From Superlien Statute to ‘Drummer Boy’: Building the Legal Infrastructure for Condominiums

Published on: November 5, 2018

Seth Emmer

When MEEB opened its doors in 1993, the legal landscape for condominiums was sparse. “There were maybe 100 cases nationally, and only four appellate cases in Massachusetts,” Seth Emmer, one of the firm’s founding partners recalls.” There was virtually no guidance anywhere,” he adds. “We were making it up as we went along.”

Doug Errico

Over the past 25 years, that barren landscape has been filled in with precedents and policies, laws and regulations, test cases brought, won and lost. Today, Doug Errico, another founding partner, says he can point to “a stack of cases over a foot tall.” And MEEB has won or helped to win many of those decisions, drafted or helped to draft many of the laws, crafted or helped to craft many of the policies that form the solid infrastructure supporting the condominium industry today.

We’ve identified what we believe to be the most significant court decisions and legislative initiatives in which the firm has been involved. The list isn’t all-inclusive. It doesn’t pretend to include every development of note for the condominium industry. But it does include a lot of them.

SUPERLIEN(S)

Any list of the most significant legislation for Massachusetts condominiums, no matter who compiles it, will put the state’s Superlien statute on top. It is impossible to overstate the importance of this 1992 law.

“It was a game changer,” Emmer says. Life saver might be more accurate. The condominium environment at the time (early 1990s) was perilous, to say the least. The economy had crashed, taking the housing market down with it. Investors and financially stressed owner occupants were walking away in droves from the condominium units they had purchased, draining condo associations of the common area fees they needed to pay essential expenses, and leaving many on the brink of financial collapse.

Stephen Marcus

For Stephen Marcus, the solution seemed obvious and fair: A law giving an association’s claim to unpaid common area fees and the legal costs related to collecting them priority over the first mortgage. Mortgage lenders, not surprisingly, fiercely opposed the ideal Skeptics, many of them in the condominium industry, assumed that opposition would ensure the measure’s defeat. But Marcus thought the battle was both worth fighting and winnable.

A Useful Book

“We were neophytes and we weren’t lobbyists,” he says. “And I think the bankers underestimated us.” He remembers visiting lawmakers at the time, armed with his arguments in favor of the superlien and a book listing the other states that had enacted them. “So when opponents said the idea was ‘unheard of’ and ‘totally foreign to real estate,’ I read off the list of states that already had superlien laws. The only difference between us and the Superlien opponents,” Marcus says, is “we were prepared and they weren’t. We had this little book and they didn’t.”

He remembers the stunned response when the co-chair of the Housing Committee told a banking industry lobbyist during a public hearing, “Get this through your craw – this bill is going to pass.” And it did.

“We knew it was the right thing for condominiums,” Marcus says, “but we didn’t know how it would play out until it was enacted.” It played out dramatically in 2008, when the Great Recession again throttled the economy and the housing market. Because of the Superlien, Marcus says, the Massachusetts condominium industry sailed through that downturn relatively unscathed. “Condominiums missed everything, and the lenders’ collateral was enhanced ─ a win-win.”

A few lesser known details about the enactment of the Massachusetts law:

  • Although Marcus spearheaded the effort to win legislative approval, all of MEEB’s founding partners helped to draft the massive measure, and their collaboration “made us closer,” Errico says. “It cemented our belief that we could form a viable partnership.”
  • Lenders thought the law passed in 1991 unintentionally permitted an unlimited superlien. When lawmakers were considering corrections the following year, bankers pointed out that Fannie Mae and Freddie Mac allowed only a six-month priority. “We agreed that ‘unlimited’ wasn’t a good term,” Marcus says, “so we suggested making it a six-month lien, instead.”
  • The blizzard of changes lawmakers approved to correct drafting errors included a seemingly minor tweak that turned out to have enormous implications. The original language referred to priority lien – singular. Richard Brooks suggested, “Why not say liens, plural – and no one objected,” probably, he suggests, because they were focused on other more contentious details. Twenty years later, when critics challenged the use of “rolling liens” in the law suit known as Drummer Boy, the Supreme Judicial Court (SJC) cited the reference to ‘liens” plural in the statute to justify the conclusion that the law contemplated and supported the rolling- lien concept.
  • Also little noted at the time was the insertion of language in the corrective legislation that allowed associations to charge for the preparation of 6(d) certificates. “Only the bankers were involved in the discussions,” Brooks notes, “and they weren’t concerned, because it didn’t affect them.

Janet Aronson

The Massachusetts priority lien wasn’t the only one in which MEEB had a hand. Janet Aronson, a partner who has been with the firm since it was founded, helped secure passage of both New Hampshire’s Superlien provision and an amendment to the Rhode Island Superlien law, clarifying that an association foreclosure would erase the first mortgage lender’s lien – a point some Rhode Island courts had disputed.

DEVELOPMENT RIGHTS

Several partners collaborated on the drafting of a 1998 amendment to the Massachusetts condominium statute allowing associations to create new development rights with the approval of 75 percent of unit owners, replacing what had been a 100 percent approval requirement. They also worked on a related amendment approved four years later, which eliminated the 100 percent owners’ vote required to approve limited common elements, authorizing boards to grant exclusive rights to owners as long as adjacent owners didn’t object.

EQUAL RIGHTS

Richard Brooks

Many of the legislative battles MEEB attorneys have led or supported have involved efforts to secure fair treatment for condominium associations. Municipal trash collection is one example. Brooks is known as ‘the trash man’ for his successful campaigns to persuade local officials to offer condominium communities the same trash collection services they provide owners of detached single-family homes. Assisting condo associations, singly or in groups, at no charge, Brooks has helped win the trash battle in 36 communities, “and I’m still getting requests,” he says.

Pursuing condominium rights on a different front, Seth Emmer successfully challenged cities and towns that were charging condominium communities commercial rates for water. Arguing that condominiums are taxed individually as single- family homes and should pay for water on the same basis, Emmer says, he “persuaded these municipalities to come around.”

NATIONAL ISSUES

MEEB has tackled national condominium issues as well as local, state regional ones. And Marcus has led or participated in most of these initiatives. “Mainly, we were trying to make not-so-good legislation and regulations better – more user friendly for condominium associations or at least less damaging to them,” he says. These efforts have included:

  • Winning a “carve-out” in the 1988 Fair Housing Amendments Act, allowing condominium developers to create “55 and older” communities without violating laws prohibiting discrimination based on age.
  • Winning another important carve-out in the Bankruptcy Reform law enacted in 1996 and later amended, clarifying the right of condominium associations to collect fees from condominium owners after they have filed for bankruptcy protection. Unlike many of the other issues he’s addressed, Marcus says, “this one wasn’t overly controversial. It flew through.”
  • Persuading the Federal Housing Administration (FHA) to ease some burdensome procedures for certifying condominium communities as eligible for FHA financing to purchase or refinance individual units.
  • Persuading Congress to revise legislation that Marcus says would have given telecommunications companies “free reign” to install satellite dishes anywhere in a condominium community. The revisions allow associations to restrict the size and location of equipment installed in common areas.
  • Pushing back on a national effort, spearheaded by officials at the Federal Housing Finance Authority (which regulates Fannie Mae and Freddie Mac) to undermine Superlien protections for condominium associations. Marcus headed an ad hoc group of Massachusetts condominium executives that persuaded members of the Massachusetts Congressional delegation to help defend the priority lien ─ a fight that continues today.

COURT BATTLES

In the foot-high stack of cases to which Errico referred earlier, these are the ones the partners flagged as the most significant.

Noble v. Murphy ─ In this 1993 case, a condominium owner challenged an association rule barring pets, arguing that there was “no compelling reason” justifying the restriction. There was no case law on this point at the time, Errico recalls, “and we used to hear all the time that owners didn’t have to obey rules they thought were unreasonable or unfair. We argued that it doesn’t matter whether owners think a rule is justifiable or not; if the requirement is in the recorded documents, unless it is patently discriminatory or illegal, owners have to abide by it. The burden is on owners either to comply or prove why a restriction isn’t enforceable.” The state Supreme Judicial Court (SJC) agreed, and, Errico notes, that decision “cleared away a clutter of silly arguments.”

It also set a national precedent, Seth Emmer, who argued the case, observes. However, the session at which oral arguments were presented did not seem to begin well, he recalls. Apologizing for being late, one of the judges explained, “My dog was sick and I had to take him to the vet.” Emphasizing that the association’s pet ban applied to all pets, and not just to dogs, Emmer noted that board members had occasionally required owners to remove fish tanks. This prompted one judge to ask, “Goldfish, Mr. Emmer?” to which Emmer replied, “If we didn’t, you would say the enforcement was inconsistent.”

Trustees of the Prince Condominium Trust v. Prosser ─Building on the critical principle established in Noble (the authority of associations to establish and enforce reasonable restrictions), this 1992 SJC decision flatly rejected the argument that owners could withhold payment of common area fees while disputing them. Likening association fees to property taxes (which owners must pay before challenging them), “the SJC affirmed that condominium common area charges are the lifeblood of an association, and there is no right of offset,” Errico explains. A contrary decision, he notes, “would have been disastrous.” The following year, a Massachusetts Appeals Court went a step further, deciding in Blood v. Edgar’s Inc. that even if an assessment were “flat-out illegal” on its face, owners had to pay it anyway. “This was another milestone in the evolution of decisions about condominium fees,” Errico says, “establishing that owners must pay them first and ask questions later.”

Spinnaker Island and Yacht Club Holding Trust v. Board of Assessors of Hull ─ Emmer, who handled much of MEEB’s appellate work, handled this case as well, challenging an argument advanced by many municipalities at the time, that a condominium association’s development rights were actually personal property that could be taxed. “We argued that the condominium statute stated clearly that only condominium units could be taxed; there was no room for ambiguity – common areas were not subject to taxation.” When opposing counsel argued that this approach didn’t make sense, Emmer recalls, the appellate judge replied (and the decision stated) that it was up to the Legislature to make that determination, “and only the Legislature could change the law.”

Town of Milford v. Boyd ─ Richard Brooks handled this seminal case, in which the SJC ruled that a municipality that took a condominium unit for non-payment of taxes became the unit’s owner and assumed responsibility for paying its common area frees. “That seems logical now,” Brooks notes, “but it was a radical, outlandish theory then. Frankly,” he adds, “we didn’t think the court would rule against the municipality.”

Berish v. Bornstein ─ The SJC established two critical points– In this 2002 decision:
• The implied warranty of habitability enjoyed by the owners of single-family homes applies to the owners of condominium units; and
• The warranty extends to common areas and can be asserted by the association of condominium owners, which collectively owns them.

“This was a breakthrough case for Massachusetts,” notes Ed Allcock, who helped write the amicus brief CAI-New England submitted. Under the prevailing legal view at the time, Allcock explains, a community association had the sole ability to litigate issues involving common areas, but the association could not pursue construction defect claims involving common areas, because it had no contract with the developer. That legal Catch-22 left associations with no remedy for common area defects. “The SJC saw through that technical knot and unwound it,” Allcock says.

Wyman v. Ayers Properties ─ Twelve years later, the SJC addressed an issue it had declined to consider in Berish: How, if at all, to apply the “economic loss rule” to condominium associations. The rule holds that a property owner can’t sue a developer for negligence unless an identified defect has damaged the property. In a condo association, Allcock explains. That means if a roof found to be defective hasn’t leaked yet, the association can’t sue the developer for negligence. In this case, the SJC ruled that the economic loss rule doesn’t apply to claims of common area damage resulting from builder negligence, giving associations an essential legal weapon they had previously lacked.

Office One Inc. v. Lopez ─ MEEB did not typically handle X-rated cases, but this one might have qualified. It involved efforts by the board of a luxury high-rise condominium to block the sale of commercial space to a company whose business included ‘telephone sex. “It was just executive office space,” Doug Errico, who handled the appeal, notes. “But millionaires in this exclusive building had visions of prostitutes lining up in the lobby to have sexually explicit telephone conversations.” Desperate to prevent the sale, board members contacted local and national politicians and representatives of the FDIC (which owned and was selling the space), ultimately to no avail. The company’s owner, furious over the month’s long delay in completing the purchase, “sued everyone in sight,” Errico recalls, including the association board members individually and the attorneys representing the association, alleging interference with a business relationship, among other claims.

The court reached two conclusions essential to condominiums. The first: Board members owe a fiduciary duty to the association of owners collectively, but they owe no such duty to individual owners. The second: The Massachusetts Consumer Protection Act (Chapter 93A) does not apply to condominium associations, because they are not engaged in commerce or trade. That conclusion blocked a legal path that could have proven problematic for condominiums, Allcock explains, noting that the prospect of winning treble damages plus attorney’s fees under 93A, would almost certainly have made many already litigious condo owners even more so.

Cambridge Point Condominium Trust vs. Cambridge Point, LLC. ─ With an eye for cases that will either defend an important principle for condominiums or establish one, “we often wait a long time for the right case to come along,” Allcock notes. “And we waited a very long time for this one.” He represented the association in this recent case, challenging a provision in the governing documents requiring 80 percent of owners to approve litigation against the developer. The court agreed that because the provision made it virtually impossible for the association to pursue a construction defect claim against the developer, it was contrary to public policy, which was designed to ensure the habitability of residences and to provide recourse for owners seeking to hold developers accountable for design and construction defects.

Drummer Boy Home Association Inc. vs. Britton ─ This discussion of legislative and judicial milestones began with the Massachusetts Superlien. It seems appropriate to end with a discussion of ‘Drummer Boy’, which protected it. Lower courts had ruled that the Superlien provision permitted only one lien covering six months of unpaid fees at a time, precluding the successive, contemporaneous “rolling liens” associations filed to ensure the collection of delinquent payments that accumulated during an extended foreclosure process.

Rejecting this interpretation, which would have seriously eroded the protection the priority lien provides, the state’s high court concluded that the legislative history of the statute suggested lawmakers would view accumulated delinquencies as “an ongoing problem necessitating more than the heretofore limited remedy of one lien for six months’ worth of common expenses.”

This decision, like many of the legislative and court battles MEEB attorneys have joined over the past 25 years, illustrates the firm’s commitment to what Allcock describes as “defending the shield” – creating and protecting the legal infrastructure that has allowed condominiums to survive and thrive, shaping the industry’s history and securing its future.