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Condo | HOA Lawyers

Can a New Capital Project be Paid by Annual Assessments – YES

Walsh v. Hawthorn Hills Owners of Rochester, Inc. 2023 WL 4144757, Not Reported in N.W.Rptr (Michigan, 2023)

What you need to know:

  1. A new construction project (street lights) can be a general and recurring expense and therefore fall under the annual budget.
  2. The key to determining whether something is or is not potentially part of the budget is what is provided in the association documents. 

Issue: Did a project to install street lighting (where none previously existed) require a special assessment or could it be part of the annual budget? 

Facts: The community consisted of 350 members and in 2017 the defendant sought to increase the dues to $350/mo. to install street lights throughout the neighborhood. In 2018, 59% of the members voted to increase the annual dues, including the plaintiff. After the increase passed, plaintiff filed suit in November of 2021 alleging that defendant didn’t follow the bylaws because he did not obtain the 2/3’s vote necessary for a special assessment. Plaintiff also alleged defendant breached his fiduciary duty by failing to follow the bylaws. Plaintiff sought summary judgment arguing that the “street lighting project was a special assessment that required approval by 2/3 of the … members.” 

Trial Court: The trial court found that “the street lighting project was … ‘general and reoccurring in nature.’ Therefore, the project was ‘rightfully … identified by the defendant as being pursued under [the Association documents]’ (which allows defendant to use the annual budget to fund expenditures that are general and reoccurring).” The court then entered judgment in favor of defendant. Plaintiff appealed. 

Appeals Court: The Declaration of Restrictions (“DOR”) provided for the establishment of a maintenance fund. The maintenance fund was to be financed by the annual dues and was to be used “as necessary and advisable for improving and maintaining the Common Area and any other property of the Association.” The DOR specifically provided that the fund could be used for “the construction, operation, and maintenance of swimming pools, tennis courts, or similar creational facilities located within the Common Area…” The DOR also provided that the annual fee could be increased by a vote of not less than fifty-one percent of the members. Based on the above, the appeals court found that the defendant could use the annual dues to improve and maintain the common elements, including the street light project, even though the project would require “both a one-time construction and ongoing operation and maintenance.” As a result, the appeals court affirmed the decision of the trial court. 

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