Published on: July 26, 2016
Where condominium trustees decided in 2013 to reallocate the common elements expenses assessed against the owner of the lower level of the development’s parking garage, the trustees could not retroactively enforce the reallocation for the years prior to 2013, a Massachusetts Superior Court judge decided.
“This case arises out of a dispute between plaintiff Gerfman Global, LLC (Gerfman), which owns the Parking Garage Units (Garage Unit) of the Nautica Leasehold Condominium (Nautica), and the defendant Trustees of the Nautica Leasehold Condominium Trust (the Trustees and the Trust, respectively). Nautica is a mixed use condominium located in Charlestown, Massachusetts; it consists of 117 residential units and a parking garage. The upper level of the garage has 188 parking spaces for use of the residences, while the lower level consists of commercial spaces. The lower level is owned by Gerfman. The Master Deed establishing the condominium was executed in 2001. It divides the common elements into two categories: the Condominium Common Elements (CCE), which relate to all of the units, and the Residential Common Elements (RCE), which relate only to the Residential Units. The By-laws of the Trust, which are set out in the Nautica Declaration of Trust, similarly divide expenses into CCE expenses, which are to be assessed against all unit owners, and RCE expenses, to be assessed only against the residential unit owners.
The Court held the question of whether the Trustees can retroactively reallocate expenses and assess Gerfman for condominium expenses incurred in years prior to 2013 presents only an issue of law. With respect to current assessments made pursuant to the new methodology for allocating expenses between RCE and CCE employed from 2013 to the present, Gerfman did not pay its assessments and therefore, as a matter of law, cannot challenge them.
The Court noted that the condominium documents treat assessment of condominium operating expenses as a forward looking exercise.
The Court cited G.L.c. 183A, §6(a)(i) states that: ‘Common expense assessments must be made at least annually, based on a budget adopted at least annually, in accordance with the master deed, trust, or by-laws.’ In consequence, by requiring assessments to be based on a budget, which is by definition a forward looking document, the statutory scheme appears also to envision a prospective process of determining anticipated expenses and apportioning them to unit owners in conformity with the Declaration of Trust and Master Deed.
There is nothing in the condominium documents, nor in any statute, that states or even implies that having used a different method of allocation in the past, the Trustees are bound to that methodology in the future. There may be a range of decisions that are permissible under the governing documents. There, however, appears to be nothing in these documents or G.L.c. 183A, §6, that even suggests that the budgets for the previous six years can be redone, because the current group of Trustees believes that previous Trustees made a mistake. Indeed, the Trustees’ only argument in favor of retroactive reassessment seems to be that there is nothing in the Declaration of Trust or Master Deed that prohibits it. In this court’s view, the absence of any prohibition is inadequate to permit the retroactive assessment of over $600,000 of expenses, when the condominium documents and statute clearly envision the budgeting and expense allocation process to be prospective.
“The court notes that it is not deciding more than is before it in this case. For many years the Trustees assigned only the cost of hazard insurance to the CCE account. That was not an inadvertent error, it was a conscious decision. The fact that the Trustees could have included other expenses in the CCE bucket does not permit rebudgeting and reassessment retroactively of several hundreds of thousands of dollars. This does not mean that Trust By-laws could not have permitted reconsideration of assessments in subsequent years under identified circumstances, but such rights clearly should be spelled out in the organic documents so that purchasers of condominium units are aware of that possibility. This case also does not address a situation in which a simple mathematical error is made concerning the percentage of the common area expense a unit owner is assessed; if it is found in a reasonable time. The court decides only that on the facts presented by this case, the Trustees cannot engage in retroactive reapportionment of expenses and then make retroactive assessments based on the reallocation.”
The case highlights that condominium boards need to be careful during their budgeting and allocation process, as a Court may not allow a mistake or error to be corrected.
For a copy of the Decision please [click here].
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