Rauseo v. Board of Assessors of Boston: The Declarant’s Last Stand

By Kate Moran Carter

The Appeals Court’s recent decision in Rauseo v. Board of Assessors of Boston, 94 Mass App. Ct. 517 (2018), is the latest chapter in the body of case law concerning a condominium

declarant’s authority to reserve interests in land submitted to the Condominium Act. The Appeals Court was asked to decide whether individual parking easements, retained under the terms of the Master Deed of the Folio Boston Condominium, as personal interests, not appurtenant to any particular Unit in the Condominium, could be assessed as separate, taxable interests in real estate, without running afoul of G.L. c. 183A, § 14.

Cars are valet parked at the Folio, a mixed-use, downtown Boston condominium, in a three-story, below-grade parking garage defined in the Master Deed as the Condominium Parking Area. The Condominium Parking Area comprises a portion of the Limited Residential Common Elements of the Condominium. Under the Master Deed, the Declarant of the Folio Condominium reserved to itself and its successors and assigns, the exclusive right and easement to sell, convey, lease, rent, or license easements for each of the 118 Parking Spaces in the Condominium Parking Area. Parking Easements at the Folio can be conveyed separate from a Unit in the Condominium. Moreover, any Parking Easements retained by the Declarant are expressly defined by the Master Deed as easements in gross.

The Broad / Franklin Development Trust, the Managing Member of the Declarant (the “Declarant”), currently owns the three commercial Units at the Condominium in addition to Parking Easements in the Folio garage. In 2002 the Department of Revenue issued a letter to the City of Boston authorizing it to separately assess and tax as present interests in real estate under G.L. c. 59, § 11 parking easements located in condominium common areas that are easements in gross rather than easements appurtenant. Thereafter, beginning in FY2017, the City of Boston began assessing the Declarant separately for each of its 13 Parking Easements. The Declarant timely paid taxes assessed for FY2017 and FY2018, filed for an abatement, and then appealed the denial of the abatement to the Appellate Tax Board. The Appellate Tax Board upheld the abatement denials.

On appeal the Declarant argued that the Master Deed conferred on the Parking Easement holders a property interest in the Condominium Parking Area, which, under the Master Deed, constitutes a portion of the Limited Residential Common Element of the Condominium. Under G.L. c. 183A, § 14 each individual unit of a condominium, and its appurtenant beneficial interest in the common areas and facilities of the condominium, is assessed taxes as an individual parcel of real estate. Because the value of the common areas is part and parcel of the total assessed value of all the units of the condominium, the common areas and facilities themselves are not a separately taxable parcel. Thus, the Declarant argued, upholding the Appellate Tax Board’s decision, violated the Condominium Act and would result in double-taxation. In support of its argument the Declarant relied on two companion cases, Spinnaker Island & Yacht Club Holding Tr. v. Assessors of Hull, 49 Mass. App. Ct. 20 (2000) and First Main St. Corp. v. Bd. of Assessors of Acton, 49 Mass App. Ct. 25 (2000), which held that a declarant’s retained interest to develop future phases of a condominium was part of the common areas and could not be separately taxed as a present interest in property without running afoul of G.L. c. 183A, § 14.

The Rauseo Court, however, was guided by a separate line of cases in which the SJC and Appeals Court repeatedly acknowledged and upheld a condominium declarant’s right to retain an interest in land described in the condominium master deed, without impermissibly dividing the common areas of the condominium in violation of G.L. c. 183A, § 5(c). In particular, the SJC decision in Commercial Wharf East Condominium Ass’n. v. Waterfront Parking Corp., 407 Mass. 123 (1990), acknowledged that nothing in the Condominium Act precluded the coexistence of possessory and nonpossessory interests in the same land. In that case, by declaration of covenants and restrictions recorded before the condominium master deed, the condominium declarant reserved to itself the right to manage parking on the condominium land. The SJC held that where the master deed to the condominium made the association’s fee simple ownership interest in the Commercial Wharf East Condominium parking and driveway area subject to the interests reserved in the declaration “it follows that the interests retained by the developer in the Declaration are not ‘common areas.’” Since then the courts have consistently upheld the declarant’s right to reserve an interest in portions of the condominium land, separate from the common areas, whether by the terms of the master deed itself as in Queler v. Skowron, where the SJC upheld the declarant’s retention in the master deed of an interest in the unphased portions of condominium land, or by amendment to the master deed prior to the conveyance of any unit as in C.B.K. Brook House I Ltd. Partnership v. Berlin, where the Appeals Court upheld the declarant’s retained interest in parking spaces located within a condominium parking garage.

As the Rauseo Court explained, “[t]aken together, Commercial Wharf E. Condominium Ass’n., Queler, and C.B.K. Brook House I Ltd. Partnership make plain that an easement in gross for parking, reserved by a condominium declarant from the interests submitted under a master deed to the condominium form of ownership pursuant to G.L. c. 183A, is not a part of the condominium common areas” and therefore could be taxed as a separate interest in real estate. (emphasis added). Moreover, the Rauseo Court reasoned that its holding was consistent with the earlier decision in First Main St. Corp. on which the Trust relied. Whereas, in First Main St. Corp., the rights reserved by the declarant were in land expressly defined in the Master Deed as a part of the condominium common areas, and therefore, not a separately taxable interest, the Parking Easement rights reserved under the Folio Master Deed to the Declarant and its successors and assigns, although physically located in a part of the limited common areas of the condominium … “are not appurtenant to any condominium unit, are separately alienable as interests in real property, and are not (and never were) part of the condominium common areas.” (emphasis added). Having exercised the planning flexibility afforded by the Condominium Act, to reserve to itself – and thereby remove from the Common Areas – the right to park in the Condominium Parking garage, the Declarant created a separately taxable interest, for which the City was authorized to assess taxes.

What effect, if any, the Rauseo decision, will have on the way in which condominium declarants structure and define the way in which they retain rights, including parking rights, at a condominium, remains to be seen. However, where demand for downtown housing continues, and the value realized by a declarant who can freely convey or lease valuable parking spaces in high-demand areas will vastly outpace the amount of assessed tax in municipalities authorized to assess taxes on parking easements held as easements in gross, it is likely that this type of structure will remain a feature of urban condominiums for the foreseeable future. 

Co-chair of the association’s land use and zoning section, Kate Moran Carter is a shareholder and director at Dain, Torpy, Le Ray, Wiest & Garner, P.C. focusing on real estate and commercial litigation, risk management and dispute resolution. Prior to joining the firm, she spent six years as an associate at Robinson & Cole, LLP where she focused her practice on representing title insurers, insured lenders and owners, condominium associations, and business owners. Kate can be contacted by email at kcarter@daintorpy.com.

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News from Beacon Hill

Edward J. Smith

On April 25 the House of Representatives approved the FY2020 state budget recommendations of its Ways and Means Committee,

after a series of amendments that resulted in a total appropriations authorization of $42.7 billion for the fiscal year beginning July 1, 2019. 

Included was a hefty increase in the appropriation for the Massachusetts Legal Assistance Corporation.  The House increased the appropriation recommended by Governor Baker from $21 million to $23.6 million.

As is typical in this process, several finance-related changes in the General Laws were included.  Among them is an expansion of the conservation land tax credit, which was first authorized to take effect in 2011. According to the amendment’s lead sponsor, Representative Bradley Jones (R-North Reading), the tax credit on land donated to the commonwealth has helped protect 12,000 acres. The amendment would increase the present $2 million cap gradually by $1 million each year, starting in Jan. 1, 2020, to $5 million. There are said to be a number of applications pending throughout the commonwealth that would benefit from the amendment.

The House-passed budget bill (H. 3800, as amended) would increase the Registry of Deeds recording fee surcharge that supports the Community Preservation Act Trust Funds.  As conceived when the CPA was first passed in 2000, any community that approves a special property tax surcharge dedicated to CPA purposes was to receive matching funds from a Trust Fund that aggregates the Registry surcharges.  The amount of the registry surcharge has been $20 for most instruments since the CPA was passed in 2000.  Effective December 31, 2019, the pending legislation would increase that surcharge to $50 per instrument, except for MLC’s, which would increase from $10 to $25.  Also approved in the House recommendations for the FY2020 budget is an extension to 2025 for the funding of registries of deeds technology efforts from a dedicated $5 special recording fee surcharge. 

The Senate will take up the budget bill in May.

Other finance-related bills of interest to conveyancers and their clients are still in committee.  Governor Baker has proposed S.10, to increase by 50% the amount of the deeds stamps to fund a Global Warming Solutions Trust Fund to assist communities in infrastructure resilience projects and risk mitigation.  Other bills would authorize local option adoption of special real property transfer taxes to fund the creation of affordable housing. (S.773, S.799, H.1769, H.2425, H.2552) 

This REBA Blog posting was authored by Edward J. Smith. Ed Smith has served as legislative counsel to the Association since 1987.  He can be contacted by email at ejs@ejsmithrelaw.com.

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Chapter 527 – Check Before You Convert!

By Angel K. Mozina

The number of residential buildings in the Greater Boston area being renovated and converted into condominiums continues to increase by the day.  Developers and owners should be aware of the

Massachusetts Condominium Conversion Law (Chapter 527 of the Acts of 1983) when planning to convert these occupied rental buildings.

Chapter 527 applies to every municipality in Massachusetts unless a municipality has adopted its own ordinance or by-law covering condominium conversions. A municipality, such as Boston, may adopt a law, which is more stringent or less stringent than Chapter 527. In addition to Boston, the following municipalities are among those that have adopted by-laws or ordinances:  Abington, Acton, Amherst, Brookline, Haverhill, Lexington, Malden, Marlborough, New Bedford, Newburyport, Newton (under special circumstances), and Somerville.  Many others, such as Cambridge, could join the list soon. A few of these municipalities have statements in the ordinances or by-laws that specifically state that Chapter 527 and the local ordinance or by-law both apply to condominium conversions. 

Buildings of less than four (4) residential units are exempt.  In determining whether the four (4) units minimum is met, units in two (2) adjacent buildings with common ownership will be added together. Also exempt is any building that has not been used for residential purposes for at least one year prior to an owner’s filing a master deed for a condominium.

Chapter 527 imposes the following conditions precedent to condominium conversions:

1)      Notice of Conversion:

A tenant is protected if there is merely an intent to convert.  An intent to convert arises when, for example, a Master Deed along with Purchase and Sale Agreements are prepared, or if there are inspections, measurements, surveys, showings, advertising, etc. 

The converter must notify tenants by certified or registered mail of the filing of a Master Deed and of the owner’s intent to terminate their tenancy and their rights under Chapter 527. Most tenants have one (1) year before they must leave.  Three categories of protected classes have two years or longer (up to two more years) if they cannot find comparable rental housing in the same municipality:

a)         Handicapped tenants;

b)         Elderly tenants (over 62); and

c)         Low or moderate income tenants

Chapter 527 prohibits evictions for the purpose of converting a building to condominiums.  However, a tenant may still be evicted for any violation of the lease, including non-payment of rent, provided that this is not merely a pretext for a condominium conversion eviction.

2)      A limit on rent increases:  CPI or ten percent (10%), whichever is greater.

3)      Right of “First Refusal”:  a Tenant has a ninety-day period to purchase on the same as or more favorable terms than those that will be extended to the general public.  If not interested, Tenants must execute a waiver of their right to purchase a rental unit.  Such a waiver should state that a Tenant received a purchase and sale agreement executed by the owner of the apartment building and that the Tenant was notified that the terms and conditions of the agreement were substantially the same as or more favorable than the terms and conditions offered to the general public during the ninety day purchase period.

4)      Relocation payments:  Seven hundred fifty dollars ($750.00) for the tenant, unless Tenant is a “protected tenant,” in which case it is one thousand dollars ($1,000.00).  This is a mandatory payment if the tenant owes no rent or moves out before the conversion date on the notice.

5)      Penalties:  Fine of not less than one thousand dollars $1,000.00) or imprisonment of not less than sixty (60) days for not complying with the statute.

LOCAL ORDINANCES OR BY-LAWS:  As stated above, local ordinances can provide for more stringent conversion requirements instead of or in addition to Chapter 527. For example, the Boston ordinance gives elderly, handicapped and low income tenants five (5) years’ notice but says that the notice period may be extended by future legislation.  This could mean that a Tenant in a protected class in Boston could conceivably be protected indefinitely. Consequently, ordinances like Boston’s may lead owners to try not to rent to this protected class if the owner intends at some point in the future to convert the building.

A municipality, such as the City of Newton, may not have a separate ordinance or by-law covering condominium conversions.  If a special permit has to be obtained from the Board of Aldermen to build more than 3 units in a dwelling, conversion to condominiums may not occur without obtaining an additional special permit from the Board of Aldermen.  Therefore, conversions in Newton are governed by both Chapter 527 and the requirement of an additional special permit!

It is important that developers be mindful of Chapter 527, local ordinances and their timeline restrictions.  If and when possible, Units should be vacant before the intent to convert arises in order to be able to convert and sell Units free of statutory and ordinance requirements.

Co-chair of REBA’s Condominium Law and Practice Section, Angel Mozina is a director at Rackemann, Sawyer & Brewster, P.C.,where she  represents developers, lenders, borrowers, management companies, condominium associations, owners and tenants in a broad range of real estate and corporate matters.  Angel can be contacted by email at amozina@rackemann.com.