A recent Massachusetts Appeals Court case offers a reminder for condominium trustees and property managers that, though a unit
owner may be granted exclusive use of common area, the percentage interest of the unit may not be changed without the consent of unit owners and likely an amendment to the condominium documents.
In
the case of McQuilly v. Belfi,
99 Mass. App. Ct. 1115 (2021) (Rule 23.0 Decision), two unit owners
of the Vineyard Harbor Condominium on the island of Martha’s Vineyard sued the
Vineyard Harbor Condominium Trust in the Superior Court. The Vineyard Harbor
Condominium is set up and run as a motel, with individual unit owners
participating in the Trust’s rental program.
Kevin
McQuilly is the owner of Unit 42 in the Condominium, which in 1989, prior to
his ownership, had been expanded during a roof replacement project that
required alteration of Unit 42 by enclosing a portion of the unit’s roof deck.
When the project was complete, 242 square feet of common area had been added to
Unit 42, increasing the total square footage of the unit to 622.
In
response, at a meeting of the Trustees in October 1991, the Trustees agreed to
assess an increased percentage of common area expenses to Unit 42 and to reduce
other units’ percentage interests accordingly. No amendments were made to the
Master Deed or the Declaration of Trust at that time, and until 2000, common
expenses were based on the original beneficial interest stated in the Master Deed.
In 2000, the Trustees began charging common expenses based on what they
referred to as a “Corrected Percentage Factor” based on the square footage of
each unit. As a result, Unit 42’s percentage interest increased, and the
percentage interest of all other units decreased.
In
the original complaint, among other allegations, McQuilly and the other unit
owner alleged the Trustees were incorrectly allocating the common area revenue
and expenses, including those related to McQuilly’s Unit 42.
The
Trustees filed counterclaims against McQuilly for declaratory judgment claiming
that the Trustees had the right to charge McQuilly an additional common expense
because Unit 42 had been expanded, and for unjust enrichment claiming McQuilly
had been unjustly enriched by the expansion of Unit 42.
The
parties filed cross-motions for summary judgment. The Superior Court allowed
the motions for summary judgment on all counts except for the Trustees’ claim
for declaratory judgment. The Superior Court judge then declared that McQuilly
would have an exclusive easement for the 242 square feet of living space that
had been added to Unit 42 and that the Trust could charge McQuilly an
additional fee for common expenses, based upon the increased square footage of
Unit 42. The Superior Court judge noted that this resolution was “not perfect,
[but] as equitable and consistent a result as can be accomplished without
wholesale disruption to the status quo.”
The
plaintiff unit owners appealed, and the Appeals Court reviewed the case,
affirmed the dismissal of most of the plaintiffs’ claims, and remanded the case
to the Superior Court for review of the judgment related to the increased
percentage interest calculated and charged by the Trustees.
The
Appeals Court agreed with the Superior Court judge that McQuilly should be
granted an exclusive easement for the 242 square feet that had been added to
his Unit, but found no authority to support the Superior Court judge’s
conclusion that the Trust was authorized to charge an additional common charge
to McQuilly based on the additional square footage of his unit, stating:
Here,
neither G. L. c. 183A, § 5, which governs
interests in condominium common areas and facilities, nor the master deed or
declaration of trust, authorized the trustees to reallocate a unit's percentage
liability for common area expenses without the consent of all unit owners.
The
Appeals Court noted that the Trustees had not amended the Master Deed or the
Trust to provide for their “Corrected Percentage Factor,” which would have been
required, noting:
Here,
the declaration of trust established each unit owner's liability for common
expenses. It provided that such liability shall be “in proportion to [the unit
owners'] respective percentages of beneficial interest” in the condominium's
common areas and facilities. The unit owners' respective percentages of
beneficial interest in common areas and facilities are, in turn, set out in the
master deed. It follows that to reallocate liability for common area expenses,
the trustees must first amend the master deed's allocated percentages of
beneficial interest in the common areas and facilities. According to the master
deed, such an amendment requires consent from all unit owners.
The
Court also noted that though G.L. c. 183, § 5(b)(2) authorizes a condominium
trust to grant or designate exclusive use of common areas to unit owners, G.L.
c. 183A, § 5(b)(2)(ii) clarifies that “the withdrawal of a portion of the
common areas and facilities, all as provided for in this subsection, shall not
be deemed to affect or alter the undivided interest of any unit owner.”
This
is a common and reasonable question from trustees, property managers, and unit
owners alike: When a unit owner is granted the exclusive use of common area,
effectively expanding the square footage of the unit, isn’t it “only fair” that
the unit owner’s percentage interest is increased, and they are subsequently
charged a higher common charge?
The
answer, as confirmed by the Appeals Court, is no.
The
Court’s ruling is a reminder that trustees and property managers should discuss
their plans related to the expansion of units, grants of exclusive use, and
changes to the percentage interest of any unit with condominium counsel.
Attempting to make changes or to begin billing unit owners common charges based
on a percentage interest that is not confirmed by the condominium documents
without the advice of counsel can lead to complex and costly problems in the
future.
For
those condominium trustees, property managers, and counsel that are familiar
with derivative actions, McQuilly v. Belfi also has a good discussion on
derivative actions filed against condominium trusts, with the Appeals Court
clarifying its interpretation of Massachusetts Rules of Civil Procedure, Rule
23.1, when applied to condominium trusts, noting:
A
condominium, once created, is run by a corporation, trust, or unincorporated
association.... The members of the association are the unit owners.... The
governing body of the association is the equivalent of the board of directors
of a corporation, and the unit owners are the equivalent of shareholders. For
that reason, in this context, we have interpreted rule 23.1 to require that the
plaintiffs' complaint allege with particularity both (1) the efforts, if any,
made to obtain the action [they] desire[d] from the trustees and why such
demand failed or was not made and (2) that the plaintiffs made a demand on the remaining
unit owners unless they too were interested or their number very large.
(internal citations and quotation marks omitted).
The
Appeals Court also observed that for a derivative claim to be valid, a demand
on the unit owners must be made, even if the demanding unit owner believes that
the other unit owners cannot or will not act. In McQuilly, the Appeals Court
agreed with the Superior Court in the dismissal of the unit owners’ derivative
claims, as the unit owners failed to make a demand on the other unit owners.
For advice on derivative claims, the counsel of an experienced condominium
litigation attorney is recommended.
A copy of the decision is available here.
This
article originally posted on April 28, 2021:
https://www.lawmtm.com/exclusive-use-condo-law.html
A
member of REBA’s Condominium Law & Practice Section, Ryan is an associate
in the real estate department of Moriarty, Troyer & Malloy, LLC. His practice has a focus on the general
representation of condominium associations, including condominium document
interpretation, drafting, enforcement, and collections. Ryan can be contacted
at rserevance@lawmtm.com.
