Appeals Court Rules Condominium Trust an Indispensable Derivative Action Party

David M. Rogers 

A derivative suit is one that is typically brought when a condominium board has failed or refused to redress a wrong

committed against the association.  These lawsuits allow for a unit owner to step into the shoes of a condominium board and take legal action when the board is otherwise unwilling to advance a claim.  In the past, it may not have been common practice to name the condominium board as a defendant in a derivative claim lawsuit.  This was likely based on the thinking that it was counterintuitive to bring an action “on behalf of the board” and against the board as a defendant.  However, a recent appellate decision has caused condominium law attorneys to take note that the association is a necessary party.

In an unpublished decision, the Appeals Court determined that a condominium trust is an indispensable party to a derivative action. In Hyman v. Conway, 105 Mass. App. Ct. 1118 (2025), the Court’s ruling provides that a failure to name a condominium trust as a party to such a lawsuit provides grounds for dismissal.

The plaintiff, Marita Hyman, owned a condominium unit at the Westport Point Condominium – a residential community consisting of seven “cottage style” units.   The defendants, Christine and John Conway, built an addition onto their condominium unit at Westport Point that extended into the Condominium’s common area.  The defendants did not seek Ms. Hyman’s approval for the addition – apparently in contravention of the Condominium’s governing documents as well as G.L. c. 183A, § 5.

Ms. Hyman filed suit in Bristol Superior Court claiming that the Conways improperly built an addition onto their unit – and into the Condominium’s common area – without seeking approval from all of the unit owners.  She brought two claims for declaratory judgment, seeking an order for the removal of a porch and stairs attached to the Conways’ unit, as well as declarations that such construction encroaches on a common area and violated the plaintiff’s “lawful right to review the proposed building plans” under the condominium bylaws.  The Conways moved to dismiss the complaint – arguing that Ms. Hyman lacked standing to advance a claim concerning the common area of the Condominium.  The common area of the Condominium, the Conways contended, was within the purview of the condominium trust – not the individual unit owners.  The Conways further argued that Ms. Hyman failed to join the condominium trust as a necessary party to the lawsuit.

The trial court (Sullivan, J.) ruled in favor of the Conways.  The Court construed Ms. Hyman’s complaint as a derivative action, as she had made written correspondence to the board of trustees and attempted to discuss the subject porch at an annual meeting in an apparent attempt to meet the pleading requirements of Rule 23.1 of the Massachusetts Rules of Civil Procedure.  The court then reasoned as follows: 

In a derivative action seeking to compel the action of an association which has failed to redress a wrong committed against the trust, the trust is both an entity which would be affected by the declaration and also one of the parties which would have had to answer to a judgment in the plaintiff’s favor to effect complete relief.  Thus, the trust is an indispensable party to this action.  (Internal quotations and citations omitted).

The court allowed the Conways’ motion to dismiss – finding that Ms. Hyman failed to join the condominium trust as a necessary party.  Ms. Hyman appealed the trial court’s decision.  Before reviewing the Appeals Court’s decision, it helps to have a general understanding of a properly pled derivative action.

A Derivative Action

A proper derivative action is a lawsuit brought by one or more unit owners to enforce a right of the association.  The derivative claim is an effective device in two primary circumstances: (1) to advance breach of fiduciary duty claims against sitting board members, and (2) to advance claims against a declarant or declarant-controlled entities while the declarant controls the board or when the declarant, as unit owner, still controls enough of the percentage interest in the condominium to elect its own slate of board members.

Procedural Requirements

The proper maintenance of a derivative claim requires strict compliance with certain conditions precedent as follows:

• Demand on the Board

Demand must be made on the board, requesting that it take action (i.e., institute suit against individual board members and/or the declarant) unless futile.

• Demand on the Unit Owners

Demand must be made on the unit owners to take action to compel the board to act or to otherwise secure the desired course of action (e.g., removal of the board) unless such request would prove futile (e.g., declarant owns or controls 90 percent of the beneficial interest) or too burdensome. 

In most circumstances, it is advisable to make the demand to avoid any claim that demand was not futile.  Counsel may have to take a calculated risk when there is a concern that such demand may telegraph an intention to file suit and cause the declarant to secret or convey assets.

Pleading Requirements

A complaint for a derivative action shall:

• be verified by oath,
• allege unit ownership at the relevant time or purchase from an owner who owned at the relevant time,
• allege efforts made to obtain action from the board,
• allege efforts made to obtain action from the unit owners, and
• allege reasons no such efforts were made.

In addition, in order for a derivative action to be maintained, it must appear that the plaintiff fairly and adequately represents the interests of the unit owners similarly situated.  Finally, the action cannot be dismissed or settled without (1) court approval, and (2) notice to the unit owners of same as directed by the court.

Common Pleading Deficiencies in Derivative Suits

The derivative suit is often misused or misapplied by unit owners.  There are several rules of thumb that can be employed in analyzing the appropriateness of derivative claims.  A derivate claim is deficient and subject to a motion to dismiss in the following circumstances:

1. The Claim Is Brought by Someone Other than a Unit OwnerThis criterion needs         no further elaboration.

2. The Wrong Complained of Was Committed Against Individual Unit Owners,         Not the Association

A wrong committed against a unit owner or unit owners may be brought by those individuals in their own name.  Owners who have suffered an injury have standing to bring claims in their own name (e.g., damage to unit interior, improper assessments, etc.).  Such claims are not properly brought as derivative claims.

3. The Recovery Is Sought for the Unit Owner(s) Alone

A unit owner’s request for recovery in a proper derivative action is made on behalf of the board.  When the recovery and/or relief requested is for, or on behalf of, the unit owners in their individual capacities, the claim cannot be properly brought as a derivative action.

4. The Claim Is for a Breach of Fiduciary Duty Owed to a Unit Owner

This claim is flawed for two reasons.  First, the board does not owe a unit owner any fiduciary duty.  Second, such claim clearly purports to advance (albeit otherwise flawed) a claim possessed by an individual owner, not the association.

5. The Lawsuit Is Advanced Without Naming the Association

We can now add another pleading deficiency to the list – failing to name the condominium trust as an indispensable party to the derivative action.  The Appeals Court affirmed the trial court's dismissal of Ms. Hyman’s lawsuit, reasoning that “[i]n such an action, the association must be joined as a party because the claim is alleged to be one that the association should be pursuing on its own behalf – here, a claim of unlawful expansion onto common elements.”  While unpublished (meaning that, although the case can be cited for its persuasive value, it does not constitute binding precedent), the Hyman decision provides a clear indication of how a court is likely to rule on this issue going forward.  A failure to name a condominium board as a party to a derivative lawsuit going forward would be a mistake.

Derivative claims present difficulties for even the most seasoned condominium law practitioners.  Although the trial court in this Hyman case was rather liberal in construing her lawsuit as a derivative claim, the procedural requirements of Rule 23.1, described above, actually prescribe fairly cumbersome prerequisites for filing a derivative action.  Care must be taken in order to avoid having such a lawsuit dismissed on a technicality, such as failing to name the condominium trust as a necessary party. 

A principal in the Quincy and Boston based firm of Moriarty, Bielan & Malloy LLP, Dave has been specializing in complex civil litigation at both the trial and appellate levels. He has extensive experience in the area of construction litigation. Dave’s practice is focused on construction, real estate, and condominium matters. His clients include condominium associations, real estate developers, general contractors, subcontractors, and individuals.  Dave can be contacted at brogers@mbmllc.com.

Do Condominiums Have the Right to Restrict Signs?

 

Gary Daddario

Q:  Our condominium association has a rule barring the display of signs in common areas or in locations visible from common areas. Some board members say we are required to make an exception for political signs. Is that true?

A:  The key question is whether condominium boards have the authority to restrict the right to freedom of speech, guaranteed by the Constitution. A decade

or so ago, we would have said unequivocally that the answer was yes. The courts had consistently recognized that only governmental entities are required to protect constitutional rights. Because condominiums are private property, not public spaces, because associations are not governmental entities, and because owners choose to live in their communities voluntarily, the courts had reasoned, condo associations could restrict Constitutional freedoms in ways that governmental entities cannot.

That legal consensus has shifted over time, however, and the courts have become more inclined to view condo associations as quasi-governmental actors, required to recognize, at least to some degree, the constitutional rights of their residents, particularly if the condominium relies on state law to support its claims or a portion of them.

Also worth noting, a Massachusetts Superior Court has held that residents of a condominium have free speech rights related to the state’s constitution. In addition, the Massachusetts Appeals Court has found that condominium associations may, in fact, be viewed as “government actors” in some cases. Specifically, the Massachusetts Appeals Court held that where a condominium seeks to use the state condominium statute to support its claim to recover legal fees against an owner accused of violating a sign prohibition, the condominium’s policy will be subjected to First Amendment scrutiny. And the New Jersey Supreme Court has ruled significantly that a condo association’s ban on all signs was unconstitutional because it prohibited the display of political signs, impinging on political speech which, the court noted, “lies at the core of our Constitutional speech protection…[which] is fundamental to democratic society.”

In considering a policy governing political signs, your board should consider these decisions, the judicial reasoning behind them, and what appears to be clear trend toward curbing the authority of condominium boards to govern their communities. The board should also consider the reaction of owners, many of whom may want to express their political views by displaying political signs. Some owners are likely to challenge a policy banning signs and there is a better than even chance that the courts will side with them.

But “reasonable” restrictions similar to those the courts have accepted for the display of flags are likely to pass muster with both owners and the courts. Following those guidelines, owners could display political signs but the board could restrict the “time, place and manner” of the displays.

That means you can dictate the size of the signs and where owners place them – on their own property, for example, and not in common areas, or, if in common areas, not on sidewalks or streets where they would create a safety hazard. You can also specify a period before and after an election when the signs can be posted. And you can restrict the “manner” of the display, prohibiting signs with flashing neon lights or loud noises that would constitute a nuisance to residents.

Any restrictions you impose must be content neutral, however. That is, you can’t dictate what signs can and cannot say, you can’t permit signs supporting one candidate or one position but not others, and enforcement must be consistent and even-handed.

Some owners may challenge any restrictions the board imposes, but reasonable restrictions on signs are less likely to anger owners and more likely to survive a challenge than a policy banning them entirely.

Gary Daddario is a partner in the Braintree firm of Marcus Errico Emmer & Brooks. P.C.  concentrating his practice in the field of community association law since 2003.  In addition to assisting Massachusetts clients, Gary also assists New Hampshire clients and manages the firm’s new location in Merrimack, New Hampshire. Gary’s email address is gdaddario@meeb.com.

A Condominium Association Roadmap for Handling Construction Defects

Seth Barnett

Construction defects range in severity, and when and how they are noticed. Some problems can be obvious, like a leaking roof, or subtle,

like cracking caused by soil problems that develop years after construction. Some problems may be easily fixed while others are potentially catastrophic. But in condominiums, the one element that is always true is the association will be responsible for repairing any defects in the common areas unless another responsible party can be held accountable.

When construction fails to deliver protection against damage and instead allows roofs to leak, walls to crack, plumbing to break or mold to grow, the construction may be considered defective and may be actionable.  Often, the ease of repair and the severity of the problem will influence whether or not the builder or contractor will make repairs absent the threat and force of litigation by an association.

With new construction, developers and contractors will frequently respond to the first complaints of a serious problem to address the issue. Of course, the hope is that effort proves successful and everyone is satisfied. When that satisfaction is short-lived, however, as it often is, and subsequent attempts to persuade the builder to correct the defect fail, it is time for the board and manager to seek answers from qualified professionals.

Construction defect scenarios are always fact-based; no one-size litigation advice will apply to all of them. But for boards and managers considering construction defect litigation, the following general guidelines highlight some of the issues that should be considered and the most important steps that should be taken:

1.  Commission an engineering study to identify the scope and source of the construction defects and deficiencies and the estimated cost of repairs.  An engineering study should be commissioned as soon as construction defects and/or deficiencies are discovered or suspected, or immediately upon the transition from developer control, whichever happens first. As to the latter point, even if there is no evidence of construction flaws at the time, the study can identify latent problems and it can provide documentation to support a future construction defect suit. If problems are identified pre-transition, when the developer still controls the board and access to association funds, owners may want to consider commissioning the study at their own expense, because the developer will have little incentive to identify problems he or she may be required to correct. Owners who foot the bill for the study may be able to recover the cost from the association after the transition. More importantly, is to be aware that the engineering study is often preliminary in nature, and should be kept confidential and protected against disclosure to anyone outside of the board (or unit owner committee) and its counsel.

 

2.   Pay attention to construction litigation deadlines.   There are two that are critical: 

 

·   The statute of limitations requires plaintiffs to file suit within three years of when they discover a defect or reasonably should have discovered it. If the board discovers widespread leaks but ignores them for four years, the litigation window will be closed, along with the possibility of requiring the developer to pay for the repairs.

 

· The statute of repose sets a flat six-year limit on construction defect suits. That clock starts running when buildings or improvements are “put into use” (usually when the certificate of occupancy is issued) or when they are “substantially completed,” whichever occurs first.

Buildings in a phased development may be subject to different statutory deadlines and the board will have to carefully track all of them.

If problems are identified before the transition, and if the developer control period is likely to extend past either of the statutory deadlines, owners may have to sue the developer on the association’s behalf, because the developer is unlikely to sue himself. This “derivative action” is hardly ideal, because owners would have to pay the legal expenses from their own funds. But it may be necessary to preserve the association’s future rights to recover damages from the developer.

3.   Evaluate the pros and cons of filing suit.  This cost-benefits analysis, which boards should undertake with the association’s attorney, should consider: the extent of the problems, the cost of repairing them, the likelihood the litigation will be successful and the prospects of recovering damages from the developer. As a general rule, the costlier the repairs and the stronger the association’s legal arguments, the more appealing the litigation option will be. The reverse is also true. Even if the claim is strong and the prospects of litigation success are high, it may make more sense for the association to pay for relatively modest repairs rather than incurring the legal costs and emotional strains that are byproducts of any litigation. In evaluating the litigation pros and cons, it is important for boards to remember that the goal is not to punish the developer, however justifiable or satisfying that may seem; the goal, rather, is to correct the problems while reducing as much as possible the association’s out-of-pocket costs.

Even under the most favorable circumstances, the association is unlikely to be made completely “whole.” For one thing, plaintiffs can’t recover legal costs in a construction litigation claim. Further, the damages a court awards may not entirely cover the cost of correcting the problems. The board’s cost-benefits analysis should consider those limitations. Also possibly arguing against a legal fight: pending litigation could make it difficult for owners to sell their units or refinance them.

4. Consult a lawyer as soon as the board identifies or suspects suspect construction defects.  Making the litigation decision and planning the litigation strategy early can reduce the association’s legal costs and improve its chances of litigation success.

5.   Review the association’s governing documents and relevant state laws.  Either or both could limit the association’s ability to sue the developer. For example, some documents require boards to obtain prior owner approval or to attempt arbitration before initiating a suit. Statutes in some states (Massachusetts isn’t one) require plaintiffs to give developers a chance to correct problems before filing suit against them.

6.   Limit the damage.  The developer may be responsible for the faulty roof, but he won’t be required to repair the water damage to units and common area that occurred while the board was deciding whether to sue. The board must take reasonable steps to mitigate the damage. The association may be able to recover the cost of essential repairs if it successfully sues the developer, but the board should notify the parties being sued that the repairs are being made and document them.

7. Don’t expect insurance to cover construction defect damage.  Most policies specifically exclude this coverage

8. Negotiate before filing suit.  Litigation may be essential but it is rarely the first choice. Allow contractors or developers to make necessary repairs if they are willing and able to do so. But have an outside expert (the firm that did the engineering study, for example) dictate the scope of the repairs required, monitor the work and verify that the repairs have resolved the construction defects. The board should sign an agreement releasing the developer from liability only after the repairs have been completed and approved by the association’s expert, and it should be reviewed by the association’s counsel before it is signed. Also, the release should apply only to the specified defects and the repairs addressing them. The association should not release the developer from additional defects it may discover in the future.

Seth is a partner of the Braintree firm of Marcus Errico Emmer & brooks, P.C.   He represents clients in a robust range of civil litigation and regulatory matters, including in the areas of construction, land use and zoning, condominium law, employment law, contract matters, and disputes involving state and local governmental entities. He has practiced before state and federal courts and state agencies in Massachusetts and has successfully represented clients at trials and in appeals. Seth’s email address is sbarnett@meeb.com.

 

Significant New Fannie Mae and Freddie Mac Lender Requirements

 Ryan R. Severance

In September, the Fannie Mae and Freddie Mac condominium and cooperative project eligibility standards were updated. Fannie Mae, otherwise known as the Federal National Mortgage Association, and

Freddie Mac, otherwise known as the Federal Home Loan Mortgage Corporation, are government-created entities that buy mortgages on the secondary market and back others, including mortgages granted by private lending institutions large and small. As a result, Fannie Mae and Freddie Mac have a considerable influence over the national mortgage lending market. Importantly for condominiums and cooperatives, they require a project eligibility review in order to approve unit mortgages for their programs. This project eligibility review, which is only for condominiums and cooperatives with five or more units, covers a wide range of subjects: ownership structure and composition, reserve funds, litigation, insurance, and – importantly and the subject of the changed standards – the repair status of any condominium or cooperative building.

The repair status of condominium and cooperative buildings found itself in the spotlight after the tragic collapse of the Champlain South Tower in Surfside, Florida in June 2021. In January 2022, in response to that tragedy, Fannie Mae and Freddie Mac issued temporary revised project eligibility requirements as to projects with potentially unsafe conditions.  Fannie Mae and Freddie Mac have now finalized their project eligibility requirements as to the condition of condominiums and cooperative buildings (See Fannie Mae Selling Guide Announcement SEL-2023-06: here (https://singlefamily.fanniemae.com/media/36376/display and Freddie Mac Guide Bulletin 2023-15: here (https://guide.freddiemac.com/app/guide/bulletin/2023-15).

These updated and clarified standards for eligibility of condominium and cooperative buildings include the difference between critical repairs and routine repairs, the role special assessments play in review of maintenance concerns, the role of any inspections and reports received, and the documentation that lenders may need to collect to confirm maintenance status. While these finalized requirements are not dramatically different than the previous temporary requirements, they do provide additional context beyond those of the temporary requirements as to what lenders will be seeking as they review mortgagee questionnaires for eligibility. For that reason, in addition to the continued requirement that board members act to properly maintain, repair, and replace their project elements, boards and property managers will need to be sure to provide appropriate information on those mortgagee questionnaires, to ensure their condominium or cooperative project remains eligible for loans to be bought or backed by Fannie Mae and Freddie Mac.

The Importance of Eligibility

Eligibility is important for a condominium or cooperative to maintain. In the event that a condominium or cooperative is deemed to be “ineligible,” loans on its units will be rendered ineligible for purchase or securitization by Fannie Mae and Freddie Mac. Practically, this will mean that unit owners and prospective unit purchasers will not have the same number of options for banks at which to obtain or refinance mortgages. While some small lenders may continue to lend despite eligibility concerns, most lenders will be unable to do so. For this reason, unit owners who are selling their units may find sales terminated due to the inability of prospective buyers to obtain mortgages from their preferred lender or may find that they cannot refinance with their chosen lender. For these reasons, the concept of Fannie Mae and Freddie Mac eligibility is important for the marketability and value of a condominium or cooperative project’s units.

Routine Repairs versus Critical Repairs

With the updated lender requirements, Fannie Mae and Freddie Mac have provided a definition of routine repairs versus critical repairs that are performed to project elements. Examples of elements that Fannie Mae and Freddie Mac are concerned about are “sea walls, elevators, waterproofing, stairwells, balconies, foundation, electrical systems, parking structures or other load-bearing structures.”

“Routine repairs” are defined by Fannie Mae and Freddie Mac as those that are not considered critical and include work that is:

·       preventative in nature or part of normal capital replacements (for example, focused on keeping the project fully functioning and serviceable); and

 

·       accomplished within the project’s normal operating budget or through special assessments that are within guidelines.

“Critical repairs” are defined as those “repairs or replacements that significantly impact the safety, soundness, structural integrity or habitability of the project’s building, or the financial viability or marketability of the project.” These critical repairs include, but are not limited to:

1.   Material deficiencies, which, if left uncorrected, have the potential to result in, or contribute to, critical element or system failure within one year;

 

2.   Any mold, water intrusions, or potentially damaging leaks to the project’s building(s);

 

3.   Advanced physical deterioration;

 

4.   Any project that failed to pass state, county, or other jurisdictional mandatory inspections or certifications specific to structural safety, soundness, and habitability; or

 

5.   Any unfunded repair of more than $10,000 per unit that should be undertaken within the next 12 months (this does not include repairs made by the unit owner or repairs funded through a special assessment).

While these definitions are helpful, the interpretation of any repair will be up to the lender representative reviewing the information provided on a mortgagee questionnaire.

In addition, there is a carve out for deferred maintenance or damage that is “isolated to one or a few units that does not affect the safety, soundness, structural integrity, or habitability of the project.”

Special Assessments

Fannie Mae and Freddie Mac have also updated their requirements for eligibility based on the review of special assessment records. Boards and property managers will now be expected to provide extensive records of special assessments to lenders to ensure eligibility of the condominium or cooperative project, regardless of whether the special assessment is planned or currently being collected. Lenders are expected to collect the following information:

1.   The purpose of the special assessment;

 

2.   The date the special assessment was approved;

 

3.   Whether the special assessment is planned or being collected;

 

4.   The amount of the special assessment and how much remains to be collected; and

 

5.   The expected date that the special assessment will be paid in full.

Any special assessment associated with a critical repair, which has not yet remediated the critical repair issue, will deem the condominium or cooperative project ineligible. It is important for boards and property managers to provide complete information as to special assessments to lender representatives to maintain eligibility.

Inspection Reports

The eligibility standards have also been updated to specify in more detail the inspection records that boards and property managers will need to provide, which includes any structural or mechanical inspection report or reports related to the condominium or cooperative project provided by any vendor, federal, state, or local authority within the last three years prior to the review date. Any statement in such records that indicates that critical repairs are needed, an evacuation order is in effect, and/or regulatory action is required will deem a condominium or cooperative project to be ineligible. If any report states that critical repairs are needed, the project will be deemed ineligible until such time as an engineer’s report or “substantially similar document” confirms that the concerns have been resolved. Unfortunately, Fannie Mae and Freddie Mac have not offered any further definition of what “inspection report” means and, thus, board members and property managers will need to engage in a case-by-case review of any form or information received from vendors, federal, state, or local authorities to confirm whether it qualifies as a “structural or mechanical inspection report.”

Documentation Requirements

Fannie Mae and Freddie Mac now have more expansive documentation requirements for lenders to review in order to confirm that condominium or cooperative project conditions do not require critical repairs. The documentation requirement is relatively open ended, which may result in lender representatives seeking documentation well beyond what has traditionally been expected. Fannie Mae and Freddie Mac guidelines provide the following examples of documentation that boards and property managers should be prepared to provide:

1.   Board meeting minutes;

 

2.   Engineer reports;

 

3.   Structural and/or mechanical inspection reports;

 

4.   Reserve studies;

 

5.   A list of necessary repairs provided by the board or its management company; and/or

 

6.   A list of special assessments provided by the board or its management company.

To any extent that a lender is requesting documentation that may be unreasonable or – most importantly – protected by privilege, boards and property managers should seek counsel.

Approach to the New Requirements

We would expect mortgagee questionnaires to be updated by lenders in the face of these new requirements. There is rarely a singular approach to completing all lender questionnaires, and each questionnaire will likely need to be reviewed on a case-by-case basis. This is particularly the case where lender representatives are given some leeway as to the materials to review to determine eligibility under the new guidelines. Most importantly, as boards and property managers review updated mortgagee questionnaires in light of these new requirements, they should consult with experienced condominium counsel to craft the appropriate response as to critical repairs. We expect to work closely with boards and property managers as lenders revise their form mortgagee questionnaires and may have further updates as we see additional issues raised.

An associate in the real estate department of Moriarty Bielan & Malloy LLC, Ryan’s practice focusses on the general representation of condominium associations, including condominium document interpretation, drafting, enforcement, and collections. Ryan’e email address at MBM is rseverance@mbmllc.com.

 

Tips for a Smooth Transition from Developer to Unit Owner Control

Heather M. Gamache

At some point every condominium transitions from developer to unit owner control. Unlike some states, Massachusetts does not regulate the precise

timing of the transition. Instead, the Declaration of Trust generally provides for a triggering event, such as the sale of all the units by the declarant, to set in motion the transition from developer to unit owner control. 

It is prudent at the time of turnover to carefully review the financial, legal and physical status of the condominium. Proper planning, and guidance from professionals, will lead to a smooth transition.  This article offers 4 steps for an association to achieve a smooth transition to unit owner control.

 

1.    Create a Transition Team

When the “triggering event” for turnover is approaching, a committee of unit owners should be created to liaise with the developer.  The committee may be comprised of unit owners who anticipate transitioning into trustee positions or unit owners appointed by the developer.  The property manager should also sit on the committee and will serve an important role during the transition process.

2.    Engage a Property Manager

If a property manager is not already engaged, the transition team should agree on and retain a certified community manager.  The property manager will be an invaluable asset to the transition team and newly elected trustees and will assist with communicating with the developer and effectuating the critical aspects of the transition.

3.    Engage Professionals

 

·       Attorney: an experienced condominium lawyer can guide the newly elected trustees through the myriad of tasks and due diligence that should be completed during the transition process including documents to review and obtain, other professional services to seek out and professionals to retain, and to answer any legal questions that may arise.  An attorney can also review the governing documents of the condominium and provide an understanding of the organizational structure, and decision-making process of the association.

 

·       Accountant: an independent account should be retained to perform a certified audit of the prior operations of the association to satisfy the unit owners that financial management and allocations by the developer and the developer-controlled board have been fair, reasonable and accurate.  Likewise, budgets for previous years and the current fiscal year should be examined to verify appropriate allocations and identify opportunities for cost savings and improved service. 

 

·       Engineer: a professional licensed engineer should be retained to analyze and inspect the common elements of the condominium and to identify any apparent construction defects or hidden defects.

 

4.    Audit Contracts and Other Documents

During the development of the condominium and the pendency of the developer-controlled board, the developer will undoubtedly have executed contracts and other agreements on behalf of the association.  These may include contracts with third-party providers of supplies and services to the condominium which should be reviewed to determine whether they are optimal for the condominium or should be rebid.

The transition team and/or newly elected trustees should also obtain maintenance logs, complaint logs and letters and work order logs maintained for the property and undertake a thorough review of the records to obtain an understanding of any issues and how any such problems have been addressed.  Any prior engineering reports, including commissioning reports (such as air balance reports) and engineering reports investigating any problems or recommending repairs should also be obtained, together with as-built plans and specifications for the building.

In addition, all bank accounts of the condominium should be identified, signatures transferred, and funds of the condominium, particularly the reserve funds, accounted for.  The transition team and/or newly elected trustees should also obtain and review any insurance policies held by the association.

The steps outlined above provide a basic roadmap for an association to achieve a smooth transition from developer to unit owner control. If your association or newly elected board has questions about the transition process, you should consider consulting with an experienced condominium lawyer who can offer valuable advice and guidance on the subject.

Heather Gamache is a principal of the firm of Moriarty, Bielan & Malloy LLC and member of the firm’s litigation and condominium departments. She is an experienced trial attorney with seventeen years of litigation and trial experience in state and federal courts. Heather regularly represents residential and mixed-use condominium associations in a broad range of litigation matters including actions for declaratory judgment, contract disputes, construction defect claims, and unit owner disputes.  Heather’s email address is hgamche@lawmtm.com.