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.

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 record 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.

Condominium units can consist of housing for two or more owners in one structure, or, alternatively vacant land for the use of a single user, in a detached structure. The latter, known as 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, e.g. balconies, storage lockers, or open land surrounding a detached single family home assigned to a particular unit.

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 and are typically billed by assessments. 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. 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 ten units were planned, each was assigned a percentage of value of ten 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.

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 of course 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, business matters, commercial lending, estate planning and wealth transfer planning.