Highfield Beach at Lake Mich. v. Sanderson

Decision Date24 March 2020
Docket Number345177,Nos. 343968,s. 343968
Citation331 Mich.App. 636,954 N.W.2d 231
Parties HIGHFIELD BEACH AT LAKE MICHIGAN, Plaintiff-Counterdefendant/Appellee, v. Scott E. SANDERSON, Defendant-Counterplaintiff-Third-Party Plaintiff/Appellant, and Mark Coddington, Chris Barczyk, Paul Swanstrom, and Blake Hardin, Third-Party Defendants/Appellees.
CourtCourt of Appeal of Michigan — District of US

McShane & Bowie, PLC, Grand Rapids (by Ruth A. Skidmore and Andrew C. Shier ) for Highfield Beach at Lake Michigan, Mark Coddington, Chris Barczyk, Paul Swanstrom, and Blake Hardin.

Varnum LLP (by Eric J. Guerin ) for Scott E. Sanderson.

Before: Gadola, P.J., and Markey and Ronayne Krause, JJ.

Markey, J.

This case concerns the enforceability of an amended condominium bylaw prohibiting short-term rentals when 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. Resolution of these consolidated appeals requires construction of the Condominium Act, MCL 559.101 et seq. In Docket No. 343968, appellant Scott E. Sanderson, owner of the condominium unit, appeals by right the trial court's orders granting summary disposition in favor of appellees Highfield Beach at Lake Michigan (HBLM), Mark Coddington, Chris Barczyk, Paul Swanstrom, and Blake Hardin.1 We hold that the amended bylaw is enforceable in regard to the property as urged by HBLM in its complaint for declaratory and injunctive relief and that Sanderson's counterclaim and third-party complaint for monetary damages based on lost rental income fail as a matter of law. Accordingly, we affirm the orders granting appelleesmotions for summary disposition in Docket No. 343968. In Docket No. 345177, Sanderson appeals by right the trial court's order awarding attorney fees and costs to HBLM. We hold that HBLM was entitled to an award of attorney fees and costs. Accordingly, we affirm the trial court's order awarding attorney fees and costs to HBLM in Docket No. 345177.

I. FACTUAL AND PROCEDURAL HISTORY

HBLM is a Michigan nonprofit corporation that serves as the owners association of a site condominium project in South Haven that was established in 2007. The master deed and the condominium bylaws affiliated with the development were recorded in the office of the Allegan County Register of Deeds. Pertinent to this case, Article VII, § 3(a) of the bylaws had originally provided that "[n]o 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."2 Section 3(a) further indicated that the requirement of a minimum 14-day rental period also applied "to a Co-Owner who places his unit on rental management[.]"

In 2008, HBLM attempted to amend the bylaws to increase the minimum rental term from 14 to 90 days. The record is fairly limited and vague regarding what transpired after the attempt. There is documentation and an affidavit indicating that condominium co-owners in the development unanimously consented to the modification but that a mortgagee, Macatawa Bank, never approved the amendment. Sanderson claimed that evidence existed showing that the amendment had been fully approved and that HBLM should have recorded the amendment and placed it in its files. There is no dispute that the purported 2008 amendment was never recorded, and HBLM documents reflected a belief that a valid or operative amendment never came to fruition. This issue will be explored in more detail later in this opinion.

In December 2013, Sanderson purchased a condominium unit in the development. Sanderson then constructed a 5,600 square-foot single-family home on the property. In his deposition, Sanderson 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, Sanderson signed a 15-year contract with CRA Management, LLC, authorizing CRA to manage the property in relation to future rentals. The CRA contract was labeled a "Lease Agreement," and it did provide that Sanderson was leasing his condominium unit to CRA for the 15-year period. But the CRA contract also had language characterizing the contract as a rental or property-management agreement. CRA agreed to pay Sanderson a minimum of $96,000 per year under a formula that applied certain percentages to the "gross rental proceeds" that CRA collected from renters. The CRA contract further provided:3

The nature of this Lease Agreement is to provide for rental management upon terms and conditions that satisfy Owner[’]s needs for lease revenue for the duration of the Owner's mortgage obligations while limiting the scope of the Company's leasing activities to comply fully with all requirements of Article VII, Section 3 of the Master Deed, the provisions of the Michigan Condominium Act and the laws and ordinances of Casco Township, as follows:
* * *
c. Company may not lease the Property for less than Fourteen (14) day terms .... This provision means that Company may only lease the Property once in any Fourteen (14) day period. In the event the tenant elects not to occupy the Property for the entire term, the Property may be used in such vacated periods only for the personal use of the Owner, whether for recreational use, maintenance, decorating, or such purposes as Owner chooses. During such vacated periods, the Property may not be occupied by any individual(s) unless Owner or a member of owner's family is in residence at such times.
d. Company shall require tenants to comply fully with all use restrictions set forth in Article VII, Section 3, as attached as Exhibit A. Company shall take reasonable steps to inform tenants of such requirements and agrees to enforce compliance in a commercially reasonable manner.

After executing the CRA contract, Sanderson e-mailed the document to HBLM for review and approval. Sanderson claimed that HBLM approved the CRA contract. HBLM, however, supplied an affidavit by Board Member Barczyk that reflected the contrary. Barczyk averred that "[t]he Board did not vote to approve the management agreement between Sanderson and CRA ..., and there is otherwise no record of a decision by the Board to approve the agreement." Sanderson asserted that as rental agreements were signed with vacationing tenants under the CRA contract, copies of the leases were sent to HBLM for review. HBLM indicated that it approved conforming leases that were submitted by or on behalf of Sanderson.

In June 2016, HBLM began the process of amending the bylaws to prohibit short-term rentals. Sanderson voiced an objection to the proposed amendment to the board and co-owners and claimed that it would not apply to his existing contract with CRA and that Board Member Barczyk, who owned nearly half the lots in the development, would not be subject to the rental restriction because he held the status of "successor developer." Barczyk denied that he held any special status that would entitle him to avoid the short-term rental prohibition; he insisted that he would abide by the amendment. HBLM obtained a legal opinion that Barczyk would indeed be bound by a bar on short-term rentals.4

Upon obtaining the consent of 2/3 of the co-owners and mortgagees, HBLM amended Article VII, § 3(a) of the bylaws in November 2016 to now prohibit co-owners from leasing their condominium units for terms of less than four months. Specifically, the language of Article VII, § 3(a), as amended, provided, in relevant part, as follows:

No Co-Owner shall lease his unit for a term of less than four consecutive months, and any such lease for said minimum lease term shall be to the same lessee. Nor shall any Co-Owner lease or rent less than an entire unit in the condominium. The provisions of this Section shall also apply to a Co-Owner who places his Unit under rental management; in which case, the rental management agreement shall also be approved in addition to each lease. It shall be each Co-Owner's responsibility to ensure that each tenant or occupant of his unit abides by all provisions of the Condominium Documents.

Thereafter, Sanderson, through counsel, sent HBLM a letter asserting that the amendment did not apply to Sanderson because HBLM could not legally invalidate an existing lease agreement such as the one that he had signed with CRA. In support of his stance, Sanderson cited MCL 559.212(1), which provides:

Before the transitional control date, during the development and sales period the rights of a co-owner, including the developer, to rent any number of condominium units shall be controlled by the provisions of the condominium documents as recorded by the developer and shall not be changed without developer approval. After the transitional control date, the association of co-owners may amend the condominium documents as to the rental of condominium units or terms of occupancy. 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 , or condominium units that are owned or leased by the developer. [Emphasis added.]

Sanderson maintained that pursuant to MCL 559.212(1), the 2016 amendment could not infringe his rights or CRA's rights to continue short-term rentals under the CRA contract because the contract was executed before the amendment took effect.

After Sanderson and...

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