The Michigan Court of appeals recently made the following significant rulings that impact Michigan Homeowners’ Associations in Conlin v Upton, Michigan Court of Appeals Docket No. 322458 (November 24, 2015) (Published Opinion):
- The absence of an amendment provision in the original declaration of restrictions for a subdivision precluded a HOA from later amending its declaration with less than unanimous consent to impose additional restrictions on a homeowner. Amendment provisions in restrictive covenants and bylaws will be enforced as written.
- A HOA cannot use general rule making power to impose new restrictions that are beyond the scope of the declaration of restrictions without properly amending the bylaws or declaration of restrictions.
- A developer can assign its rights under a restrictive covenant to a HOA, either orally or in writing, if the restrictive covenant does not include any limitation or conditions on the developer’s ability to assign its rights under the restrictive covenant.
At issue in Conlin was the developer’s ability to build new units without approval from the Dixboro Farms Property Owners Association (“Association”). Dixboro Farms was established as a 34 lot subdivision in January of 2001 after the developer recorded restrictive covenants. The restrictive covenants stated that the members of the Association would elect a board of directors after 90% of the lots had been sold. The restrictive covenants also indicate that construction could not be commenced on any lot without the developer’s approval. The developer created the Association in 2007 by filing the Articles of Incorporation after the developer had already conveyed lots. The developer did not create at set of bylaws at that time.
In 2010, prior to the sale of 90% of the units, members of the Association advised the developer that they were not happy that it had approved the construction of low quality homes in the subdivision that were not harmonious with the original development. In December 2010, the homeowners sent an e-mail to the developer requesting that it appoint a board or directors compromised of homeowners even though the 90% threshold had not been reached. The members of the Association met in January 2011 to discuss electing an association board, adopting bylaws and establishing an architectural control committee, inter alia. The members sent a letter to the developer requesting that he accept and acknowledge the terms discussed at the meeting. The developer signed the letter and the homeowners association elected a board of directors.
After a homeowner board was elected, the Association held a vote to adopt association bylaws (“Bylaws”). A majority, but not all of the homeowners, approved the Bylaws. The Bylaws were recorded in the Register of Deeds. The Bylaws established an architectural review committee comprised of homeowners and prohibited a homeowner from performing construction without approval from the committee and the submission of a fee. Prior to the adoption of the Bylaws, the developer had the sole right to approve construction and no fee was charged for the developer’s approval. In August of 2011, the developer sued the Association to invalidate the Bylaws. In March of 2014, a jury determined that the bylaws did not constitute restrictive covenants that impaired the developer’s rights. The developer was ordered to pay the Association $58,000 in attorney’s fees to the Association.
On appeal, the Court of Appeals upheld the long standing principle that association bylaws constitute a contract between the Association and its members. The court held that the Association had a common law right to enhance property values through restrictive covenants and that such restrictive covenants were not required to be established through any particular instrument. However, the court also indicated that as a general rule, a property owner could not be bound by a restrictive covenant that the owner or its predecessors did not consent to. The Court noted that an exception to the general rule involved a restrictive covenant that indicated that it could be amended by less than unanimous homeowner consent.
The court held that the 2001 restrictive covenant did not contain a provision that would allow for an amendment without unanimous consent. The court held that the restrictive covenant only allowed for the restrictive covenant to be “released” by 2/3 of the owners and that a “release” of a covenant was different than an amendment to a covenant. The court further held that the Association could not promulgate rules under the 2001 restrictive covenant that were in excess of the Association’s authority under the restrictive covenant. Given that the 2001 restrictive covenant indicated that the developer, and not an architectural control committee comprised of owners, was to approve new construction, the court invalidated the architectural review restrictions and payment requirements that were adopted as part of the Bylaws. The Court held that the provisions of the Bylaws that did not conflict with the 2001 restrictive covenant were validly approved. The Court found it significant that the Articles of Incorporation and Bylaws were not created at the same time the restrictive covenant was imposed.
The Association also argued that the developer had assigned its rights with respect to architectural control by signing the January 2011 letter. The court held that a developer could assign its rights to an Association either orally or in writing as the restrictive covenant did not include any limitations or conditions on the manner of assignment. The case was remanded to the trial court for a determination of whether the developer had assigned its architectural control rights to the Association. However, the court held that the Association’s architectural control rights could not be expanded beyond those granted to the developer without the unanimous consent of all owners.
Accordingly, Michigan Homeowners’ Associations should review the requirements of their existing restrictive covenants in order to determine whether the covenant can be amended with less than unanimous consent of the owners. It should be noted that this decision will not impact condominium associations, as the amendment of condominium documents is governed by MCL 559.190 and MCL 559.190a. Finally, while it is advisable to formally document any assignment of a developer’s interest in writing, Conlin appears to stand for the proposition that a developer’s rights can be informally assigned depending on the circumstances and language of the restrictive covenants.
Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. He has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2018, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel was named an Up & Coming Lawyer by Michigan Lawyer’s Weekly in 2015, an award given to only 30 attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 478-1800 or kevin@hirzellaw.com.