Like most condominium lawyers, I represent condominium associations and developers. In this article, however, I am going to summarize some of my thoughts on representing condominium developers.
I am deliberately being provocative and aggressively pro-developer in this article. As Sasha said to Yvonne in Casablanca: “Yvonne, I love you dearly, but he” (i.e., Rick) “pays me!”
The Massachusetts Condominium Statute, Chapter 183A, is merely an enabling act, Tosney v. Chelmsford Village Condominium Association, 397 Mass. 683 (1986). Matters not prohibited by Chapter 183A may be left to the developer and his consumers – i.e., the unit purchasers. If a potential buyer does not like the condominium documents, he need not buy. As long as the developer owns any unit in the development, the developer needs broad discretion in order to build and market units. “Absent overreaching or fraud by a developer, we find no strong public policy against interpreting Chapter 183A, Section 10(a) to permit the developer and unit owners to agree on the details of administration and management of the condominium units.” Barclay v. DeVeau, 384 Mass. 676, 682 (1981).
Method of Organization of Association of Unit Owners – Trust, Corporation or Unincorporated Association
Because of its wide use in Massachusetts, a trust is usually used. I advise my developer clients to use a limited liability company (an “LLC”) as the initial trustee of the condominium trust. If used properly, the LLC will protect the developer from any personal liability in most cases. It is not easy to pierce the corporate veil. As trustees are fiduciaries, other forms of association may have a lower level of responsibility. For example, a developer may prefer an unincorporated association with a developer controlled LLC as the sole initial manager until the turnover date.
Developers like phasing because it allows them flexibility in building and marketing the units over time. I believe that the developer may allocate the percentage ownership interests of the units which are not yet built and phased in as long as there is compliance with Chapter 183A, the Massachusetts Condominium Statute, and the master deed clearly provides for this. The developer should be able to retain control of the association until all of the units are built and conveyed.
Developer’s Reserved Rights, e.g., Parking, Air Rights, and Additional Floors
Developers want broad reserved rights because parking and laundry are lucrative and because rooftop rights allow for the development of additional floors. If the condominium documents are drafted properly, a condominium association may and should be entirely cut out of these lucrative areas.
The condominium documents can provide that the lawsuit must be approved by a super-majority (e.g., at least seventy-five percent (75%) of the unit owners), and that the association must get the approval of a litigation budget by a super-majority of the unit owners. In my opinion, these provisions are enforceable even though they may protect the developer from suits for construction defects. There is no case law in Massachusetts that allows an association to begin a lawsuit and spend unlimited sums in litigation without the approval of a super-majority of the unit owners both before and after the transition from developer control. It is understandable, of course, that litigators representing associations do not like anti-litigation provisions!
As an alternative to litigation, “quick draw” arbitration (see description on Page 3) should be considered. This provides for arbitration before a single arbitrator, with limited discovery, a one (1) day hearing and a decision within thirty (30) days after selection of the arbitrator.
Unit Purchase and Sale Agreements
My developer clients want the purchase and sale agreement to state:
1. That the sale is “as is”;
2. That there is an inspection period during which time the deposit is refundable;
3. That after the expiration of the inspection period, if the buyer has not cancelled the deal, the deposit is non-refundable and the buyer must close, absent default by the seller;
4. In the event the buyer fails to close, the seller may elect (i) specific performance or (ii) monetary damages; and
5. The seller is not limited to liquidated damages.
This works for the conversion of an existing building or buildings. However, in new construction, the purchase and sale agreement has to be drafted to fit the particular situation. For example, a unit purchase and sale agreement for new construction should give the developer broad rights to make substitutions of comparable building materials, to make changes required by any lender or any governmental agency, and to make changes in construction that the developer may find necessary in the course of construction.
Legal Counsel for Condominium Association
As is true for most members of the “Condominium Bar,” I represent both condominium developers and condominium associations. I would welcome an article from one of my colleagues aggressively stating the position for condominium associations!
A condominium regime is a mini government. However, I submit that the response of “you don’t have to buy a unit here” may prevail in court, as long as the purchase and sale agreement is drafted properly,
and the judge has a good understanding of Chapter 183A and of the extensive body of common law which has been created since 1963, when Chapter 183A became the law in Massachusetts.
In representing a developer, the objectives in drafting condominium documents are to maximize marketability and to minimize liability and litigation for the developer. The documents should be flexible and balanced as long as the developer is protected. The documents must fit the particular project and comply with Chapter 183A.
Good documents should be easy to understand and balance the interests of the developer and the unit owners. At such time as the developer has sold all of the units, the association may amend and restate the documents. Until then, the developer has to be protected so that he can build and market the units free from interference.
Sometimes, a developer client wants the documents to be aggressively pro-developer. This is true in the current market which clearly favors sellers. In the event that any Unit Owner or any Trustee is aggrieved by any action or non-action of another Unit Owner or any Trustee, or in the event that any decision is decided contrary the desires of any Unit Owner or Trustee (except as to the collection of common area expenses), such Unit Owner or Trustee may submit such action to arbitration. Such arbitration shall be conducted by an experienced arbitrator selected by the Executive Director of the Real Estate Bar Association of Massachusetts (after consultation with both parties) who shall arbitrate such dispute in a one (1) day hearing to occur within thirty (30) days of the selection of the arbitrator. Discovery shall be limited by the arbitrator in his sole discretion. The findings and results of such arbitration shall be binding upon the parties and may thereafter be submitted to any court of competent jurisdiction. The cost of such arbitration shall be paid by the individual submitting the matter to arbitration.