Mature Association

AMENDING THE DOCUMENTS IN A “MATURE” COMMUNITY ASSOCIATION

By: Robert Meisner

This firm is often asked how a condominium or homeowner association which has been in existence for 10-25 years should go about amending its documents and whether or not it is a good idea.

In the case of a condominium, generally, if the documents were drafted prior to July 1, 1978, they were established under the old Michigan Horizontal Real Property Act and clearly do not take advantage of some of the salient provisions which were incorporated in the Michigan 1978 Condominium Act, as well as several amendments to that Act that followed. Additionally, as all of us have become more seasoned in condominium operation, we have become more knowledgeable in the need for additional provisions in the documents to deal with issues that were not foreseen by the Developer’s attorney and/or which have arisen as a result of the operation of the condominium project over the years. In addition, major changes in the law, case decisions, modifications of societal needs and perceptions, and perhaps a need for a better drafted document all weigh in favor of the revisiting by the Association of its documents.

Changes in the Michigan Nonprofit Corporation Act, by way of example, can provide volunteer officers, directors and other volunteers, such as committee persons, of community associations with certain protections from liability if these statutory provisions are incorporated into the Articles of Incorporation. In effect, an Association which does not take advantage of these changes in the law is operating with peril unnecessarily. Similarly, in the case of a homeowners association, the Bylaws and/or the Declaration of Covenants and Restrictions may be outdated and may not be able to be modified unless certain changes are made within a certain period of time after the initial drafting of the Declaration. These opportunities should not be squandered. In the case of a Cooperative, the proprietary lease, and/or the underlying Bylaws and rules and regulations may need to be revamped because of changes in the operating procedures of the Cooperative or for the reasons stated above.

The process that should be utilized in obtaining approval is relatively simple. The Board of Directors of the Association should request an experienced and knowledgeable community association attorney to review the present set of documents and to make suggestions as to what changes, if any, should be made. In the case of a condominium, the documents which are subject to review include the Master Deed, the Condominium Bylaws, the Association Bylaws (if not consolidated with the Condominium Bylaws), the Articles of Incorporation and the rules and regulations, if any. Many times Associations adopt rules and regulations which should be incorporated into the restrictions of the Bylaws. This is a good opportunity to ensure that the rules and regulations cover what they were designed to deal with only, and to otherwise eliminate any inconsistencies that may exist between the “rules and regulations” and the “restrictions” normally contained in the Bylaws. Depending on when the Condominium Project was established, the Board may also have wide flexibility in recommending amendments to the Master Deed but generally it is less burdensome to amend the Condominium Bylaws and the Association Bylaws. Of course, the necessary requirements to amend the Master Deed should be the subject matter of an opinion provided to the Association by its legal counsel. An examination should be made, of course, of the provisions of the documents themselves for the necessary approval requirements, as well as researching the relevant Condominium Statute(s) and/or the Michigan Nonprofit Corporation Act, to the extent applicable.

Once the Board of Directors has chosen an attorney to review the documents, the Board of Directors should solicit the advice of the attorney as to whether or not it is advisable to make amendments in a piecemeal fashion to the respective documents or to implement an entirely new amended and restated set of documents. Generally, it is this writer’s preference that the documents be entirely restated, i.e., by way of example, an amended and restated set of Condominium Bylaws, so that they can be integrated, taking advantage of some of the subtle nuances which we have developed in recent years regarding condominium documents which allows them to be integrated and read as a whole and comprehensive document. Obviously, not all of the provisions of the documents need to be changed. However, rather than vote on each section, item by item, it may be preferable to vote on the amended documents as a whole document, by way of example, the Condominium Bylaws, presuming that they serve the best interests of the members of the Association.

Once the Board of Directors requisitions the attorney to prepare the documents, it should point out to the attorney any particularized needs that it feels must be addressed in the proposed changes, such as issues regarding pets, parking, vehicles, and other commonly shared problems which may be unique to that particular association. The attorney should then proceed based upon the comments made by the Board of Directors, but the Board should not spend months deliberating what changes should be made, as a seasoned community association attorney should be in a position to put together a set of documents without major Board input. The Board of Directors should then review the work product carefully and ask the attorney any questions that it may have concerning these documents. Of course, the Board of Directors should have armed the attorney with any concerns regarding any particular areas of the documents which need special emphasis and should again query the attorney if, in fact, any issues remain unresolved.

Once the Board of Directors has reviewed the changes made and is satisfied with them, the amendments should be presented to the members of the Association. Generally, we recommend that an informational meeting take place whereby the attorney for the Association is available to answer any questions that the members of the Association have regarding the amended documents. Once that meeting has taken place, the members should then be in a position to vote on the restated documents, assuming that no additional changes need be made by the Board of Directors in light of the informational meeting. Expect that there will be certain members of the Association who will not like certain provisions of the documents. Hopefully, the attorney will be in a position to point out that it is in the best interests of the Association and its members to pass the documents in their proposed amended form since taken as a whole, they are in the best interests of the Association. Individualized issues, while important to certain members, hopefully can be minimized in the sense of what is the benefit of the documents taken as a whole. This is not an easy task and it may be necessary, on occasion, to submit the documents to the membership on more than one occasion. It is helpful, however, if the Association can point out to the members that it had an experienced and well recognized legal expert in the field drafting their documents which may allay the concerns of some of the members of the Association who protested these changes. Of course, what often happens is that the members are reading the documents for the first time and many areas of concern addressed by some member are merely recitations of provisions which are already in the existing documents.

Once the meeting takes place to vote on the amendments, and the amendments are presumably passed, the attorney should then prepare the formal amendment for recordation with the Register of Deeds, to the extent necessary in the case of condominium and/or community association documents, and for filing with the Michigan Department of Consumer and Industry Services, to the extent that there are changes to the Articles of Incorporation. The rules and regulations should also be recorded with the Register of Deeds so that all Co-owners, present and future, are on constructive notice of their existence. It may also be necessary, depending upon the Condominium Act, and/or the Condominium Documents, to obtain the approval of the mortgagees of a certain percentage of units in the project and the Veterans Administration, the Department of Housing and Urban Development (HUD) or of other agencies, as may be required by the documents in question.

While the Association may be concerned about the costs involved in undertaking this endeavor, it should appreciate the fact that the per unit, per cost, of the documents on a monthly basis amortized over the reasonable useful life of the documents is usually the cost of a good hamburger and french fries for a member.

Simply put, the amendment process can be a rewarding and beneficial exercise for the Association. It is sometimes fraught with frustration, but the Board of Directors should be reminded that it is an extremely important and, indeed, incumbent upon the Board, to try to keep the community association documents up to date, and to discharge its legal responsibilities incident thereto. Its persistence and diligence will generally pay off for the benefit of all members of the Association.

©1999 Robert M. Meisner, Esq.