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Condo | HOA Lawyers

Vacant Land Units Can Have a 0% Percentage Interest

Summary

The language and definitions in your governing documents reflect the intentions of the Association.  You need to either follow them or amend them, but NOT ignore them.

Facts

Sunnyside Resort Condominiums is a private resort property located on Lake Gogebic in Gogebic County, Michigan, and governed by the Sunnyside Resort Condominium Association, Inc. (SRCA).  In 2006, the Plaintiffs purchased vacant lots within SRCA with an individual value of $13,000.  Unlike other lots, the Plaintiffs’ lots, among other things, lacked improvements to the property, utilities, and septic systems.

Assessments on Vacant Lots.  Although the Plaintiffs’ lots were free from any structures, Plaintiffs were charged assessment fees despite the association documents essentially providing that the Plaintiffs were not required to pay association assessment fees until a structure was built on the lot.  In part this was due to the fact that the percentages of value for the units were calculated based on several factors including, market value, size, and allocable expenses for maintenance. Plaintiffs stopped paying the monthly assessment fees for their two units in July 2015.

Unit Owner Building on Common Element.  During the summer of 2015, four unit-owners, including two of SRCA’s board of directors, at their own expense, constructed a four-stall and a single stall garage in an area on the property designated as a general common element.  Approximately a year before construction was initiated, SRCA’s counsel informed the four unit-owners that construction of the garages could not proceed until, among other things, a survey was conducted, and the builders obtained approval by all mortgage holders for all of the units, and obtained a supermajority approval by all of the unit owners.  The four-unit owners proceeded with construction even though they failed to comply with all directions from SRCA’s counsel.

Following the construction of the garages, SCRA’s counsel notified the four unit-owners that the garages belonged to SCRA despite the existence of a survey that divided up the common area into pre-assigned parking places.  Despite receiving such notification, SCRA’s board of directors neglected to inform all unit-owners of their ability to use the garages; thus, the four unit-owners, including two of SRCA’s board of directors, retained exclusive use of the garages for approximately two years.  After the instant lawsuit commenced, SCRA notified residents that the garages were available to all unit owners.

Trial Court

At trial the Plaintiffs argued that the construction of all five garage stalls (the four-stall garage and the single stall garage) resulted in a material change to the condominium plan; thus, SCRA was required to recalculate the percentage value assigned to each unit.  The Plaintiffs contend that the additional five units, like the vacant lots, are required to be charged an association assessment fee and sought reformation of the percentage values of their lots pursuant to the Michigan Condominium Act (Act).  Based on the language in the purchase documents, the trial court determined that the developer’s calculation of assessment fees was dependent exclusively on structure size.  Thus, the Plaintiffs’ percentage values were recalculated to 0% and will remain until a structure(s) is built on the lot.  SRCA’s counterclaim did not prevail, and the court ruled that SRCA was not owed any outstanding association assessment fees.  SCRA appealed the trial court’s ruling.

Issue
  1. Whether the trial court erred by denying SCRA the ability to collect assessments from the Plaintiff?
  2. Whether the trial court erred when it applied the developer’s original formula, contained in the master deed, to calculate and assign the percentage value based on the size of each unit’s structure and should instead have based the percentage on the square feet of ground space?
Court of Appeals of Michigan

On appeal, the court of appeals concluded that because the garages were eventually made available to all units, summary disposition was not appropriate.  The court notes that summary disposition is only granted when there is no genuine issue of material fact, which could not be done by the trial court.

Additionally, the court of appeals determined that the trial court’s application of the developer’s formula to determine each unit’s percentage value was accurate.  Based on the language in the master deed, the court of appeals noted that SCRA’s interpretation of the word “size” in the master deed conflicts with the meaning of “size” in Act.  Unlike SCRA, the Act defines “size” as the cubic feet or square feet of ground or floor space within each unit, computed by reference to the condominium plan.  Thus, the trial court correctly calculated the percentage because the Plaintiffs’ units contained no floor space.  Accordingly, the court of appeals affirmed the ruling of the trial court and ruled that the trial court did not commit error when it denied SCRA’s motion for summary disposition and denied SCRA’s counterclaims.

Lesson(s) Learned
  1. Condominium associations should ensure that the definition of percentages interests in their documents is what they want it to be, and if it’s not, amend it.
  2. Follow that actual language in your documents, since that is what a court will likely do and therefore what you will be required to do.
  3. Don’t build structures on common elements and somehow think that because you built it you have some exclusive right to use it. Common element is everyone’s property.  It’s really that simple.

Beckman Holdings, Inc. v. Sunnyside Resort Condominium Association, Inc., No. 347543 (Mich. Ct. App. May 21, 2020)

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