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REAL ESTATE 54: Can amendments to condominium bylaws change rights of owners?

This case concerns the enforceability of an amended condominium bylaw prohibiting short-term rentals where such rentals had been expressly contemplated and allowed under an existing 15-year contract between the owner of a condominium unit and a property management company.

The bylaw in effect when the contract was executed had permitted short-term rentals of 14 days or more, and the contract essentially incorporated the bylaw, authorizing the property management company to lease the condominium unit for periods as short as 14 days. The amended bylaw required a minimum rental term of four months, effectively precluding the property management company from leasing the unit to typical vacationers.

Original Bylaws

Pertinent to this case, the bylaws had originally provided that no Co-Owner shall lease his unit for a term less than fourteen (14) days nor shall any Co-Owner lease or rent less than an entire unit in the condominium and that the requirement of a minimum 14-day rental period also applied to a Co-Owner who places his unit on rental management.

Property Management Contract

In December 2013, Defendant purchased a condominium unit in the development. Defendant then constructed a 5,600 square-foot, single-family home on the property. In his deposition, Defendant agreed that he had reviewed the master deed and the bylaws before buying the property; however, he did not speak to any board members before the purchase.

On June 23, 2015, after having constructed the home on the property, Defendant signed a 15-year contract with CRA authorizing CRA to manage the property in relation to future rentals. The Agreement provided that Defendant was leasing his condominium unit to CRA for the 15-year period.

After executing the CRA contract, Defendant e-mailed the document to the condominium board for review and approval. Defendant claimed that the board approved the CRA contract. The board, however, supplied an affidavit that reflected the contrary.

Amendment to Bylaws

In June 2016, the board began the process of amending the bylaws to prohibit short-term rentals. Upon obtaining the consent of two-thirds of the co-owners and mortgagees, the board amended the bylaws in November 2016 to now prohibit co-owners from leasing their condominium units for terms of less than four months.

Defendant, through counsel, sent the board a letter asserting that the amendment did not apply to Defendant because the board could not legally invalidate an existing lease agreement such as the one that he had signed with CRA.

Court Decision

In May 2018, the trial court issued a written opinion and order granting summary disposition in favor the Board Members.

In general, the master deed, bylaws, and condominium subdivision plan may be amended, even if the amendment will materially alter or change the rights of the co-owners or mortgagees, with the consent of not less than 2/3 of the votes of the co-owners and mortgagees.

But MCL 559.190(2) is tempered by MCL 559.212(1), which provides, as noted earlier, that while a condominium association may amend condominium documents as to the rental of condominium units or occupancy terms, the amendment shall not affect the rights of any lessors or lessees under a written lease otherwise in compliance with this section and executed before the effective date of the amendment.

The court held that the CRA contract constituted a property management agreement, not a lease agreement; therefore, the exception to the general enforceability of bylaw amendments found in MCL 559.212(1) was not implicated in this case.

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