Matthew W. Heron, Esq.
Cummings, McClorey, Davis & Acho, PLC
Introduction
Michigan law allows the creation of a condominium project under terms and conditions set forth in the Michigan Condominium Act, Act 59 of 1978, MCL 559.101, et seq. (the “Act”). For the most part, the Act contemplates the creation of a new condominium project on land owned by a developer. However, the Act also allows the conversion of an existing residential building to a condominium known as a “conversion condominium.” The most common example of a conversion condominium is an apartment complex which is then turned into a condominium project. This article describes some of the unique characteristics that distinguish a conversion condominium from any other type of residential condominium project.
Conversion Condominiums in Michigan
1. The Conversion Condominium
Under Section 71 of the Act, MCL 559.171, not less than ten (10) days before taking reservations under a preliminary reservation agreement for a unit in a condominium project, recording a master deed, or beginning construction of a condominium project, a developer is to provide written notice of its intended action to the local municipality, the road commission and the drain commissioner, the department of environmental quality, and the state transportation department. MCL 559.171. The purpose of this provision is to provide notice to the applicable governmental bodies which could be responsible for overseeing, in some capacity, construction of the condominium project before construction of the condominium project gets underway.
A conversion condominium is any condominium project which contains condominium units occupied before the filing of the notice of taking reservations described in Section 71. Under the Act, a conversion condominium is defined as follows:
“Conversion condominium” means a condominium project containing condominium units some or all of which were occupied before the filing of a notice of taking reservations under section 71.
MCL 559.105(2). As indicated above, the most common example of a conversion condominium is an apartment complex which is then turned into a condominium project. The condominium documents applicable to an apartment building being converted into a condominium project are generally the same as for a new condominium project, except for several additional steps that must be taken when the condominium documents are being drafted.
2. Required Disclosures to Prospective Buyers of a Conversion Condominium Unit
For a new condominium project, a developer must file with the local unit of government in which the project is located detailed architectural plans and specifications for the condominium project. MCL 559.173(4). However, because of the potential age of the building, detailed plans and specifications may not be available for a conversion condominium. In such circumstances the developer must record an affidavit indicating that such plans and specifications are not available. Id. The Act also requires a developer of a new condominium project to provide several documents to prospective purchasers of a condominium unit, including a copy of the recorded master deed, a condominium buyer’s handbook, and a disclosure statement. MCL 559.184a(1). If the project is a conversion condominium, then the developer must provide additional information about the project to prospective buyers including:
- A statement, if known, of the condition of the main components of the building, including roods, foundations, HVAC and plumbing systems, and structural components;
- A list of outstanding building code or other municipal regulation violations and the dates the premises were last inspected for compliance with building and housing codes; and
- The year (or years) of completion of construction of the building(s) in the project.
The above notices and disclosures primarily address the type of information being provided to prospective purchasers about the condition of a conversion condominium. This is based on the premise that the building may have been built some time prior to the creation of the condominium project itself. In other words, these notices and disclosures are intended to inform prospective buyers about the building, or to notify the prospective buyer about limitations in the developer’s knowledge of the condition of the building. In addition to protecting prospective buyers though, the Act also seeks to protect existing residents of a conversion condominium.
3. Required Notices to and Rights of Existing Tenants of a Conversion Condominium
A conversion condominium contemplates a pre-existing building. In many instances, that pre-existing building will already have residents, many of whom rent their unit under a lease from the building owner, who may also be the developer of the intended conversion condominium. Before offering any unit for sale, the developer of a conversion condominium must inform existing tenants of the proposed conversion and notice of certain rights, including the following:
- The right to remain in the unit for 120 days after receipt of the notice, or until expiration of their lease, whichever is longer; and
- The right to terminate tenancy upon 60 days’ notice to the developer.
MCL 559.204(2). These provisions are intended to provide a level of protection for existing tenants as they make arrangements to find suitable alternative living arrangements.
The Act also provides additional protections to vulnerable existing tenants. Specifically, the Act limits the developer’s right to terminate the tenancy of a tenant if the tenant is 65 years of age or older, or is paraplegic, quadriplegic, hemiplegic, or blind. First, Section 104a of the Act prevents a developer from terminating the tenancy of such an individual without cause within one (1) year after receipt of the notice required under Section 104(2). Second, the Act also limits the developer’s ability to terminate the tenancy based on certain rights relative to an “extended lease arrangement” available to a “qualified conversion condominium project.” Notice of rights applicable to an extended lease arrangement for a qualified conversion condominium project must be provided by the developer to each existing tenant at the same time as the notice sent under Section 104(2). MCL 559.204b(3).
A qualified conversion condominium project is defined under Section 104b of the Act as “a structure or group of structures containing a total of 6 or more residential units occupied before the establishment of a conversion condominium project.” MCL 559.204b(1)(a). In order to benefit from the extended lease arrangement described in Section 104b the tenant must either: (i) be 65 years old or older as of October 10, 1980 (i.e., a “qualified senior citizen” under Section 104b(1)(c)); or (ii) be a resident of a qualified condominium project and paraplegic, quadriplegic, hemiplegic, or blind (i.e., a “qualified person with disabilities”) under Section 104b(1)(b)). MCL 559.204b(1). If a tenant falls within either of these two categories, then that tenant has the right to elect an extended lease arrangement within 60 days of the receipt of the notice required by MCL 559.204b(3). For qualified senior citizens, an extended lease arrangement can allow the tenant to remain in the unit for up to an additional 10 years. MCL 559.204b(5)(a)-(d). As a practical matter, however, since a qualified senior citizen must have been 65 years old as of October 10, 1980, there are very few people living today who can benefit from the protections afforded qualified senior citizens in a qualified conversion condominium.
The Act, however, does not contain a similar limitation for a qualified person with disabilities. Whether a person was disabled as of October 10, 1980, or disabled as of October 10, 2015, is immaterial to whether that person meets the definition of a qualified person with disabilities. Under Section 104b(6) of the Act, a qualified person with disabilities on the date of the receipt of the notice required under Section 104b(2) may renew their lease subject to an extended lease arrangement year to year for four years. MCL 559.204b(6). In addition to this extra time to reside within the qualified conversion condominium, an extended lease arrangement imposes a restriction on any unreasonable increase in rent during the time that the unit is subject to the extended lease arrangement and grants a qualified person with disabilities the right to request that the owner disclose all information used in determining a reasonable rent increase. MCL 559.204b(4).
Together, these provisions are intended to provide certain protections to vulnerable residents, the elderly and disabled, in certain circumstances where their building is converted into a conversion condominium.
Conclusion
In many ways a conversion condominium project is to be created in the same manner as a new condominium project. Due to the unique characteristics associated with an existing building and existing tenants, however, the Act imposes certain notice and disclosure requirements on the developer of a conversion condominium project. These requirements are intended to protect prospective purchasers by notifying them of both known issues with the building, and limitations in the developer’s knowledge of the building’s design and condition. These requirements are also intended to protect the building’s most vulnerable existing tenants by granting elderly and disabled tenants the right to potentially remain in the building for additional time, and to limit the rental increases that may be imposed by the developer. In order to avoid violating any of these provisions, a developer contemplating a conversion condominium should contact competent legal counsel to review the applicable condominium documents. If you have any questions regarding your conversion condominium, please contact our office.
Matthew W. Heron is a Member of Hirzel Law, PLC where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, land use, large contractual disputes and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. Mr. Heron concentrates his practice on drafting, revising, amending, restating and interpreting governing documents of condominium and homeowner’s associations in Michigan. He can be reached at (248) 478-1800 or mheron@hirzellaw.com. You can also follow him on Twitter at @mwheron75.