Bar owner must pay special assessment for own litigation defense.

 

By Deborah Goonan, Independent American Communities

Home buyers are bombarded with all sorts of slick advertising, designed to get them to fall in love with new homes, including condos, in planned developments. For the past two decades, developers and architects have been heavily promoting “new urbanism” and mixed-use association-governed communities that combine housing units and commercial business spaces.

Usually that translates into condo units stacked above ground level commercial spaces such as restaurants or storefronts. But in the case of Bay City, Michigan, The Shearer Building Condominium Association consists of just 18 units — 12 of them residential condos, and 6 of them commercial units — including the Harless + Hugh Public House, an upscale jazz bar.

Condo owners are often sold on a walkable urban lifestyle. You know, marketing hype would go something like this: How cool would it be to live in town near restaurants, shopping, and nightlife? Park your car when you get home from work, then walk just a few steps from your renovated, modern condo to your Main Street cafe. Or ride your bike a few blocks to the weekly farmer’s market in town.

Bay City is a small town of less than 35,000 residents. Nevertheless, city planners thought it would be a great renaissance for the city to redevelop its urban core.

According to a Michigan Live report from 2014, the Shearer Building’s first unit sold for $475,000 in 2005. Then the recession hit, and by 2006, the building became bank-owned.  Units remained unsold for several years. When the economy began to recover, most units sold for well under $200,000. The final unit sold in 2014, for only $95,000.

As a historic building, Shearer’s condo development was a renovation, not new construction. When the developer gave the building back to the lender, renovations came to a halt.

So when residents moved into the units, and a bar business opened up on the ground floor, owners living right above the business complained about the noise and fumes coming from the Public House.

Suddenly, downtown living in a condo was not so glamorous.

Last year, the condo association sued Lyndsay Edmonds, the owner of the bar business, hoping that the court will order an end to disturbances from the bar. Edmonds has countersued, accusing the condo board — which consists of eight members — of harassing her with fines (exceeding $5,000 at this point) and attempting to drive her out of business.

Edmonds says she has added proper ventilation to eliminate cooking odors, and had also made modifications to help soundproof her commercial unit to prevent transmission of sound to upstairs neighbors. She is willing to do even more soundproofing, but the condo board won’t work with her.

The condo association is pressing on with litigation, and recently enacted a $2,000 per unit special assessment to cover the cost of mounting legal fees. Edmonds owns two units, so she is now legally obligated to pay a $4,000 special assessment, even though the money will be used to essentially sue her business and herself.

Yes, you read that right.

This is how association-governed communities “work.” Every member of the association is obligated to pay a fair share of common expenses incurred at the discretion of its board of directors, including legal fees.

In most cases, non-board members do not have the opportunity to vote on whether or not the association should obligate its members to any particular expense. (Although some association-governed community restrictions give members an opportunity to vote on limiting annual assessment increases or special assessments exceeding a relatively high threshold.)

Members who never wanted to sue Edmonds are obligated to pay $2,000 per unit. If a member chooses not to pay the special assessment, the condo association can place a lien on the member’s unit, and, potentially, foreclose on that lien to collect their assessment, plus interest and substantial attorney fees.

That’s a fundamental quirk — some would call it a flaw — in the governance structure of all sorts of planned communities.

Most housing consumers are unaware of this quirk, because it isn’t obviously disclosed to buyers. Financial obligations of property owners or association shareholders in HOA-ville are often buried in pages of legalese that make up the governing documents.

Few housing consumers read and fully understand the governing documents of their HOA. Covenants and Restrictions (also known as Declarations) are viewed by state courts as the basis of a contractual relationship between owners/shareholders and the association corporation, albeit a very one-sided contract that favors the rights and powers of the HOA over individual rights of members.

Many legal disputes — and unpleasant surprises — occur when members and their association disagree on their understanding of the provisions written into the Covenants and Restrictions.

In this case, in addition to unexpected expenses for condo unit owners, a commercial property owner’s business and livelihood is at risk of being shut down for good, despite the fact that residential unit owners bought into the Shearer Building knowing there would be a bar or pub on the ground level.

 

Lawsuit hits condo owners’ wallets, including the bar owner being sued

Updated May 2, 4:31 PM; Posted May 2, 3:40 PM