Is it acceptable for a condominium association to charge a co-owner both late charges and interest on unpaid assessments?
Yes. The Michigan Condominium Act, MCL 559.206 (c), authorizes an association to impose late charges on a delinquent co-owner’s account “as provided in the condominium bylaws or rules and regulations of the condominium.” Michigan courts have expressly recognized that the purpose of late charges is to defray the association’s administrative costs (e.g., bookkeeping services, etc.) incurred as a result of having to carry and address delinquent co-owner accounts.
Normally the association’s bylaws will set forth a specific late charge amount. If the bylaws grant the board of directors flexibility to increase the late charge amount, the board should take care to adopt a “reasonable” late charge. Excessive late charge amounts may be viewed as overly punitive by a court, which may make them unrecoverable in litigation.
MCL.559.208 (1) and (2) of the Act expressly mention the Association’s ability to recover interest and late charges on unpaid assessments to the extent authorized by the condominium documents. As with any loan, interest compensates the Association for the “time value” of the unpaid assessment amounts.
Thus, the association’s ability to recover interest on unpaid assessments serves a separate and distinct purpose from the collection of late charges. An association may impose and collect both interest and late charges on a delinquent co-owner’s account to the extent that the association’s governing documents expressly authorize it to do so.
If an association chooses to impose interest on unpaid accounts, it should be careful not to exceed the legal limit of 7% per annum. Charging any higher rate of interest will violate state usury laws (regardless of whether the association’s bylaws expressly authorize a higher rate of interest than 7% or not).
Gregory J. Fioritto is a partner with the firm. He has extensive experience in community association law and has been with the firm since 2003. Greg’s particular expertise in community association law includes document amendments, collections, parliamentary procedure, corporate governance, developer disputes, insurance duties, and intellectual property matters.