Uncommon Elements in Condo Ownership
What happens when a condominium project is left in an incomplete stage of development? What effect does it have upon those who have already purchased a condominium?
These questions have become far more common since the economic downturn. While this article cannot address all such consequences, it intends to identify a few issues condominium owners should be aware of.
Michigan's Condominium Act provides the legislative authority for the creation of a real property interest known as a condominium. To create a condominium, the developer must prepare and file with the county Register of Deeds' office a "master deed" legally describing the land involved in the project, the detailed development plans of the specific condominium units, and delineating what parts of the project are for exclusive, limited or common use of the condominium unit owners.
Traditionally, housing for two or more owners in one structure was thought of as condominium units. However, vacant land for the use of a single user, in a detached structure, may also be described as a condominium unit. This is a "site condominium."
Site condominiums have become the primary way vacant land is developed in northern Michigan. Condominium units and site condominiums are sold for the exclusive use of the purchaser, and may be for residential, office, industrial, business, recreational, and time-share unit uses. Limited common elements are property within the development with usage restrictions. Balconies, storage lockers, or open land surrounding a detached single family home assigned to that particular unit are examples of limited common elements. Common elements include the roads, recreational water frontage or open areas available for everyone's use.
The expenses of operating the development not attributable to a particular unit, such as road maintenance, snow removal, or dock installation, are shared between all unit owners in the condominium project. They do not, however, have to be shared equally; instead they are based on the "percentage of value" each unit represents in relation to the development as a whole, and are established by the developer in the master deed. Factors which may be considered in determining the percentage usually include comparative characteristics such as market value, size, or location within the development. A site condominium with direct water frontage would have greater value than one without; a condominium unit with the best view would have a greater value (and therefore percentage of value), than one with no view. Expenses are typically billed by assessments. Developers are almost always exempt from paying any assessments on units they have not yet sold.
Optimistic master deeds may describe units that will not be built in the initial phase, but instead in planned future phases. If the percentages of values are based on a number of units that were never built, phases which never occurred and/or are now owned by a bank, the condominium development owner's representative association may find the income budgeted by the developer fails to meet the actual operational expenses. For instance, if 10 units were planned, each was assigned a percentage of value of 10 percent, but only five constructed, the operational income may be half of what is needed.
To remedy the situation, the condominium association's options would include curtailing services or seeking an agreement to revise the percentage of values for each unit's assessment. Here it may get contentious. Some owners may not only oppose a reduction of services, but instead request an increase in quality of the services to shore up market perception and preserve the development's value. Conversely, other owners may be unable to afford increases, but may also be casualties of the economic downturn and unable to meet their originally budgeted assessment.
As with all aspects of condominium governance, the association and unit owners should first look to the master deed and its incorporated documents (i.e. condominium association by-laws and articles of incorporation) for guidance. If such documentation fails to address the situation, or the condominium association fails to act or obtain agreement among the unit owners to act, the Michigan Condominium Act provides that individual unit owners may bring a lawsuit to request a court order amending the master deed, reassessing the percentage of values based on the development that exists, and excluding portions never developed.
Until such a solution occurs, property owners may find their neighbors no longer willing to pay their proportionate share, but continuing to use the common elements. Purchasers of condominium units should carefully review all documentation associated with the purchase of a condominium and confer with an attorney experienced in condominium law to avoid what is becoming an all too common element of condominium ownership.
Daniel J. Dingeman, of the law firm of Dingeman, Dancer & Christopherson, PLC, is a transactional attorney practicing in the areas of condominium, land use, development, financing and zoning matters,