In Michigan, a condominium is created when a developer records the master deed and condominium bylaws with the register of deeds where the condominium is located.¹ However, as with many things in life, original condominium documents are not meant to last indefinitely.

If you bought a new car, would you fill it with gas and expect it to run forever? Of course not. You would change the oil, rotate the tires, and perform regular maintenance to protect your investment. Similarly, condominium documents require tune-ups due to changes in the law, technology, or society after the developer transitions control of the condominium to the co-owners.² Unfortunately, the first time many condominium associations realize their original documents need to be modernized is after a problem arises. Like proactive maintenance on a car, condominium associations should review their documents and update them periodically to avoid a major breakdown.³ This article explores some critical issues often overlooked by condominium associations and provides suggestions for amending outdated documents.

ANIMALS

Many older condominium bylaws restrict the type or number of pets co-owners can keep in their units.⁴ Condominium bylaws that restrict pets can lead to confusion and potential litigation as disagreements arise as to which animals are pets. In other states, courts have determined that chickens⁵ and goats⁶ may constitute household pets in certain circumstances — even when most co-owners do not consider them to be. Accordingly, while older bylaws contain restrictions on “pets,” modern bylaws will contain restrictions on “animals.”

Modern bylaws will also specifically identify the types of animals permitted within the condominium and, in some instances, require a co-owner obtain written permission from the association to keep certain types of animals. Finally, even after upgrading bylaws, condominium associations should be aware that the Fair Housing Act⁷ may require a reasonable accommodation for assistance or emotional support animals depending on the circumstances.⁸ While requests for reasonable accommodations are highly fact-specific, practitioners should be aware that not every request must be accommodated. The Fair Housing Act only requires a reasonable accommodation, not an absolute accommodation.⁹

E-BIKES

Approximately 3.7 million e-bikes were sold in 2019 and by the end of 2023, there will be an estimated 300 million e-bikes in use.¹⁰ Many older condominium bylaws do not contemplate e-bikes, so condominium associations should assess whether their infrastructure can handle charging lithium-ion batteries, as this could potentially overload the electrical system in the condominium — New York City reported 174 battery fires in 2022¹¹ and fire departments in Michigan have reported an increase in e-bike fires as well.¹²

Due to potential safety concerns and liability risks, some associations are considering banning e-bikes.¹³ However, if an association permits e-bikes, upgraded bylaws should consider imposing certain restrictions, such as the following:

Requiring all batteries and charging equipment be listed by a nationally recognized testing lab.

Requiring co-owners to follow manufacturer safety instructions.

Requiring batteries and chargers only be used for devices for which they were designed, and no other devices.

Requiring e-bikes and batteries be stored in certain locations and not near exit doors.

ELECTRIC VEHICLES

Many condominium bylaws were drafted before electric vehicles became ubiquitous; the sale of electric vehicles has tripled in the last three years.¹⁴ While some states have laws prohibiting condominium associations from banning electric vehicles, Michigan does not currently have such a law.¹⁵ Outdated bylaws do not contemplate installation of electric vehicle charging stations in an attached condominium, nor do they consider co-owners needing to connect to the general common element electrical system.¹⁶

Generally speaking, a co-owner may not modify the common elements without written approval from the association.¹⁷ The Michigan Court of Appeals has held that a co-owner cannot modify common elements by installing a new electrical box connected to the common element electrical system without permission from the condominium association.¹⁸ Given the lack of statutory framework regarding electrical vehicles in Michigan, associations have been updating bylaws to account for installation of electric vehicle charging stations. Examples of issues that updated bylaws address include:

Are level 1, level 2, and level 3 chargers permitted? In most cases, condominium electrical systems will only be able to handle level 1 or level 2 charging.

If the charging station is located outside of a unit, is the association or the co-owner responsible for paying for the electricity? Also, how will electricity use be metered?

Who is responsible for maintenance and repair of the charging station?

Who is responsible for damage caused by the charging station?

INSURANCE

Directors and Officers Insurance/Crime Insurance

The Michigan Condominium Act requires all condominium associations to carry insurance.¹⁹ However, associations are only required to carry liability insurance for fire and extended coverage, vandalism and malicious mischief, and workers’ compensation if required by law.²⁰ Accordingly, outdated bylaws may not require directors and officers insurance or crime insurance.

Directors and officers insurance is important not only for individual directors, but for a condominium association as well because the association is typically a named insured under the policy. Associations must indemnify directors and officers in certain circumstances and having insurance to provide a defense and cover potential liability is important.²¹ Similarly, articles of incorporation for condominium associations may also require that the association assume the liability of volunteer directors and officers in certain circumstances under the Michigan Nonprofit Corporation Act.²² While directors and officers insurance is not mandated by the Michigan Condominium Act, modern bylaws require condominium associations carry this type of insurance to reduce potential liability.

In addition to directors and officers insurance, upgraded condominium bylaws also require crime insurance to cover things like theft by board members, forgery, theft of personal property, or wire fraud. For example, if a board member embezzled funds, the policy would reimburse the association for its loss. If the association does not have crime insurance, it may lead to large additional assessments against members and interfere with association operations. Similarly, Fannie Mae and Freddie Mac also require condominium associations with more than $5,000 in funds and more than 20 units to have crime and fidelity insurance to satisfy their underwriting guidelines.²³ Accordingly, crime insurance is not only important for liability protection, but also for enhancing property values.

Liability/Property Insurance

Many older condominium bylaws require the association and individual co-owners to pay for overlapping insurance coverage without considering the practical realities of the modern insurance market. Older bylaws tend to require associations obtain all-in property insurance policies covering common elements and fixtures within a unit that are not personal property such as appliances, cabinets, floor coverings, and wall coverings.²⁴ An all-in policy also typically covers upgrades made to units, whereas a single entity or walls-in policy covers the same thing as an all-in policy except for upgrades.²⁵

If condominium bylaws also require co-owners to obtain an HO-6 insurance policy for their unit, it will typically create a situation where there is overlapping coverage between the association and co-owner. In the absence of a primary insurance carrier provision, older bylaws can create disputes between insurance adjusters when determining responsibility for a loss, slowing down repairs and increasing overall insurance expenses.

In contrast, modern condominium bylaws commonly require a bare-walls insurance policy.²⁶ A bare-walls policy typically covers only the drywall and provides no coverage for the unit’s interior. If there is a flood or fire, a bare-walls policy does not pay for fixtures or upgrades.²⁷ Rather, these items are covered under the unit owner’s HO-6 policy often mandatory in modern bylaws. Modern bylaws tend to set up responsibilities in this manner to reduce insurance costs and create clear lines between the association’s insurance carrier and the co-owner’s insurance carrier.

MARIJUANA

Michigan decriminalized the recreational use of marijuana in 2018,²⁸ but marijuana remains illegal under federal law.²⁹ Other than having a restriction on engaging in illegal activity within the condominium, most older bylaws do not contain provisions directly addressing the use of marijuana in the unit. Upgraded bylaws will have specific provisions addressing marijuana use. While marijuana may be decriminalized in Michigan, many associations have banned it due to potential liability and insurance coverage issues.

Many mainstream insurance policies contain language excluding coverage for damage resulting from growing or using marijuana. This means that unless a condominium association finds a specialty insurance carrier, damage resulting from a marijuana-related incident may not be covered. For example, a California court determined that an insurance carrier did not have a duty to provide coverage when a property owner altered the electrical system in their building to grow marijuana.³⁰ Various other federal courts have held that because growing or using marijuana is illegal under federal law, the illegal or criminal acts exclusion in an insurance policy precludes coverage.³¹

Similarly, in another case, coverage was denied when a court determined the insured did not notify the insurance carrier that marijuana was being grown on the premises — the policy contained a duty to notify the carrier of a change in the occupancy or use of the premises.³² Accordingly, while condominium associations may be able to rely on a general prohibition regarding illegal activity within a condominium, most co-owners do not understand the potential risks marijuana use within a condominium poses or that marijuana is still illegal under federal law.

RESERVE STUDIES

When creating a budget, condominium associations are required to maintain a reserve fund of at least 10% of the association’s current annual budget on a noncumulative basis.³³ In many cases, the 10% statutory minimum is inadequate to pay for repair and replacement of common elements, which is why condominium bylaws must provide a warning that the minimum may be inadequate; associations should carefully analyze its individual needs.³⁴

Accordingly, while most condominium bylaws only require compliance with the minimum reserve fund requirements, associations should consider mandating a higher reserve fund based on a reserve study. If warranted by a reserve study, requiring a reserve fund that exceeds 10% also helps the association maintain its status as warrantable under Fannie Mae and Freddie Mac mortgage underwriting guidelines; mortgage underwriters will now request to review or update a reserve study within the last three years as part of the underwriting process.³⁵ Given that some states now require reserve studies³⁶ and such legislation could come to Michigan, associations should consider being proactive about mandating them.

CONCLUSION

Condominium associations are encouraged to consult an attorney and review their documents periodically to ensure they meet the co-owners’ needs. The law is often slow to adapt to societal changes, so proactively amending documents can help associations provide value to co-owners by avoiding costly litigation, creating harmony within the community, and enhancing property values. While amending outdated documents is typically not top of mind for associations, it is important to do so before problems arise.