Published on: April 28, 2005
Tenants often withhold their rent as a means of pressuring their landlords to make essential repairs. Following similar, if not identical logic, condominium owners sometimes withhold payment of their common area charges, because they think the fees are too high, inappropriate or unjustified, or because they just don’t like the way the association is being run. But there is a crucial difference between the actions of tenants, who rent their units and the residents of community associations, who own their dwellings. While landlord-tenant laws in Massachusetts and many other states allow tenants to withhold their rents under some circumstances, condominium and/or common interest ownership statutes typically prohibit that self-help remedy for owners.
That so many condominium owners assume they can exercise a tenant’s right underscores a fundamental problem that has plagued homeowner associations from their inception and continues to plague many of them today: Too many owners fail to understand that they are owners, not tenants; that the association’s board of trustees is not a landlord but an elected representative of all owners; and that if some owners refuse to pay their share of the common expenses, the association will not have sufficient funds to cover its operating costs and all owners, including those who are withholding their payments, will suffer as a result.
Recognizing that common area charges are the lifeblood of a common interest ownership community, state legislatures have adopted laws strengthening the ability of homeowner associations to collect common area fees and authorizing them to deal harshly with owners who refuse to pay their share of common expenses. The Massachusetts condominium statute (Chapter 183A) is typical in its assertion that “no unit owner shall be entitled to an offset, deduction, or waiver of common expenses or other charges levied or lawfully assessed by the organization of unit owners.”
This law, as amended in 1993, establishes a priority or “super lien” that takes precedence over even a first mortgage and secures a community association’s right to collect any unpaid common expenses plus all costs (including attorneys’ fees) incurred in pursuing overdue payments. All other states have comparable super lien provisions allowing associations to attach a lien to a delinquent owner’s property and some states (Massachusetts, Connecticut, Rhode Island, New Jersey, and Alabama, among them) include attorneys’ fees among the charges associations are allowed to recover from delinquent owners.
Forged by Crisis
While community associations have long recognized their need for an effective and enforceable collection mechanism, the legal principle supporting it has not always been embraced as widely or stated as clearly as it is today. In Massachusetts, the impetus for the statutory lien grew directly out of the real estate boom-bust cycle of the late 1980s and early 1990s that first glutted the market with new and converted condominiums and then left many units vacant as financially troubled owners, many of them investors, walked away from units they could no longer afford. Unable to collect the fees on those vacant units and facing an income shortfall as a result, associations had to increase the assessments on remaining owners, many of whom couldn’t afford the higher costs. The domino effect, exacerbated by a collapse of condominium values, threatened the viability of countless developments and highlighted their need for legal tools to ensure their survival.
Before the Massachusetts legislature acted, the courts had already begun to address community association collection problems. In a 1992 case, Baker v. Monga, the Massachusetts Appeals Court ruled for the first time that owners had an absolute obligation to pay their common area fees and no right to withhold them. The owner’s obligation to pay common area fees, the court said, “is implicit in the contractual agreement of the association members that maintenance charges and other proper assessments are necessary to the sound, ongoing financial management and stability of the entire complex.” Absent a court finding that the association’s budget or the imposition of the assessment was illegal, the court stated, “condominium charges by the unit owner’s organization are not subject to set-off or some other form of self-help remedy.”
A few months later, the state Supreme Judicial Court restated that principle in a different case, Prince v. Prosser. In Baker, the owner had charged that the fees were unlawful and that the association’s collection actions were retaliatory. In Prince, the owner contended that he was entitled to withhold a portion of his fee because a parking space deeded to him by the developer had been declared unsafe by the fire department, depriving him of the use of an amenity for which, he argued, he should not have to pay. The court disagreed.
No Right to Withhold
“Whatever grievance a unit owner may have against the condominium trustees must not be permitted to offset the collection of lawfully assessed common area expense charges,” the court said. “A system that would tolerate the unit owner’s refusal to pay an assessment because the unit owner asserts a grievance, even a seemingly meritorious one, would threaten the financial integrity of the entire condominium operation. For the same reason that tax payers may not lawfully decline to pay lawfully assessed taxes because of some grievance or the claim against the taxing governmental unit,” the court declared, “a condominium owner may not decline to pay lawful assessments.”
That decision probably would have settled the issue, but for one word – “lawful” – the repetition of which convinced some owners that while they could not withhold legitimate charges, they could decline to pay illegal ones and could cite their belief that the fees were improper as a defense in any collection action brought against them.
The Final Word
A 1994 Appeals Court decision, Blood vs. Edgar’s Inc., slammed that door as well. “From the date of this opinion, a condominium owner may not legally challenge the legality of a common expense assessment by refusing to pay it,” the court asserted.
The plaintiff in this case had what the court recognized as a legitimate complaint. The only retailer in an otherwise residential condominium, Edgar’s objected when the association included in the common area fee the cost of management services provided to owners who rented their vacation units periodically. That charge was illegal and withholding, thus, justified, Edgar’s argued, because the law requires owners to pay only their “lawfully assessed fair share of common expenses.”
The Appeals Court agreed that the assessment was improper, but said that did not mean Edgar’s could refuse to pay it. The need to ensure an uninterrupted income stream for the condominium, the court said, precludes allowing owners to exercise a self-help remedy of this kind.
“Failure of a large unit owner, such a Edgar’s, to pay its common expense assessment would have a serious financial impact on the stability of a condominium association….Unit owners are not without recourse,” the court continued, using once again the SJC’s analogy of a taxpayer “who is bound to pay the tax assessed before challenging it.”
Blood makes the legal points about as clearly as they could be made: Unit owners are free to challenge an assessment, but they have to pay it first, and they can’t challenge the legality of the fee in a counterclaim to the association’s collection action. If owners are going to challenge a fee or an assessment, they must do so in a separate suit.
A Costly Mistake
The consequences of not doing so can be expensive, as some owners have discovered when they have tried to combine a broader legal challenge, such as an alleged civil rights violation, with their counterclaim to a collection action. Brought separately, the owner’s complaint would not be subject to the super lien provision requiring owners to pay the association’s court costs and legal fees in a collection action. But if the owner’s broader complaint is folded into the counterclaim, the courts tend to classify all of the legal fees as part of the underlying collection action. Because some of these challenges are complicated, requiring extensive responses from the association’s attorneys, owners in these cases could end up incurring thousands of dollars in legal fees on top of their own, probably substantial, litigation costs.
We’re finding somewhat more awareness of that risk and of the established law governing association assessments than in the past. But there are still some owners who will insist, “It just doesn’t sound right” when told they must pay a fee they are contesting. And those owners can still find attorneys unfamiliar with condominium law, who will agree to press their case.
When we get a notice saying an owner is filing a counterclaim to a collection action, we send the owner’s attorney (or the unit owner if he/she is not represented by counsel) copies of the statute and the relevant cases, along with a letter urging that the owner pay the assessment, even under protest, to avoid creating an even larger liability that adds the association’s attorneys’ fees and collection costs to the bill the owner will ultimately have to pay.