Basic Requirements Of The Michigan Condominium Act
(July 2003)

1.  Do our Condominium Association’s documents need to be amended as a result of recent changes enacted by the Michigan Legislature in the Michigan Condominium Act?

Public Act 283, effective May 9, 2002, enacted many changes in the Condominium Act.  Your Association may need to amend its bylaws to comply with the law and/or to take better advantage of the protections and rights afforded under the new laws.  Our attorneys can advise you on the amendment process.

2.   A co-owner is refusing to pay special assessments that have been levied by the Condominium Association.   What can the Association do to collect the special assessments from the co-owner?

The Condominium Act provides specific remedies to Associations that allow them to recover unpaid special assessments from delinquent co-owners, including the imposition of liens and foreclosure.  In order to fully assess the Association’s rights, an attorney
should review your condominium documents, in particular Article II, Section 3 of your condominium bylaws, which usually provide for the Association’s right to impose special assessments and liens to collect unpaid assessments.

3.   What are the “reserve fund” requirements of the Condominium Act? 

Under Section 559.205 of the Condominium Act, a condominium Association must maintain a reserve fund for major repairs and replacement of common elements.  This reserve fund must be equal to 10% of the Association’s current annual budget on a noncumulative basis.  However, the Association should carefully analyze the condominium project to determine if a greater amount should be set aside, or if additional reserve funds should be established for other purposes.  R 559.511(4).
 
4.   Does the Condominium Act require an Association to conduct an audit?

Under Section 559.157 of the Condominium Act, the books and records of the Association must be audited or reviewed by independent accountants annually.  However, such audits need not be certified audits.  Regardless of the legal requirements governing audits, an annual review of the Association’s financial records by a Certified Public Accountant is recommended to safeguard the Association’s financial status and record-keeping.

5.  Can a Condominium Association invest its reserve fund in a mutual fund or other security?

The Condominium Act does not forbid an Association from investing its reserve fund.  However, an Association should not invest its reserve fund without proper consultation with a qualified investment advisor, and such investments should not be overly aggressive.  Board members have a fiduciary duty to the Association to manage the reserve fund properly.  Mismanagement of the reserve fund may result in fiduciary liability being imposed upon the Board of Directors