Trs. of the Cambridge Point Condo. Tr. v. Cambridge Point, LLC - 478 Mass. 697, 88 N.E.3d 1142 (2018)

Rule:

Absent overreaching or fraud by a developer, there is no strong public policy against interpreting Mass. Gen. Laws Ann. ch. 183A, § 10(a) to permit the developer and unit owners to agree on the details of administration and management of the condominium unit. It is overreaching for a developer to impose a condition precedent that, for all practical purposes, makes it extraordinarily difficult or even impossible for the trustees to initiate any litigation against the developers regarding the common areas and facilities of a condominium. Such a provision has all the same flaws as a waiver of liability provision — which would be found void as contravening public policy — but without the transparency of such a provision.

Facts:

In 2007, Cambridge Point, LLC, as the declarant of a predominantly residential forty-two-unit condominium in Cambridge, filed in the Middlesex South District registry of deeds a master deed, a declaration of trust, and the bylaws of the Cambridge Point Condominium Trust (trust). The trust's board of trustees (trustees) is responsible for administering the affairs of the trust. Among the powers and duties committed to the trustees is the authority under § 1(o) of the bylaws to “conduct[ ] litigation as to any course of action involving the common areas and facilities.” However, this authority is limited by a condition precedent that requires the trustees, before initiating any litigation against anyone who is not a unit owner, (1) to deliver a copy of the proposed complaint to all unit owners; (2) to specify a monetary limit of the amount to be paid as legal fees and costs in the proposed litigation; (3) to inform all unit owners that, if they consent to the initiation of the litigation, they will forthwith be separately assessed this amount of legal fees and costs as a special assessment; and (4) within sixty days after a copy of the proposed complaint has been delivered to the unit owners, to receive the written consent of not less than eighty per cent of all unit owners to bring the litigation. 

In 2012, the trust began receiving complaints from unit owners about pervasive water leaks, which were infiltrating and damaging the building envelope, eventually causing a mold infestation both on the exterior sheathing of the building envelope and within individual units. An investigation conducted by an engineering firm in 2013 identified myriad design and construction defects with the condominium. When the trust's demands that the developers repair the defective construction proved futile, the trust sought out a contractor to repair the building, who estimated the costs of repair as exceeding $2 million. On April 3, 2014, after having delivered to the unit owners the proposed complaint and a statement of the estimated legal fees and costs of the litigation, but without having received the written consent of at least eighty per cent of the unit owners, the trustees filed a verified complaint in the Superior Court against the developers of the condominium alleging negligence, breach of the implied warranty of habitability, negligent misrepresentation, fraudulent misrepresentation and concealment, and breach of fiduciary duty. In their complaint, the trustees also sought a judgment declaring that § 1(o) of the bylaws is void. The trustees moved for partial summary judgment on their claim seeking a judgment declaring that § 1(o) of the bylaws is void. The first motion judge denied the motion.  The developers then moved to dismiss the complaint on the ground that the trustees had not obtained the minimum level of consent required under § 1(o). The second motion judge allowed the motions to dismiss, concluding that the act “does not prohibit adoption of a bylaw that requires a percentage of unit owners to consent to litigation before litigation is filed by the trustees of a condominium,” and that the requirements of § 1(o) did not constitute “overreaching” in contravention of public policy where the unit owners knew or should have known of these requirements prior to purchasing a unit.

Issue:

Is § 1(o) void for contravening public policy?

Answer:

Yes.

Conclusion:

Even if the developers or their affiliates did not retain a twenty per cent ownership interest, the provisions of § 1(o), in their entirety, make it extraordinarily difficult for the trustees to sue the developer for defective construction and design of common areas or facilities. First, the bylaw provisions require the consent of at least eighty per cent of all unit owners, so if the developers retain any ownership interest in the units, the trustees would need to obtain the consent of more than eighty per cent of the unit owners who are not affiliated with the developers — and perhaps all of them, if the developers have retained nearly twenty per cent of the units. Second, because the trustees must obtain the affirmative consent of at least eighty per cent of all unit owners, any unit owner who fails to respond to the request for written consent is treated as if he or she refused such consent, regardless of whether the unit owner is ill, has rented out the unit and is presently unavailable, or is simply unwilling to make a decision. Third, the bylaw provides that the entirety of the legal fees and costs to be incurred from litigation must be “separately assessed as a special assessment effective forthwith” upon consent, even though the legal fees and costs would be incurred and billed during the life of the litigation. Fourth, the trustees have only a brief time frame of sixty days to obtain the required written consent from the unit owners. Cumulatively, these requirements function as a formidable hurdle that the trustees are required to surmount before commencing litigation against the developers.

In sum, it is “clear [from] the acts of the Legislature [and] the decisions of this court,” that the public policy of Massachusetts strongly favors the safety and habitability of homes. In order to effectuate this public policy, the Court has consistently recognized the rights of individuals to obtain legal redress when their homes fail to meet minimum standards. These rights — whether grounded in the implied warranty of habitability or in the building code as enforced through G. L. c. 93A — are so vital that we have consistently held that they cannot be waived. This clear expression of public policy leads the conclusion that a condominium bylaw provision that effectively limits the ability of unit owners to obtain legal redress for violations of these rights must be carefully scrutinized to determine whether it contravenes that public policy. For example, if a bylaw were to provide that the unit owners waive all claims against the developers for any defects in construction, we would surely declare such a bylaw void as contravening public policy to the extent that it sought to waive the unwaivable claims based on the implied warranty of habitability and G. L. c. 93A, § 2 (a). And the Court surely would not enforce such a sweeping waiver to the extent that it would shield the developers from claims of gross negligence. But the bylaw provision here, in practical effect, is even more sweeping and more unfair than this hypothetical bylaw provision. It is more sweeping because, as here, where the developers and their affiliates control more than twenty per cent of the units, this provision effectively prevents the trustees from bringing any claim in litigation against the developers for defects in construction or design, regardless of whether the claim is for a breach of the implied warranty of habitability, a violation of G. L. c. 93A, or any other claim (including gross negligence, fraud, or intentional misconduct). And it is more unfair than the hypothetical bylaw provision because its practical effect would likely not be immediately apparent to a reasonable prospective purchaser. If, under the hypothetical bylaw provision, unit owners were required to waive all claims against the developers for defects in construction or design, a prospective purchaser — if he or she had reviewed the bylaws in the registry of deeds — would know that he or she would have no legal recourse against the developers for any defects in construction or design of the common areas and facilities of the condominium. A reasonable prospective purchaser, however, would not necessarily understand from the terms of § 1(o) the absence of legal recourse (or the severity of the impediments to legal recourse), because the prospective purchaser would not know how many condominium units the developers intended to retain, and for how long. Without this information, a prospective purchaser could not know whether § 1(o) is simply a provision that requires consent from eighty per cent of the unit owners before initiating litigation, or a provision that, in effect, will shield the developers from any and all legal claims by the trustees.