Condominium
Buyers' Handbook
The Michigan Department of Labor & Economic Growth created
the Condominium Buyer's Handbook as required by the Condominium Act (PA 59 of
1978, as amended). This edition includes Public Act 385 of 2002 amendments.
PREFACE
The Condominium Buyer's Handbook is a guide for people who are interested in
buying a Condominium. For your protection, you should read this booklet before
you sign a purchase agreement. This handbook contains a summary of portions of
the Condominium Act. Although the information is directed primarily toward
residential Condominium buyers, the Act also covers business, manufactured
housing, campground and marina Condominium developments. The last section of
the handbook describes the legal remedies that are available to you based on the
Condominium Act.
The Condominium Act does
not give the Department of Labor & Economic Growth authority to enforce or
regulate any provisions in the bylaws for Condominium developments or the
Condominium Act. Although the
Department of Labor & Economic Growth is the designated administrator in the
Act, the Legislature repealed the Department's regulatory and enforcement
responsibilities in 1983.
The Department of Labor &
Economic Growth will forward a copy of a complaint received regarding a
developer of a Condominium project to the developer, along with a notice of
available remedies in the Act. Contact:
Condominium OWNERSHIP
Condominium unit co-owners have exclusive ownership rights to their unit and the
right to share the common elements of the Condominium development with other
co-owners. The Condominium subdivision plan, which is part of the master deed,
identifies which areas are units and which areas are common elements.
The co-owners own and maintain the development once the developer has sold all
the units, unless the local government agrees to take responsibility for
maintaining a portion of the development. Roads are an example of a portion of
a Condominium development that may become public.
The master deed provides the percentage of ownership for each Condominium unit
in the development. This percentage is the basis for determining your
obligation for payment of monthly maintenance fees, assessments for major
repairs, and may determine your voting percentage at Association meetings. The
Association of co-owners determines how much the monthly maintenance fee will be
and assesses each owner for repairs to the common elements.
READ THE BYLAWS
Read the bylaws for the Association and Condominium development as they contain
provisions outlining your rights and obligations as a co-owner.
You are obligated the pay the monthly maintenance fee and any assessments. If
there are no restrictions in the bylaws that place limits on increasing the
monthly fee, the Association has the right to determine the amount. If the
roads, or any other portion of the common elements in the development need
repair, the Association will determine the amount each owner is responsible for
paying. If there are no restrictions in the bylaws regarding assessments, the
Association has the right to determine the amount. If you fail to pay an
assessment or monthly fee, the Association may place a lien on your unit.
Modifications or repairs to your unit may require approval of the co-owners
Association. If you do not obtain approval, the Association may take legal
action against you.
Before signing a purchase agreement, you should be aware of any restrictions on
pets, renting, displaying items outdoors, and other prohibitions in the bylaws.
Even if a restriction is not in the bylaws when you purchase, the Association
may amend the bylaws. Only changes that materially affect the co-owners require
a vote of all co-owners.
You may not have the right to attend Association meetings unless the bylaws
specify that you may attend. The bylaws may not require Associations to provide
minutes of their meetings to co-owners.
PRELIMINARY RESERVATION
AGREEMENTS
A preliminary reservation agreement gives you the opportunity, for a specified
time, to purchase a particular Condominium unit upon sale terms to be determined
later. The developer must place the payment you make in an escrow account with
an escrow agent. If you make a payment under a preliminary reservation
agreement and cancel the agreement, the developer must fully refund the money.
If you enter into a purchase agreement, the developer must credit the payment
toward any payment due in the purchase agreement.
PURCHASE AGREEMENTS
A purchaser may withdraw from a signed purchase
agreement without cause or penalty within nine business days
as long as the property has not been conveyed to
the purchaser. The nine-business day window starts the day the purchaser
receives all the documents that the developer is required to provide. The
developer must deposit payments made under a purchase agreement in an escrow
account with an escrow agent.
Before signing an agreement, it is advisable to seek professional assistance to
review all Condominium documents.
Some issues to consider before buying include
the following:
·
Do not rely on verbal promises
- insist that everything be in writing and signed by the appropriate parties
involved in the transaction.
·
The bylaws may contain a variety
of restrictions. You may be required to receive Association approval for
certain actions. If you do not obtain prior approval, the Association has
authority to enforce the legal restrictions in the bylaws.
·
You may be subject to a binding
purchase agreement before construction is complete. Determine whether the
agreement will provide you with adequate rights if the developer does not finish
the unit in time to meet the occupancy date.
·
You may wish to contact the local
government to determine if the developer is contractually obligated to finish
the development.
·
Review all restrictions,
covenants, and easements that might affect the Condominium project or your
unit.
·
Determine if the developer has
reserved any rights to alter the project.
·
Before signing a purchase
agreement, make sure you have financing, or that the agreement specifies it is
dependent on your ability to obtain a mortgage commitment for the unit.
·
When buying a Condominium unit in
a structure, you may also be a joint owner of the furnace, roof, pipes, wires
and other common elements. Ask for an architect's or engineer's report on the
condition of all building components, their expected useful life and building
maintenance records.
There is no governmental agency that regulates
Condominium Associations and management companies. Only a judge has authority
to order an Association to comply with the Condominium Act and bylaws.
DOCUMENTS THE DEVELOPER MUST
PROVIDE
The developer must provide copies of the following documents to a
prospective purchaser:
1. The recorded master deed.
2. A copy of the purchase agreement
and the escrow agreement.
3. The Condominium buyer's handbook.
4. A disclosure statement that
includes:
-
The developer's previous experience with
Condominium projects.
-
Any warranties undertaken by the developer.
-
The extent to which financial arrangements
have been provided for completion of all structures and improvements labeled
"must be built" on the subdivision plan.
-
An itemization of the Association’s budget.
Association OF CO-OWNERS
(Condominium BOARD)
Initially, the developer appoints the board of directors, who govern the
development until the first annual meeting. The provisions for holding the
annual meeting and designating the voting procedures should be included in the
Condominium development bylaws. The Condominium Act, (Section 52), describes
the procedure for transitioning from the developer to the Association of
co-owners for the governing of the development. (Also see “Election of
Association of Co-owners Board of Directors” later in this handbook.)
The co-owners elect the Association, which is responsible for governing the
development and maintaining the general common elements. The general common
elements may consist of hallways, lobbies, building exteriors, lawns, streets
(if the roads are private), recreation facilities, heating, water and electric
systems. The Association may hire a management company to provide services for
the development. They also have the right to assess co-owners for repairs.
After the creation of the Association, the Association may adopt bylaws for the
operation of the Association. Rules governing the Condominium development are
in the bylaws that the developer created for the Condominium development.
A Condominium Association is a private, not
public entity. Meetings of the
Association are not subject to the Open Meetings Act, which requires public
agencies to make attendance at meetings open to the public and requires the
provision of minutes that describe actions taken at the meeting.
Associations are required by law to keep books and records with a detailed
account of the expenditures and receipts affecting the project and its
administration, and which specify the operating expenses. The developer must
provide a disclosure statement itemizing the Association's budget at the time
you receive the master deed.
Associations are required to maintain a reserve fund for major repairs and
replacement of common elements. The minimum amount is 10% of the annual budget
on a non-cumulative basis. If the Association needs additional funds for major
repairs, they may have the right to assess each owner. Monthly fees and
assessments are a lien on the Condominium unit. You may not be exempt from
monthly fees and assessments by nonuse of the common elements or by abandonment
of the Condominium unit.
If you have a complaint with the Association or other co-owners, review the
Condominium bylaws to determine what recourse you have. Generally, only
professional arbitrators or the courts have jurisdiction over complaints between
these parties.
DOCUMENTS THE Association
MUST PROVIDE
The Association must provide a financial statement annually to each co-owner.
The books, records, and contracts concerning the administration and operation of
the Condominium project must be available for examination by any of the
co-owners at convenient times. All books and records must be audited or
reviewed by an independent accountant annually, but the audit does not have to
be certified. The Association must keep current copies of the master deed, all
amendments to the master deed, and other Condominium documents available at
reasonable hours to co-owners, prospective purchasers and prospective
mortgagees.
SITE CondominiumS
The term "site Condominium" is not legally defined in the Condominium Act. It
is used to describe a Condominium development with single-family detached
housing instead of two or more housing units in one structure.
Site Condominium developments must comply with the Act. The Act requires
developers to notify the appropriate local government of their intent to develop
a Condominium project. The type of review the development is subject to depends
on the local government's ordinances. Site Condominium documents are not
reviewed by the State for conformance with the Condominium Act.
Another type of single-family-residential housing development in Michigan is a
subdivision which is regulated according to the Land Division Act. Although a
site Condominium development may look like a subdivision developed in accordance
with the Land Division Act, they are not the same. Subdivisions developed
pursuant to the Land Division Act are subject to state review for conformance
with the Land Division Act. Subdivisions developed pursuant to the Land
Division Act must be approved for compliance with the Land Division Act before
the developer may sell any real estate.
LIMITED OR GENERAL COMMON
ELEMENTS
Common elements mean the portions of the Condominium project other than the
Condominium unit. Limited common elements are areas with usage restrictions. A
carport space assigned to a unit is a limited common element. The yard of a
single family detached unit, for use by the owner of that unit, may be a limited
common element. General common elements such as roads, open space areas and
recreation facilities are available for use by everyone in the development. The
master deed specifies which areas of your Condominium development are designated
as limited or general common elements. Use of the common elements is governed
by the bylaws for the Condominium development.
ADVISORY COMMITTEE
The advisory committee is established when one of the following occurs,
whichever happens first: 120 days after 1/3 of the units are sold or one year
after a unit is sold to a non-developer co-owner.
The purpose of the advisory committee is to meet with the development’s board of
directors to facilitate communication and aid in the transition of control from
the developer to the Association of co-owners. The advisory committee ceases
when a majority of the Association of co-owners is elected by the
(non-developer) co-owners.
ELECTION OF Association OF
CO-OWNERS BOARD OF DIRECTORS
No later than 120 days after 25% of (non-developer) co-owners have title to the
units; that may be created, at least one director, and not less than 25% of the
board of directors shall be elected by the co-owners.
No later than 120 days after 50% of (non-developer) co-owners have title to the
units that may be created, at least one third of the board of directors shall be
elected by the co-owners.
No later than 120 days after 75% of (non-developer) co-owners have title to
units, and before 90% are sold, the co-owners shall elect all but one director
on the board. The developer shall have the right to designate one director only
if the developer owns and offers for sale at least 10% of the units, or as long
as 10% of the units remain to be created.
If titles to 75% to 100% of the units that may be created have not been sold 54
months after the first conveyance, the (non-developer) co-owners shall elect the
number of board members equal to the percentage of units they hold. If the
developer has paid all assessments, the developer has the right to elect the
number of board members equal to the percentage of units that are owned by the
developer.
Condominium DOCUMENTS
The Condominium documents include the master deed, Condominium subdivision plan,
bylaws for the Condominium project, and any other documents referred to in the
master deed or bylaws. In addition, the developer is required to provide a
disclosure statement.
Once the Association is established, it may adopt another set of bylaws
pertaining to the Association's operation. The Association or Management
Company must keep books and records with a detailed account of the expenditures
and receipts affecting the project and its administration, and which specify the
operating expenses.
AMENDMENTS TO Condominium
DOCUMENTS
If the Condominium documents contain a statement that the developer or
Association of co-owners has reserved the right to amend the documents for that
purpose, then the documents may be amended without the consent of the co-owners,
as long as the change does not materially alter or change the rights of a
co-owner.
The master deed, bylaws and Condominium subdivision plan may be amended, even if
the amendment will materially alter or change the rights of a co-owner with the
consent of at least 2/3 of the votes of the co-owners and mortgagees.
The method or formula used to determine the percentage of value of each unit for
other than voting purposes cannot be modified without the consent of each
affected co-owner.
A co-owner's Condominium unit dimensions or limited common elements may not be
modified without the co-owner's consent.
Consumer
Protection Act, P.A. 331 of 1976, as amended, MCL 445.901 et seq.
Stille-DeRossett-Hale Single
State Construction Code Act, P.A. 230 of 1972, as amended, MCL 125.1501 et seq.
Approval: DLEG Director
PUB-C-0139 (5/06)
