Wednesday, September 14, 2016

Defenseless, In the Gathering Storm


By Robert M. Ruzzo
Sarah Connor: “What did he say?”
Gas Station Attendant: “He said there is a storm coming in.”
Sarah Connor: “I know.”
Closing scene from “The Terminator” Orion Pictures, 1984

It’s time to connect some not altogether random thoughts as the haze of summer recedes.
Summertime, when the living was easy, this year also entailed: the death throes of the municipal planning defense doctrine, the expiration of zoning reform efforts in the state Senate and the demise of proposed housing production legislation launched through the efforts of the Massachusetts Housing Partnership (“MHP”) and carried forward by a number of housing advocacy groups.
What could it all mean?
Summer had not yet technically begun when the Appeals Court officially pulled the plug on the attempt to assert a “municipal planning defense” in order to deny a Comprehensive Permit application filed under Chapter 40B (the Commonwealth’s “Affordable Housing Law”) in Eisai v. Housing Appeals Committee (“HAC”).
After years of largely lying dormant since its first pronouncement in the Harbor Glen decision in 1982 (“Harbor Glen”), the  planning defense sprang back to life in Stuborn Ltd. P’ship v. Barnstable Bd. Of Appeals (“Stuborn II”) and even enjoyed a short lived day in the sun in 2009, when the 28 Clay Street v. Middleborough decision applied the defense in a land use setting far less exotic than either Harbor Glen (750 acre former military base) or Stuborn II (waterfront property).
While admittedly arcane, the municipal planning defense afforded its fans the promise of a “different path”- a means of achieving the directional goals of the Affordable Housing Law while injecting a degree of local control consistent with the public expectations of a home rule state.
Hopes (Fears?) for a broader application of the doctrine were dashed by two HAC decisions in 2014.  It was clear from the these two decisions that the HAC had come not to praise the municipal planning defense, but to bury it.  The Appeals Court, bound by the deferential standard of review for admistrative law appeals, had little choice but to follow suit.  As an added bonus, the unusual procedural posture of the Eisai case introduced a further complication to the already byzantine world of standing under Chapter 40B, but let’s save that tale for another day(s).
Andover’s planning efforts, which were the subject of the Eisai decision, met with what seemed to be a particularly harsh fate at the hands of the HAC.  While Andover was below the 10% Subsidized Housing Inventory threshold at the time of the permit application, it had at one time been above that magical number, although the HAC concluded that this was not as a “result of the town’s planning efforts” but instead despite Andover’s master plan and affordable housing plan.  A pretty neat trick, to say the least.
Dismissing the town’s well documented planning work and “longstanding efforts to preserve” the site and the area in question for commercial and industrial uses, the Court affirmed a Superior Court decision to let stand a HAC determination that the last vacant lot within a commercial subdivision should become a housing development.  This was at least in part because the Andover zoning board could not “point to possible foregone employment associated with future businesses that might be reluctant to locate in a subdivision whose future is uncertain.”
A cynic might protest that the best defense for a municipality under this line of thinking would be to poorly propose and half-heartedly market such commercial zones, and thereby preserve the ability to claim that any incursion into a commercial area jeopardized the coherence of the planning exercise as a whole.
Tellingly, the Appeals Court echoed the HAC’s complaint that a “major shortcoming” of Andover’s planning efforts was the fact that “multifamily housing is not permitted as of right anywhere in the town.”
Which shifts the focus back to Beacon Hill and competing efforts to address our distressingly high housing costs in Massachusetts via legislation.  The Senate’s efforts to enact zoning reform advanced one step further than in the last legislative session.  In 2014, a similar bill was reported out of committee favorably.  Before the expiration of this year’s formal session, zoning reform legislation that had been revised substantially to address some (but far from all) criticisms of real estate industry groups was actually passed by the upper chamber.
Nonetheless, at the end of the (legislative) day, we collectively remained in the same position that we were in two years prior: in a low interest rate, high demand, overheated housing market, with a fundamental zoning law incapable of producing new units in sufficient numbers and devoid of any meaningful link between planning and zoning.  Our ersatz solution, the Affordable Housing Law, becomes increasingly overtaxed, as it is called upon to create more market rate housing than it was ever designed to produce.
A storm is coming in, indeed.
While it is always difficult to predict the future of such things, the proponents of the Senate’s zoning reform legislation certainly have no reason to feel disheartened.  They will most assuredly be back in force when a new legislature convenes in January.  Some type of comprehensive zoning legislation is inching ever closer to reality.  Fortune favors the prepared mind.
Also returning to the hearing rooms next session will be housing advocates who, building upon the foundation of a research paper published by MHP some two years ago, advanced legislation that would have, among other things, required every municipality to have a certain percentage of its land area zoned for multi-family housing.
Is there any sign of potential progress?  Any hope for the elusive common ground?
Well, ironically the aforementioned provision requiring as of right multi-family zoning is the very type of provision that, had it been in effect in Andover at the time of the HAC’s initial decision, may have (indeed should have) allowed Andover’s assertion of the municipal planning defense to pass muster.
So there’s always hope… even for the municipal planning defense.
This article was written by Robert Ruzzo, Senior Counsel in the Boston office of Holland & Knight LLP, and it will appear in an upcoming issue of REBA News.  Bob can be contacted by email at robert.ruzzo@hklaw.com.

Monday, September 12, 2016

ALARMING SCAMS TARGETING REAL ESTATE LAWYERS

By: Noel M. DiCarlo

To hackers, we are all walking around with a bullseye on our back.  It’s that plain and simple.  Real estate lawyers, particularly conveyancers, transfer large amounts of money on a daily basis, and sometimes operate with sub-par and outdated cyber security systems.  If you and your clients are the target of any of these hackers and scam artists, you could face losses of six figures, or more.
The days of the obvious scam emails from a foreign prince (usually from Nigeria!) seeking your aid in securing his rightful legacy have long passed.  Today’s scammers are far more sophisticated and savvy.  The three most common scams are: the Compromised Wire Instruction Scam, the Counterfeit Check Scam, and the Forged IOLTA Check Scam.
Compromised Wire Instructions
The most prevalent and alarming scam targeting real estate lawyers  involves compromised wire instructions, also known as the Business Email Compromise (BEC) or the “Man in the Email Scam”.  The FBI has estimated the losses from these scams at over $2 billion in 2015.
In this scenario, you receive emailed wire instructions from the seller.  The deed goes on record, and you wire the funds pursuant to the wire instructions emailed to you.  The seller then calls looking for her sale proceeds that have not yet hit her account, despite the fact that they left yours.  As it turns out, the wire instructions you received were not for the sellers account.  The message came from an email address that was very similar to the seller’s address, but you would have to be looking very closely to realize that it was slightly different.   There are of course many variations of the same theme.  Here, the hackers targeting real estate lawyers, hack into your email account and monitor your account for a period of time tracking a transaction that involves a transfer of money.  At the moment in the deal that wire instructions are requested, the hacker makes his move and provides false instructions.  If the wire instructions were already sent by the correct party, the hacker may wait some time then send a subsequent email acting as the party stating that they actually want to change their previous email instructions and wire the funds to a different account. Once the money leaves your account, the funds are lost and the bank may not liable because it merely followed your instructions. 
Hackers particularly like to strike on the Friday before a long weekend, at the end of the month, or the days before a holiday – all times when they know that conveyancers are overloaded, busy and may overlook small details.
Here are some red flags you should look out for:
1.       Wire requests and instructions received on a Friday, especially a Friday before a long weekend, or the day before a holiday;

2.       Any revisions to wire instructions previously provided;

3.       Wires to foreign countries;

4.       Changes in the email addresses or the look of an email from prior email messages;

5.       A sense of urgency by the requestor or beneficiary.
Counterfeit Check Scam
In the counterfeit check scam, a new client contacts your office seeking representation.  You may even have several telephone calls with the would-be client, and then proceed to send over an engagement agreement.  It is important to note that these scammers are incredibly informed on the would-be deal. They can be very convincing.  They will then send you a seemingly legitimate bank cashier’s check for a retainer.  You deposit the check into your IOLTA account. Shortly thereafter, the client contacts you and tells you that the matter is resolved or that they no longer require representation.  They instruct you to deduct any amount for legal fees accrued and to wire the remainder back to them. You follow the client’s instructions and two to three days later, your bank tells you that the check was counterfeit and that you are responsible for the shortfall. Some banks make “funds immediately available” as an accommodation to conveyancer clients, but it is important to understand that this is a “provisional credit” only.  If the check does not clear (which can sometimes take up to even 10 days), the bank will retract the credit.  Again, your bank is not liable because they followed your wire instructions.
Forged IOLTA Check Scam
Think of how many IOLTA checks you circulate on a daily basis and how many municipalities, organizations, and people have access to those checks. The forged IOLTA check scam, like the previous scam, involves very good counterfeit checks.  These checks are so artfully forged, even the experts may have a difficult time catching the forgery on its face.   The scammer will obtain the account and routing number from your check or wire instructions and then create a fake check payable to “cash”. 
There are more than these three scams lurking around, such as malware that makes dummy websites nearly identical to bank sites in order to steal your log-in information.  All these scams however, have one thing in common: they want to steal from you and your client.  Conveyancers beware.
Noel Di Carlo is a Partner at Warshaw, Di Carlo & Associates, PC, where she concentrates her practice in real estate and personal planning.  She also serves on the REBA Board of Directors.  Noel can be reached at ndicarlo@warshawlaw.com.

Tuesday, August 23, 2016

The Benefits and Ethics of Social Media


By Kimberly A. Bielan

The use of social media is gaining traction in the legal profession, with attorneys frequently posting blogs, writing articles, and sharing articles of interest.  As Co-Chair of REBA’s Strategic Communications Committee, the evolving use of social media presents great opportunity, presenting the ability to connect REBA members with access to blog posts, event updates, access to seminars, and the chance to more actively participate in the Association.  Put simply, social media presents a mechanism by which you can not only market yourself to prospective clients, but also engage with your colleagues in the legal profession.
At the 2016 REBA Spring Conference, I had the opportunity to speak on a panel entitled “Joining the Social Media Revolution … One Step at a Time” with Julie Barry, Co-Chair of REBA’s Strategic Communications Committee, and Justin Tucker.  The panel was an opportunity to introduce REBA members to the variety of social media platforms, answer questions, and discuss ethical issues that may arise when using social media.  As part of the Strategic Communications Committee’s effort to encourage active social media engagement between REBA and its members, this article is the first in a series on the topic, which seeks to encourage you to dip your toe into the proverbial social media pool.
Part of attorneys’ hesitancy to use social media is often a question of the ethics surrounding the new medium.  To be sure, social media may present traps for the unwary, but all one need keep in mind is that the applicability of the Massachusetts Rules of Professional Conduct (S.J.C. Rule 3:07) to online conduct is no different than it would be to actions undertaken off-line.  Stated succinctly, if you would not undertake certain conduct in person, then do not undertake that conduct on social media.  Keeping this simple statement in mind should guide your online interactions and (hopefully) take some of the intimidation out of engaging on a new form of medium. 
 
Here is a list of other things to remember when interacting on social media:
 
          

1. Social Media Profiles and Posts May Constitute Legal Advertising

2. Avoid Making False or Misleading Statements

3. Avoid Making Prohibited Solicitations

4. Do Not Disclose Privileged or Confidential Information

5. Do Not Assume You Can “Friend” Judges (In fact, according to Massachusetts Committee on Judicial Ethics Opinion No. 2011-6, judges are prohibited from “friending” any attorney who may appear before them!)

6. Avoid Communications with Represented Parties

7. Be Cautious When Communicating with Unrepresented Parties

8. Beware of Inadvertently Creating Attorney-Client Relationships

9. Beware of Potential Unauthorized Practice Violations

10. Read Cautiously with Testimonials, Endorsements, and Ratings
For more on each of these topics, including specific examples and recommendations on how to deal with each situation, please consult your 2016 REBA Spring Conference materials.
The Strategic Communications Committee looks forward to interacting with all of REBA’s members and encourages all members to access its blog at rebama.blogspot.com, which is updated often with new content, to engage with REBA on Facebook, and to follow REBA on LinkedIn, where links to articles and events are frequently posted.
 
Kimberly Bielan co-chairs REBA’s strategic communications committee and is a leader in the association’ strategic long-term planning, particularly with the new lawyers committee.  She practices in the litigation department of Marcus Errico Emmer & Brooks, P.C.  Kimberly can be contacted by email at kbielan@meeb.com

 

Monday, August 15, 2016

VACATION CONDOMINIUMS: LEGAL AND MANAGEMENT ISSUES


Saul J. Feldman, Esq.

During summer, we think of vacations. Often this means a resort or a second home condominium. There are many concerns in buying a vacation condominium. The usual concerns involve pools, parking, and pets. Noise is also an issue, given the sometimes close proximity of the units. 

There are other issues as well, such as the right to lease your unit. Many of the units in a vacation condominium are often owned by absentee landlords and rented out on a weekly, monthly, or seasonal basis. The rules and regulations for the condominium must be drafted to take this into account. Tensions often exist between renters and owners, and between couples with children and couples without children.

Some vacation condominiums contain mixed uses. There can be tensions, for example, between homeowners and an on site restaurant involving odors, noise, and allocation of expenses. There can also be tensions in a golfing condominium, between the owner of the golf course and the residential owners, where the ownership of the golf course is separate from the ownership of the residences. These tensions include noise during golf tournaments and allocation of expenses between the owner of the golf course and all of the owners of residential units.

Where a vacation condominium is both commercial and residential, in an attempt to reduce the tensions between commercial and residential owners, often a rules committee is created by the owners. One of the functions of the rules committee can be to make rules and regulations regarding signage. This is necessary to prevent the owner of the restaurant unit from installing signs that are bothersome to the owners in the adjacent cottages.

Given the popularity of golf in the 1980s and 1990s, many condominiums were created consisting of residential units and a golf course as a unit and the main amenity.

Another common vacation condominium would be in a beach community. In a beach community, I should note that vacation condominiums were a subject of a case involving a “cottage colony” in the Town of Dennis on Cape Cod. The case is Goldman v. Dennis, 375 Mass. 197 (1978). The Goldman case upheld a town by-law that regulated the conversion of certain types of buildings to the condominium form of ownership.

I have never liked the Goldman case. A condominium is a form of ownership. It is not a form of land use.

The court in the Goldman case decided that there are some situations where a municipality may regulate a condominium conversion if the conversion will intensify the use of the property.

The issue of a vacation condominium is complicated by a condominium statute (Chapter 183A) that provides no guidance to the owners of vacation or seasonal condominiums.

I should mention that there are boat dock condominiums, often in vacation areas such as Cape Cod. Also, there are hotel condominiums which consist of one unit being a hotel and the remaining units being residential vacation units. The condominium form of ownership has been used to create some interesting vacation condominium projects.

Massachusetts does have a separate statute covering timeshares, but this statute does not apply to a vacation condominium unless a portion of it has been made into a timeshare pursuant to the timeshare statute (Chapter 183B).

One difference between a vacation condominium and other condominiums is that the board of trustees meets less often, and, when they do meet, they often meet by a telephone conference call. The condominium documents for a vacation condominium must allow for meeting by a telephone conference call, as the Trustees may spend most of the year far away from their vacation condominiums.

Finally, it is essential that the condominium be managed by a management company that has experience with vacation condominiums. There are rental agreements with residents, move in and move out issues, and many other matters that require a management company with expertise in managing vacation condominiums.

A management company may also have to deal with workouts involving a troubled or failed vacation condominium development, run-away expenses, bank loans to the vacation condominium association, and litigation against unit owners who are often out of state.

In any event, your resort or second home condominium will in all likelihood have its share of legal issues.

Saul Feldman is a member of the Condominium Law and Practice Committee. He can be contacted by email at mail@feldmanrelaw.com.

Thursday, August 11, 2016

The Many Advantages of an LLC for Real Estate Holding


By Leo J. Cushing

Background

Limited liability companies clearly are the entity of choice, particularly in cases where holding real estate is involved.  By way of background, Massachusetts first introduced limited liability companies in 1996.  As a result of a 2003 amendment, single member LLCs became permissible.

Single member and multi-member LLCs are clearly superior to other entity choices, including S corporations, Massachusetts Business Trusts and nominee or “realty” trusts.  For example, contributions of appreciated property to limited liability companies are income tax free.   More importantly, distributions of appreciated property from an LLC to its owners are generally income tax free. This is a particularly significant benefit, inasmuch as a distribution of appreciated property from an S corporation will be a taxable event.

Liability and Income Tax Advantages

By statute, each member of an LLC has limited liability.   A single member LLC does not file a separate income tax return.  Rather, all items of income, expenses, deductions, and credit are reported to the owner on the individual income tax return for both federal and state purposes. 

Multiple Properties

In cases in which there are multiple properties, it is common to form a parent LLC and have each of the separate properties owned by a separate LLC.  Each separate title-holding LLC will be owned by the parent LLC.  The separate, single purpose LLCs, which own separate properties, are single member LLCs that do not have a separate income tax filing obligation.  Of course, each LLC must pay the $500 annual filing fee.    

Tax Filing Obligations

All income will be reported on the parent LLC and, in such a case, if the parent LLC is a single member LLC, all items of income, expense, deduction, and credit will be reported on the individual’s owns personal income tax return.  Multi-member LLCs are treated as partnerships.  No income taxes are paid at the entity level.  All items of income, expense, deduction and credit will pass through to the members and will be taxed in accordance with the partnership rules of Subchapter K of the Internal Revenue Code.

Gifting of LLC Membership Interests

LLCs are used extensively for estate planning.  In a typical case, a senior family member will form an LLC and contribute substantial real estate holdings to it.  Thereafter, the senior family member will transfer by gift LLC membership interests.  These may be voting or nonvoting and could represent a small or significant portion of the LLC-using non-voting shares. To the extent that the membership interest transferred is either a minority interest or non-voting shares, the gift tax value of the interest will be discounted.  This is because the interest is nonvoting and nontransferable.

In the case of Pierre v. Commissioner, 133 T.C. 2 (2009), the IRS argued unsuccessfully that the LLC should be disregarded and that the transfer of a membership interest was essentially a distribution of the underlying asset to the transferor, a gift by the transfer or to the transferee with a recontribution of that asset by the transferee, and, as a result, no discount would be allowed.  This was rejected by the Tax Court.

Changing Domicile

Limited liability companies are also useful to minimize Massachusetts estate taxes in connection with a change in domicile.  Massachusetts residents are subject to an estate tax that can be as high as 16%.  For this reason, many Massachusetts residents consider changing their domicile to Florida, New Hampshire or some other state that does not have a state death tax.

Aside from the need to comply with the various regulations in terms of changing voting registration, driver’s license, physicians, and the like, it is also important to deal with Massachusetts real estate that the taxpayer may own.  The reason for this is that nonresidents are subject to the Massachusetts estate tax based on a formula. 

The computation involves first computing the amount of the state death tax that otherwise would be due if the Florida resident was a Massachusetts resident, and then multiplying that amount by a fraction, the numerator of which is Massachusetts real estate and other tangible personal property located in Massachusetts with the denominator being the decedent’s adjusted gross estate.  G.L. c. 65C, § 4(g).
 
If we assume that a single taxpayer dies with an estate of $5,000,000, which would be nontaxable to a Florida resident, and we assume that 50% of the property is Massachusetts real estate, then the Commonwealth of Massachusetts would be entitled to $195,800, computed as follows:

Total tax due assuming decedent was                                                $2,500,000

a Massachusetts resident:                                $391,600  x     $5,000,000   =   $195,800

If the Massachusetts property was transferred to an LLC in connection with a change in domicile, even if the LLC is owned by the Florida resident, the numerator would be zero since the LLC is an intangible and not real estate.  See Estate of Nielson v. Commissioner, Docket No. F232365; (Appellate Tax Bd. Feb. 15, 2001) (stating that partnership interest not taxable, but interest in realty trust taxable for Massachusetts estate tax purposes).

This planning opportunity has been addressed by a number of states, most recently New York.  In an advisory opinion, the New York State Department of Taxation and Finance concluded that real estate owned by a single member LLC will not be considered an intangible unless it elects to be taxed as a corporation.

It is likely that other states will follow suit but not likely in Massachusetts because the LLC statute provides that an LLC interest is personal property and a member has no interest in specific LLC property. Also, this issue was addressed in a DOR regulation, 830 Code Mass. Regs § 65C.2.1, which was repealed in its entirety as being obsolete in 2014.
 
Avoiding Excise Stamp Taxes

General Laws c. 64D, § 1, imposes as stamp/excise tax on the sale of real estate; the amount is $4.56 per $1,000 of sale price and is payable by the seller.  Massachusetts has not taken the position that a single member LLC is a property interest, at least for purposes of imposing the $4.56 per $1,000 stamp tax.  In theory, then, this would permit a taxpayer to transfer their property to a single member LLC and then sell the membership interest to avoid paying the $4.56 per $1,000.  See DOR Directive 95-5 (a sale of benefits interest in a Massachusetts nominee trust is subject to the stamp tax).

Single Member LLC and Asset Protection

One important asset protection benefit to an LLC is the statutorily-limited remedy of a creditor to a so-called charging order.  See G.L. c. 156C, § 40.  Generally, this means that unlike an interest in another type of entity, the interest cannot be taken to satisfy a judgment creditor.  A word of caution:  this benefit does not exist in the case of a single member LLC.

Conclusion

This article only scratches the surface of the complex and vexing issue, not yet settled in all jurisdictions, on whether a single member LLC is an intangible or an interest in real estate.  However, it is widely recognized that for holding title to real estate, the limited liability company has supplanted all other entities.
 
The founding partner in the Waltham-based firm of Cushing & Dolan P.C., Leo Cushing has written and lectured extensively on all aspects of taxation and estate planning.  He also co-chairs REBA’s estate planning, trusts and estate administration committee.  Leo can be contacted by email at lcushing@cushingdolan.com.

Friday, July 22, 2016

The Last Line of Defense Against Anarchy


“Next caller, please!” My Cousin Vinnie, the suburban real estate attorney, yelled in his best exaggerated-talk-show-host-imitation-voice. “It seems that some days I am running a radio talk show, taking call after call from people with semi-serious ideas equipped with insufficient intellectual capital. This week alone I’ve talked to people that want to submit a bid to buy a package store that lacks a liquor license, and people who want to cut down trees in the wetlands, and a seller that just wants me to show up at a closing with 2 hours notice without me having had anything to do with the P&S. Thankfully I talked the guy out of submitting the bid on the package store.” I agreed with Vinnie that we are seeing a lot more activity from amateurs that do not appreciate that the sale of alcoholic beverages is the second most highly regulated form of retail business (with the sale of firearms being the first). It also seems that the amateurs think it is perfectly logical to submit liquor license applications, or wetlands notices of intent, without the assistance of counsel and then call counsel the day before the public hearing and expect counsel to attend the hearing and perform miracles.  You have to love their enthusiasm.
“That’s not the craziest thing going on!” Vinnie exclaimed. “Remember zoning opinions? Remember spending the better part of a week going through the cartons of old files in the basement of town hall, drafting a 30 page opinion, with 2 pages of caveats, only to have lender’s counsel spend the next week nit-picking every sentence and sending you back for re-write after re-write?” I certainly do. “Well, it seems that we aren’t being asked to draft those opinions much these days. It is my impression that too many lenders would rather purchase a $200.00 ‘zoning letter’ from Larry’s Zoning Emporium and Pet Shop, than risk the chance that we will unearth some dead body from the town hall archives. Can’t say that I blame them, as too many towns tossed out their old files, not to mention that too many towns failed to compile good records or prepare clear decisions in the first place, so the sufficiency of the documentation is lacking.”
“It’s funny…” continued Vinnie, “…the things that the world takes seriously and the things that don’t seem to matter to some people. I have to lock up my office like it’s the Federal Reserve Bank at the end of the day to comply with TRID, but nobody seems to care if a mortgage discharge is signed by an entity that does not have the authority to execute discharges. I have to remind myself weekly that my role is to be a guardian of the law and serve as the last line of defense against anarchy. Almost every other day somebody wants me to ignore this or ignore that; don’t notice that a sole trustee was also the sole beneficiary; disregard the ZBA conditions of approval; just assume the non conforming use is lawful; ignore the foreclosure deed signed by somebody without any apparent power to act on behalf of the mortgagee. How many times have I heard someone argue that the issue that I am raising was not a problem for the last attorney who closed on the property?”  I agreed with Vinnie that we get asked a lot to pretend we don’t know what we know, but I also said that I realize that if you act like a dummy , then don’t be surprised if thereafter your client and everyone else in the deal will think you ARE a dummy. Vinnie was more philosophical. “Remember what our classmate Barry said to the late, great Professor Jerry Healy when Jerry asked him what should be the ultimate goal of counsel when representing a client; Barry said ‘Don’t end up in a case published in a law school text book!’  Those are words to live by; and to me it means that when we give advice to our clients, and issue written opinions, we have to anticipate that our advice and opinions may be subject to intense scrutiny and surgical dissection in a court someday. The court is not going to care that that your client asked you to be ‘expedient’; the court will only care if the advice was precise and based on the facts and ALL the law.”  
Once again, Vinnie spoke the truth.  
Paul F. Alphen, Esquire
Alphen & Santos, P.C.
Westford, MA
 
 

Thursday, June 9, 2016

VACATION CONDOMINIUMS: LEGAL AND MANAGEMENT ISSUES


During summer, we think of vacations.  Often this means a resort or a second home condominium.  There are many concerns in buying a vacation condominium.  The usual concerns involve pools, parking, and pets.  Noise is also an issue, given the sometimes close proximity of the units. 

There are other issues as well, such as the right to lease your unit.  Many of the units in a vacation condominium are often owned by absentee landlords and rented out on a weekly, monthly, or seasonal basis.  The rules and regulations for the condominium must be drafted to take this into account.  Tensions often exist between renters and owners, and between couples with children and couples without children.

Some vacation condominiums contain mixed uses.  There can be tensions, for example, between homeowners and an on site restaurant involving odors, noise, and allocation of expenses.  There can also be tensions in a golfing condominium, between the owner of the golf course and the residential owners, where the ownership of the golf course is separate from the ownership of the residences.  These tensions include noise during golf tournaments and allocation of expenses between the owner of the golf course and all of the owners of residential units.

Where a vacation condominium is both commercial and residential, in an attempt to reduce the tensions between commercial and residential owners, often a rules committee is created by the owners.  One of the functions of the rules committee can be to make rules and regulations regarding signage.  This is necessary to prevent the owner of the restaurant unit from installing signs that are bothersome to the owners in the adjacent cottages.

Given the popularity of golf in the 1980s and 1990s, many condominiums were created consisting of residential units and a golf course as a unit and the main amenity.

Another common vacation condominium would be in a beach community.  In a beach community, I should note that vacation condominiums were a subject of a case involving a “cottage colony” in the Town of Dennis on Cape Cod.  The case is Goldman v. Dennis, 375 Mass. 197 (1978).  The Goldman case upheld a town by-law that regulated the conversion of certain types of buildings to the condominium form of ownership.

I have never liked the Goldman case.  A condominium is a form of ownership.  It is not a form of land use.

The court in the Goldman case decided that there are some situations where a municipality may regulate a condominium conversion if the conversion will intensify the use of the property.

The issue of a vacation condominium is complicated by a condominium statute (Chapter 183A) that provides no guidance to the owners of vacation or seasonal condominiums.

I should mention that there are boat dock condominiums, often in vacation areas such as Cape Cod.  Also, there are hotel condominiums which consist of one unit being a hotel and the remaining units being residential vacation units.  The condominium form of ownership has been used to create some interesting vacation condominium projects.

Massachusetts does have a separate statute covering timeshares, but this statute does not apply to a vacation condominium unless a portion of it has been made into a timeshare pursuant to the timeshare statute (Chapter 183B).

One difference between a vacation condominium and other condominiums is that the board of trustees meets less often, and, when they do meet, they often meet by a telephone conference call.  The condominium documents for a vacation condominium must allow for meeting by a telephone conference call, as the Trustees may spend most of the year far away from their vacation condominiums.

Finally, it is essential that the condominium be managed by a management company that has experience with vacation condominiums.  There are rental agreements with residents, move in and move out issues, and many other matters that require a management company with expertise in managing vacation condominiums.

A management company may also have to deal with workouts involving a troubled or failed vacation condominium development, run-away expenses, bank loans to the vacation condominium association, and litigation against unit owners who are often out of state.

In any event, your resort or second home condominium will in all likelihood have its share of legal issues.
 
Saul J. Feldman
Feldman Law Office, P.C.
www.feldmanrelaw.com