A recent Massachusetts Land Court case examined the validity of a “two-tier” condominium project. This two-tier condominium approach is also referred to
as a condominium within a condominium.
A two-tier condominium is a condominium comprised of a primary condominium (the “Primary Condominium”), pursuant to which a landowner then creates one or more condominiums within and subject to the primary condominium (each a “Secondary Condominium”). The two-tier condominium approach is particularly useful when a condominium developer intends to break out ownership, control, operation and/or maintenance of a subset of the Primary Condominium to one or more ownership types. For example, if the first floor of a condominium building is comprised of commercial businesses, and the floors above are comprised of residences, it may make sense to use a two-tier condominium to break out the ownership, control, operation and maintenance of the first floor commercial units to only those owners owning similar commercial condominium units in the building, leaving the ownership, control, operation and maintenance of the residential floors above to only those owners owing similar residential condominium units in the building. Each of the commercial and residential owners would then share in the ownership, control, operation and maintenance of those areas of the development shared by the two condominium unit owner types. In the recent Minieri case, the Primary Condominium designated ownership of certain buildings within a condominium development, and the Secondary Condominium designated ownership of the individual residential units in those buildings. Each of the Primary Condominium and Secondary Condominium owners also owned an undivided interest in certain common areas of the development.
The Minieri case reiterates that an owner of land may create a condominium by submitting his or her interest in land to the provisions of Massachusetts General Laws (“MGL”) Chapter 183A by recording a master deed that states the intent to create a condominium. According to Minieri, prior case law has further reiterated that recording a master deed in accordance with MGL Chapter 183A creates a hybrid form of interest in real property where a unit owner holds exclusive ownership and possession of his or her condominium unit, plus an undivided interest in the common areas defined by the master deed as a tenant in common with all other unit owners in the condominium.
One of the concerns in using a two-tier condominium structure arises from the requirement that pursuant to MGL Chapter 183A, Section 1, one must “submit” its land to the provisions of MGL Chapter 183A to create a condominium.
The concern in using a two-tier condominium structure is that in order to create a Secondary Condominium, the applicable owner needs to own an interest in land to submit in accordance with MGL Chapter 183A. If the Primary Condominium owner already submitted the land to MGL Chapter 183A to create the Primary Condominium, a Secondary Condominium may not be valid because the declarant may not be able to submit the same interest to MGL Chapter 183A twice.
The plaintiff in Minieri attempted to exploit this concern to force an order equitably rescinding their purchase of individual condominium units in the Secondary Condominium. The court in Minieri denied the plaintiff’s order and confirmed the validity of the declarant’s two-tier condominium on the following basis: (1) the master deed creating the Secondary Condominium described the land it submitted to MGL Chapter 183A as including the rights in the limited common elements or limited common areas of the Primary Condominium; (2) the declarant submitted an undivided interest in the limited common elements and areas of the Primary Condominium to the Secondary Condominium such that both the Primary Condominium and Secondary Condominium held ownership rights in those common areas; and (3) the Secondary Condominium’s interest in the common areas of the Primary Condominium satisfies the requirement of MGL Chapter 183A that the Secondary Condominium include an interest in land.
The court’s decision goes a long way towards clarifying and resolving the potential concern in developing a two-tier condominium.
An
associate at Rudolph Friedman LLP, Alex Tsianatelis focuses his practice on
commercial and residential real estate acquisitions, dispositions, financings,
development, operations, maintenance and leasing. Alex has negotiated numerous
complex multi-million-dollar real estate transactions. Alex can be contacted at atsianatelis@rflawyers.com.
