Virtually every community association is affected by various governmental regulations and requirements.  The purpose of this article is to inform the association of some of those governmental requirements that need to be attended to on a regular basis. 

Michigan Annual Report: All corporations, including community associations, are required to annually file their Michigan Annual Report (MAR).  The form to be used is sent each year to the Resident Agent of the corporation and must be filed by the Association by October 1 of each year.  If an Annual Report is not filed for two years, the corporation is automatically dissolved.  If an association is professionally managed, the management agent is often the Resident Agent, and the Board rarely sees the form, or is aware that it is filed.  Sometimes when there is a change in management agent, the new managing agent or the Board fails to change the Resident Agent and the new management agent never receives the forms from the State of Michigan.  It is easy to determine the status of an association, by simply calling the Corporation, Securities and Land Development Bureau of the Consumer & Industry Services for the State of Michigan at (900) 555-0031.  If an association is dissolved, it can be reinstated by filing the missing MAR’s and paying the appropriate filing fees.

Liquor Licenses: If a community association has a clubhouse which allows the sale of alcoholic beverages, it may be necessary to have an appropriate liquor license.  The Liquor Control Commission, (517) 322-1345, can be contacted in that regard.  If, however, your clubhouse is only used for social functions where liquor may be consumed but not sold, there is typically not a requirement for a liquor license.  The association which allows the consumption of alcoholic beverages in their clubhouse should be very careful because of potential liability that may result.

Swimming Pools: If a community association has a swimming pool, your County Health Department typically has stringent requirements.  Typically, the water must be tested weekly and sent to the Health Department.  Health Departments usually vigorously enforce their standards and respond to every complaint received.  If the pool does not meet the requirements, it will likely be closed.

Taxes: Although most community associations are non-profit corporations, that does not mean that they have no obligation to file income tax returns.  Typically, every community association has the obligation to file the appropriate income tax return.  Accountants familiar with community associations would provide the association guidance in that regard.  Also, if the association has personal property such as clubhouse and pool furniture and equipment, it has the obligation of filing a personal property tax form every year, and paying personal property tax to the local municipality.

Employees: If a community association engages the services of others to perform various maintenance activities throughout the premises, it must carefully determine whether those persons performing the work are independent contractors or employees of the association.  Many associations believe that they can simply treat the individual as an independent contractor and avoid all of the employer withholding, reporting and insurance requirements.  That, however, is not the case.  Care must be taken to determine whether the person is truly an independent contractor, or actually an employee of the association.  There are numerous factors used in  determining their status, and include such things as whether the individual performs services for others or solely for the association, whether they are supervised by the association, whether the association hires all of the workers involved, and whether the association furnishes all of the tools and materials needed for the job.  These questions, and others, will determine whether such a person is truly an independent contractor.

If the person performing the work is deemed to be an employee, the association is required to maintain appropriate worker’s compensation insurance, it must meet all of the typical employer withholding requirements, pay payroll taxes, and file the appropriate State and Federal tax returns, etc.  Further, the association must establish an account with the Michigan Employment Security Commission and contribute to the unemployment compensation fund.

Document Amendments/Liens: Many of the documents creating the community association are required to be recorded in the Register of Deeds in the County where the property is located.  That would also apply to any amendments to those documents, which need to be recorded in the Office of the Register of Deeds before they are effective.

In the event a co-owner becomes delinquent in the payment of their assessments, most community associations have the authority to place a lien upon the delinquent member’s premises and to foreclose that lien in the same fashion as the holder of a mortgage could foreclose a mortgage.  That lien must be recorded in the proper Office of the Register of Deeds before any collection effort can be taken.

Permits and Licenses: Periodically, associations perform various maintenance or repair functions to the common property.  The local municipality typically becomes involved in approving such plans, issuing permits for the work, and inspecting the work to be sure that it complies with the local codes and requirements.  That process is typically handled by the Building Department of the local municipality, and it is therefore a good idea for the community association to develop a good relationship with the Building Inspector(s)