Michigan Condo Lawyers Helping with Developer Turnover

Every condominium association in Michigan goes through a transition – also known as a “turnover” – phase. During this phase, the control of the condominium association shifts from the developer to the co-owners. The process for this phase in condominium associations is governed by the Michigan Condominium Act.

At times, the transition process may seem complicated but a successful condo board turnover from developer is crucial to the future success of your condominium association in Michigan.

For more information on transitioning from developer control to owner control for a condominium association, reach out to us at Hirzel Law today.

When is the Developer Required to Turn Over Control of the Condo Association?

Hold a Transitional Control Meeting to Elect Co-owner Directors

Transitioning control from the developer to the co-owners starts with holding an annual meeting in which more co-owners are elected to the board of directors than seats held by representatives of the developer.

MCL 559.152 provides a formula for electing directors in this meeting:

(2) Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 25% of the units that may be created, at least 1 director and not less than 25% of the board of directors of the association of co-owners shall be elected by nondeveloper co-owners. Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 50% of the units that may be created, not less than 33-1/3% of the board of directors shall be elected by nondeveloper co-owners. Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 75% of the units that may be created, and before conveyance of 90% of such units, the nondeveloper co-owners shall elect all directors on the board, except that the developer shall have the right to designate at least 1 director as long as the developer owns and offers for sale at least 10% of the units in the project or as long as 10% of the units remain that may be created.

(3) Notwithstanding the formula provided in subsection (2), 54 months after the first conveyance of legal or equitable title to a nondeveloper co-owner of a unit in the project, if title to not less than 75% of the units that may be created has not been conveyed, the nondeveloper co-owners have the right to elect, as provided in the condominium documents, a number of members of the board of directors of the association of co-owners equal to the percentage of units they hold and the developer has the right to elect, as provided in the condominium documents, a number of members of the board equal to the percentage of units which are owned by the developer and for which all assessments are payable by the developer.

We have seen many condominium associations fail to elect directors in compliance with the timelines set forth in the Michigan Condominium Act. This can cause significant issues down the line as it is required by law and impacts the operation of the condominium association. Accordingly, you will want to make this your first order of business in the turnover process.

Download Hirzel Law’s Developer Turnover Checklist to ensure you address the necessary details in the condo board turnover from developer.

How Does a Condo Association Hold a Developer Liable for Construction Defects?

If a condominium has construction defects, the board of directors should hire a condominium attorney and engineer to assist them in resolving any construction defects. It is not uncommon for a new condominium to have construction defects.  Examples of common construction defects found in new condominium are as follows:

• Drywall or foundation cracking.
• Flooding or ponding due to improper grading or insufficient drainage.
• Heaving or cracking concrete.
• Pipe bursts due to poor insulation.
• Prematurely cracking in roads or failing to install the wearing course.
• Retaining walls that prematurely fail.
• Waters leaks from improper installation of shingles, siding, flashing or windows.

The Michigan Condominium Act defines a developer of a condominium as “a person engaged in the business of developing a condominium as provided in this act,” per MCL 559.106. While real estate brokers and residential builders are generally excluded from the definition of a “developer” under the Michigan Condominium Act, the definition of a developer is extremely broad and may encompass more than one person or corporate entity. In most cases, responsibility for construction defects in a new condominium project is attributable to the developer.  However,  contractors, subcontractors or manufacturers of the materials used in construction may have potential liability as well.  Accordingly, it is important to enlist the help of your condominium association attorney to identify the correct person(s) or other entities that are liable for the cost of resolving condominium project defects.

What Responsibility Does a Condo Developer Have for Creating a Reserve Fund?

Before concluding the condo board turnover from developer phase, you should ensure that the developer funded the condominium association’s reserve fund. Mich. Admin. Rule 559.511 states:

(1) The bylaws shall provide that the association of co-owners shall maintain a reserve fund for major repairs and replacement of common elements in accordance with section 105 of the act. The co-owners’ association shall maintain a reserve fund which, at a minimum, shall be equal to 10% of the association’s current annual budget on a noncumulative basis.

(2) The funds contained in the reserve fund required to be established by section 105 of the act shall only be used for major repairs and replacement of common elements.

(3) There shall be set aside the amount of funds required by subrule (1) of this rule by the time of the transitional control date. The developer shall be liable for any deficiency in this amount at the transitional control date.

(4) The following statement shall be contained in the bylaws: “The minimum standard required by this section may prove to be inadequate for a particular project. The association of co-owners should carefully analyze their condominium project to determine if a greater amount should be set aside, or if additional reserve funds should be established for other purposes.”

If the developer did not fund the reserve fund adequately, you will need to ensure that your condominium association does so. This will involve levying appropriate assessments and you may need to enlist the assistance of your condominium association attorney to ensure that the reserve is properly funded.

Contact Our Condo Lawyers for Help with Condo Board Turnover from Developer

Developer turnover can be extremely difficult to understand, but it is essential for the future of your association. At Hirzel Law, PLC, our Michigan condo lawyers can help your condo association with developer turnover and issues that may arise. We stand by our clients, offering the highest quality legal representation and promptly responding to our clients’ needs.

Contact Hirzel Law online or call 248-986-2290 (Farmington) or 231-525-5832 (Traverse City) or 616-319-4527 (Grand Rapids office) to see how our Michigan condo lawyers can assist with your condo board turnover from developer.

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