection to 5 business days after a proper request and make the association liable for the member’s legal fees in compelling access if that deadline is missed, but they also allow amending the articles of incorporation or bylaws to bar an inspection if the association determines that the inspection would impair the privacy or free association rights of members or impair the lawful purposes of the association or the board passes a resolution to that effect.

The recent amendments allow associations to further narrow the personal liability of directors for actions taken or not taken. Given that directors usually serve without compensation and it is difficult to get members to serve as directors, giving the greatest protection possible would seem reasonable and may be necessary to get people to serve. And doing so may be required by the insurer providing directors and officers insurance coverage because it reduces the risk of legal actions against directors; members may be reluctant to sue a director if the member realizes that the members will have to bear the costs of defending the director and paying a judgment. Some members might oppose giving directors further protection out of fear that it gives directors a license to steal. To counter that, the law does still leave a director liable for a financial benefit received to which the director is not entitled; intentional infliction of emotional harm on members; making a loan to a director, officer or employee contrary to law; and an intentional criminal act.

I still see many associations that have not updated their documents to reflect amendments to Fair Housing Act adopted in 1998 and condominium associations that have not updated their documents to reflect changes in the Condominium Act adopted in 2001 and 2002. Or, worse yet, documents drafted after those dates that were based on earlier documents and so have been out of date from the day they were adopted. Associations should have their documents reviewed by legal counsel and, where appropriate, amended to be in compliance with applicable law and to take best advantage of newer laws. When a dispute arises, it may be too late to fix these problems.

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