Statute Revision Allows Re-Allocation of Percentages

Published on: April 12, 2012

Massachusetts Condominium Associations continue to struggle with the ongoing ripple effects of foreclosures and high delinquency rates.  When fewer Owners are footing the bill the burden on those who are paying of course increases. 

 Unfortunately, even with recent government and banking industry plans to stem the tide of mortgage delinquencies, it appears that, at least for the immediate future, lost revenues and unpaid common area fees will continue to be a major issue for many communities. For this reason, it is important for communities to explore all options which can minimize the financial impact on Owners.  One positive step that emerged among the wake of the foreclosure crisis was the Massachusetts Legislature’s amendment to Section 5(b)(1) of M.G.L. Chapter 183A. 

 In short, the amended language now allows Massachusetts Condominium Associations the ability to re-allocate the percentage interests of units in the event an affordable restriction on any unit is terminated, and that restriction was a basis for setting the respective unit’s percentage interest artificially low.   Typically, because restricted units are prohibited from being sold at market rate, their percentage interest is set at a much lower rate than a comparable market rate unit in the same community.  When an affordable unit is foreclosed, often the restrictions are terminated.  That means a subsequent buyer of the unit may re-sell the unit at market rate.  However, the unit still contains an artificially low percentage interest, and since condominium fees are derived from a Unit’s percentage interest, that unit will pay less in condominium fees.  Prior to the amendment in 2010, to change the percentage interests of any unit would require not less than one hundred percent consent of the unit owners – including the consent of the owner whose percentage would increase.  There are some, but not many owners who will voluntarily vote to increase their own condominium fee when the rest of the unit owners will benefit by decreasing their share of the fees.

 Under the revised language, however, the subject unit owner’s consent is not required.  Unless otherwise provide for in a master deed, the percentage interest of all units can be reallocated by amendment, in this instance, with the vote of seventy-five percent of owners, and fifty-one percent of qualifying first mortgage holders.  Admittedly, any amendment to a master deed requires some leg work.  But, when the vast majority of owners will see a reduction in their condominium fees – you may be surprised how quickly the requisite consent can be obtained.

 Recently we have completed a number of such amendments for communities and once adopted, may allow for re-allocation of percentages in the event of future affordable restrictions being terminated, without the need to obtain unit owner consent in each instance.  

 While re-allocation of percentages under the revised language is unlikely to shore up this year’s budget, the process goes a long way in assisting Association’s in distributing the financial burden equally among all owners.  Over time the reduction in some percentage interests can be significant, and in the present financial crisis, and knowing the burdens being carried by all owners, it makes sense to lessen that burden whenever possible. 

 If you would like further information please regarding this article, please contact Mark Einhorn at meinhorn@meeb.com or at 781-843-5000 (x121).