Wednesday, November 2, 2022

Infamous Two-Tier Condominium Concept Addressed by Massachusetts Land Court

Alexander Tsianatelis, Esq.

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.

  

Wednesday, October 12, 2022

Condominium Security Decision Rattles Association Windows

 Pamela Jonah

A recent Massachusetts Superior Court decision (Field, et. al. v. Highbridge Concierge, Inc., et. al.) has rattled windows in


the condominium world, describing, in large capital letters, the security obligations of condominium associations and association managers.

The court case behind this decision was more than a little disturbing. A former employee of a company that had previously provided concierge services to the Macallen Building (a 144-unit condominium complex in South Boston), gained access to the penthouse unit owned by two doctors and brutally murdered them. 

The estates of the two victims sued the condominium association (Court Square Press), the concierge company (Highbridge) and the management company (Bayberry), claiming that they had failed to provide adequate security in the building and that their negligence was responsible for the murders. 

The three defendants asked the court to dismiss the case, arguing that there was no legal basis for the negligence claim.  Superior Court Judge Christine Roach disagreed, finding that a jury might well determine that the defendants had a “duty of care” ─ an obligation to provide security ─ which they had failed to fulfill.


A Clear ‘Duty of Care

The judge found the obligations of the management company and the concierge company to be straightforward based on the wording of their contracts.

The association also had an obligation to provide security in common areas, Judge Roach found, an obligation that, she acknowledged, Massachusetts courts have never specifically defined.  

This decision doesn’t provide that definition either, but it does find an association’s obligations to be more explicit and potentially broader than we have seen in other decisions. 

Significantly, Judge Roach found an association’s duty to provide security to be based specifically in its obligation to maintain common areas, which she defined broadly to include providing security there. 


Maintenance Includes Security

Equally significant, the judge found that an association’s obligation to provide security in common areas is comparable to the obligation of landlords to provide security for their tenants. While noting that Massachusetts courts have not reached that conclusion, Judge Roach said she found “persuasive” decisions by Arizona and California courts, holding that condominium associations “should be held to the same standard of care for common areas as a landlord…Like a landlord,” the judge said, “a condominium association bears a duty to exercise due care for the residents’ safety in those areas under the association’s control.”

Although the SJC has agreed that a landlord “is not a guarantor of safety” in common areas, Judge Roach observed, the court has also held that “a landlord is not free to ignore reasonably foreseeable risks of harm to tenants and others lawfully on the premises, that could result from unlawful intrusions into common areas.”

Even with her application of landlord-type security obligations to condominium associations, Judge Roach still colors pretty much within existing legal liability lines.  But her analysis of the obligation to prevent third party criminal actions arguably begins to push those existing legal boundaries. 


Foreseeable Risks

The defendants in this case had argued that there is generally no duty to prevent the criminal actions of third parties and the judge agreed ─ with one key exception: A duty exits, she said, if those criminal acts are reasonably foreseeable.  

Because there had been no previous murders in the building, the defendants argued, that risk wasn’t a foreseeable one.  But prior criminal activity isn’t the only basis for foreseeability, the judge found.  “The existence of opportunistic crime, including violent crime, accessed through public areas is a foreseeable fact of everyday life for most citizens, and condominium complexes are no exception.”

If there is any area in which this decision might (if echoed by an appellate court) plow new legal ground, it is here, in its assertion that virtually any criminal act may be a foreseeable risk that condominium associations (and others) have a duty to recognize and defend against.  What exactly are they required to do?

Before extrapolating too broadly from what this decision says or doesn’t say, it is important to remember:

·      This is a Superior Court decision.  It doesn’t set any precedents and it is not binding on other courts.  However, the decision does provide a legal window through which other courts may view questions about the security obligations of condominium associations, management companies and others. In that sense, it hints at future decisions without necessarily predicting them.

 

·      Like many decisions, this one was fact specific.  There were circumstances that supported negligence findings here that may not exist in other negligence cases. We shouldn’t assume that associations will be held responsible for any third-party criminal act in their community, irrespective of the nature of the act or the security measures they have implemented. Just because there are no bright lines defining an association’s security obligations doesn’t mean there are no limits at all on what they are required to do.

 

What Boards Should Do?

With these important caveats in mind, I’m giving our clients the following advice:  

·  Take owners’ (and tenants’) security concerns seriously. Once the board is alerted to a risk, that risk becomes foreseeable and creates an obligation for the board to deal with it.  While it’s not clear how you must respond to these concerns, it is absolutely clear that you can’t ignore them. The security concerns you ignore could become the negligence suits you have to defend.

· Assess safety and security issues in your community periodically.  Make sure all security equipment is operating properly and verify that security personnel (or personnel with security responsibilities) are performing their duties appropriately an

 

·      Consider hiring a security consultant to review your community’s security

needs.  Bear in mind, however, that the failure to implement the consultant’s recommendations will almost certainly be cited as evidence that the board breached its obligation to provide adequate security.  If you reject security recommendations, make sure you have sound reasons for doing so. 

·   A board may consider the costs of various security measures when assessing what associations may or may not do. However, a financial decision that seems reasonable to trustees when they are developing a budget (and refusing to increase security expenditures) may look less reasonable to a court considering the association’s potential negligence in a wrongful death suit like the one that produced this decision.  “How much is a life worth” is a question you definitely don’t want to have to answer in court.

· Expect management companies, concierge companies and security companies to seek to modify contact language describing their security obligations. That is one possible result of this decision or any decision that seems to highlight liability risks. If there is more potential liability, everyone will want to shift it to someone else. Condominium boards should ensure, to the extent possible, that the entities responsible for providing security (or monitoring it) do their jobs and bear the responsibility if they fail to do so.  

·  Pay attention to this decision.  It doesn’t alter the “duty of care” obligations for condominium associations, but it does restate them – forcefully.  This isn’t a ‘house-on-fire’ message for boards and managers, but it is a message they shouldn’t ignore.

Pam is a partner in the Braintree firm of Marcus Errico Emmer & Brooks, PC,  concentrating her practice in the representation of condominium and homeowner associations in Massachusetts. Pam handles all aspects of community association representation offering day-to-day general advice, including but not limited to document review, interpretation and drafting, lien enforcement matters, association loans and covenant, restrictions and rule enforcement matters.  Here email address is pjonah@meeb.com.

Seller Beware: An Executed Offer to Purchase Property May be Enforceable

Meghan E. Hall

One of the oldest legal sayings is “caveat emptor” (“buyer beware”). However, sellers must beware too (“caveat venditor”). A recent decision from the United States District


Court of Massachusetts serves as an important reminder to sellers (and buyers) that a binding agreement to convey real property can be made at the offer stage, without a finalized and executed purchase and sale agreement. See Ritter v. Johnson, 2022 WL 2873086 (D. Mass. 2022) (Slip Op.).

This decision reaffirms the decision in McCarthy and serves as a reminder that a buyer may enforce a real estate transaction based on an executed offer to purchase and imperfect negotiations, even when a contemplated purchase and sale agreement is not executed.

In Ritter, the buyers submitted an offer to purchase (“Offer”) a certain property on Martha’s Vineyard. The Offer specifically identified the property, the purchase price, the date for execution of a purchase and sale agreement, the closing date, as well as indicated that time was of the essence. Additionally, the Offer listed several contingencies including the sale by the buyer of some property in Virginia, the delivery of a Title 5 test by the seller, and the signing of a “mutually acceptable” purchase and sale agreement. Importantly, the Offer explicitly stated that it was a legally binding contract and that it would be enforceable both at law and in equity if the seller failed to fulfill his obligations under the agreement. Both parties, apparently satisfied with the terms and represented by counsel, executed the Offer.

Following the execution of the Offer, the parties engaged in imperfect negotiations of a purchase and sale agreement and endeavored to satisfy most of the contingencies listed in the Offer (including remitting the deposit, the sale of the buyer’s Virginia property, and the seller’s delivery of the Title 5 results). However, when it came time to sign, the seller refused and sought to terminate the transaction. The seller’s stated basis for the termination of the transaction was that he signed the Offer without his wife’s assent.

As a result of the Massachusetts resident seller’s unilateral termination of the Offer, the Virginia resident buyers brought suit in federal court for the seller’s breach of contract (i.e. the Offer), breach of the covenant of good faith and fair dealing, and promissory estoppel. Following summary judgment, the  Court held that the Offer was enforceable because (i) the language reflects the parties intent to bound by stating “this is a legally binding contract”, and (ii) if the seller does not fulfill his “obligations under this agreement, said agreement shall be enforceable both at law and in equity.” Additionally, the Court held that the Offer contained all material terms (i.e. description of the property, the purchase price, deposit requirements and closing date) that were sufficient to establish a binding Offer, even though the seller argued that the offer did not include all material terms because it did not address two material aspects of the transaction. Namely, how rental income from a lease of the property would be allocated and the seller’s use of the property after closing. The Court, however, found that these terms were not so essential to the transaction as to be material because there was no reference to them in the Offer.

 

In finding that the buyer was entitled to summary judgment on the breach of contract claim, the District Court relied heavily on the Massachusetts Supreme Judicial Court’s decision in McCarthy v. Tobin (1999). In McCarthy, the SJC held that if parties have agreed upon all material terms, the offer is enforceable and the purchase and sale agreement serves as a “polished memorandum of an already binding contract.” While the seller argued that the Offer was not enforceable because the parties did not satisfy all the contingences set out in the Offer, specifically the signing of a “mutually acceptable” purchase and sale agreement, the District Court disagreed. Like McCarthy, the Offer in Ritter included the sufficient material terms to the agreement. That is where the parties agree to the material terms for the transaction and indicate the intent to be bound by those terms, the offer to purchase is an enforceable agreement.

As noted in McCarthy, “[i]f parties do not intent to be bound by a preliminary agreement until the execution of a more formal document, they should employ language” to that effect). Id. at 88, n.3; see also the Massachusetts Appeals Court case Goren v. Royal Investments Inc., (1987) (noting to prevent offer from becoming enforceable contract, one should include provision noting document’s purpose and parties intend only to be bound by execution of more detailed agreement, not by preliminary document).

This decision reaffirms the decision in McCarthy and serves as a reminder that a buyer may enforce a real estate transaction based on an executed offer to purchase and imperfect negotiations, even when a contemplated purchase and sale agreement is not executed.

An associate in the litigation department of the Boston and Quincy based law firm of Moriarty, Troyer & Malloy LLC,  Meghan is an experienced real estate litigator representing clients in all Massachusetts trial courts, including the Land Court, and the Massachusetts Appeals Court.