SJC Confirms Developers’ Right to Retain Interest in Condo Land
By Lawrence P. Heffernan and Clive D. Martin
First published in Banker & Tradesman, The Real Estate, Banking and Commercial Weekly for Massachusetts April 28, 2003
Massachusetts condominium owners, developers, title insurers and conveyancers are breathing a sigh of relief. A recent Massachusetts Supreme Judicial Court decision overturned a lower court ruling that threatened scores of condominium developments across the state. The decision overturned an earlier ruling that said developers did not have a right to remove land from a condominium without getting the approval of all of the mortgagees, a practice commonly known as “phasing.” In a significant decision for condominium developers, owners and lenders, the Massachusetts Supreme Judicial Court recently held in Queler, et al. vs. Skowron, et al. that the developer of a phased condominium may reserve an interest in the condominium property by which a portion of the condominium property may revest in the declarant if a specified condition occurs. In so doing, the SJC overruled an earlier decision of the Massachusetts Appeals Court which had vexed condominium developers, owners and conveyancing attorneys. The Queler case concerned the Bishop’s Forest Condominium and the adjoining Bishop’s Forest II Condominium in Waltham. The Bishop’s Forest Condominium master deed stated that the condominium would be developed in phases. The declarants reserved the right to add phases, but were not required to do so. The master deed also provided that any land that had not been developed and phased into the Bishop’s Forest Condominium within seven years would revest in the declarants or their successors.
Lawrence P. Heffernan (above) and Clive D. Martin are attorneys with Robinson & Cole (www.rc.com), a fullservice law firm with offices in Boston and New York City, as well as Hartford, Stamford and New London, Conn.
Between January 1988 and June 1994, the declarants added phases so that the Bishop’s Forest Condominium consisted of 269 condominium units. In September 1994, the successor to the original developers removed two lots from the Bishop’s Forest Condominium by recording a removal certificate at the registry of deeds and conveyed that land to another developer who, in turn, established the Bishop’s Forest II Condominium.
Owners’ Rights
The two condominiums coexisted and the Bishop’s Forest II unit owners were granted rights to use various facilities at the Bishop’s Forest Condominium such as swimming pools, tennis courts and parking lots. A dispute arose between the two condominiums over payment for the use of these facilities and litigation ensued. In the course of the litigation, the Bishop’s Forest Condominium trustees challenged the validity of the Bishop’s Forest II Condominium based upon a 1997 decision of the Massachusetts Appeals Court in Levy vs. Reardon. The facts underlying the Levy case, which arose out of a dispute over the apportionment of pool expenses, were similar to the Bishop’s Forest controversy. In Levy, the developers of The Hilltop Gardens Condominium in Norwood, reserved the right to remove land from the condominium. Subsequently, the developers removed three parcels of land from Hilltop, established the Summit Place Condominium thereon and reserved an easement for Summit unit owners to use a swimming pool at Hilltop. In holding that the pool easement was invalid, the
Massachusetts Appeals Court ruled that the Summit land had not been properly removed from Hilltop in accordance with the Massachusetts condominium statute, Massachusetts General Laws Chapter 183A, because the developers had not obtained the consent of all the Hilltop unit lien holders as required by Section 19 of the statute. In effect, the Court said that Summit was built on Hilltop’s land. The Levy decision sent shivers through condominium developers and owners, mortgage lenders and conveyancing attorneys because the practice of reserving removal rights in condominium master deeds had been widely employed by condominium developers and their attorneys across Massachusetts. Faced with a similar challenge to the validity of their condominium, unit owners and mortgagees at Bishop’s Forest II Condominium filed suit in the Land Court to establish their title. On cross motions for summary judgment, the Land Court distinguished the case from Levy and declared that Bishop’s Forest II Condominium was a valid condominium legally separate and distinct from the Bishop’s Forest Condominium. The Supreme Judicial Court then took the case on direct appellate review. In its decision, the SJC noted that a condominium developer has the same right as any landowner to impose limitations or conditions on land that it conveys such that title to the land will revert back to the developer either automatically or upon the occurrence of a stated event. When the Bishop’s Forest Condominium developers established that condominium, they imposed such a limitation by providing in the master deed that any phases that were not developed and added to the condominium would revert back to the developers or their successors. The court observed that Massachusetts General Laws Chapter 183A, Section 2, anticipates that a developer may create or maintain interest in the property submitted to the condominium regime. The SJC also ruled that the retention of such an interest did not run afoul of the condominium statute’s provisions concerning division and removal of common area because the interest retained by the developer never became part of the condominium area. In so ruling, the SJC emphasized that Massachusetts General Laws Chapter 183A is “essentially an enabling statute ... providing developers and unit owners with planning flexibility.” The Levy case had cast a long shadow over the condominium industry and communities. If the decision had been allowed to stand, it would have pitted neighboring condominiums against each other and created serious exposure for developers, lenders, condominium owners, title insurers and conveyancing attorneys. The state’s Supreme Judicial Court, however, concluded its decision in Queler by expressly overruling the Levy decision and lifted a huge weight from the shoulders of the condominium community.