A common provision in condominium documents for new construction projects is language protecting the developer from potential lawsuits for defects in common areas and facilities. This limits individual lawsuits by single or minority disgruntled unit owners, but such protections are not limitless. A recent Supreme Judicial Court (SJC) decision, Cambridge Point Condominium Trust v. Cambridge Point, LLC, 478 Mass. 697 (2018), invalidated such a provision that made it virtually impossible for a condominium association to bring suit against the condominium developer.
Background
In 2007, a developer of a forty-two unit residential condominium complex filed a Master Deed and Condominium Trust with By-laws with the Registry of Deeds. The by-laws limited the unit owners from commencing litigation against the developer unless the following conditions were met: (1) deliver a copy of the proposed complaint to all unit owners; (2) outline in advance the legal fees to be paid by the condominium association and unit owners and immediately assess the amount as a special condominium assessment to be paid in advance; and (3) require eighty percent (80%) of unit owners to consent to initiating such litigation.
By 2012, the unit owners complained about water leaks resulting in mold growth throughout the building’s common areas and in individual units. An independent engineer found that design flaws and construction defects caused the damage. The developer failed to take steps to remedy the issues. The unit owners sued the developer but failed to obtain the consent of 80% of the unit owners because the developer owned over 20% of the units and voted against filing the lawsuit. The complaint sought to invalidate the conditions required to bring the suit because it was impossible for the Trustees to meet the 80% threshold. The trial court allowed the developer’s motion to dismiss stating that the unit owners were aware of the conditions precedent when they purchased their units. The unit owners appealed requesting direct appellate review, which the SJC granted.
The SJC noted that Massachusetts General Laws ch.183A, the statute that creates condominiums, is an enabling statute, providing a framework for the creation of the condominium, but allowing flexibility in how unit owners manage their affairs. As such, the Massachusetts Supreme Court held that such conditional language per se is not void. But, condominium developers cannot shield themselves from potential litigation by drafting documents that immunize them from liabilities. For example, condominium developers must still abide by building codes and applied warranties of habitability and cannot disclaim such causes of action.
In Cambridge Point, the Massachusetts Supreme Court held that the provisions of condominium by-laws that made it “extraordinarily difficult—and in this case, effectively impossible—to obtain redress for a developer’s defective construction and design of common areas and facilities….” were void as a matter of public policy. Because the developer still had an obligation to build units that met building code requirements and were habitable, adding language in the condominium documents that prohibits private redress for violations of those requirements is invalid. The Court noted that this was particularly true where the developer owned or controlled more than 20% of the units, making it impossible for the unit owners to attain the 80% requirement to bring suit.
Public Policy Considerations
Creating condominium documents that provide a framework for litigation is helpful and entirely appropriate, but the framework must be reasonable and set forth in a standard manner so that unit owners can obtain the authority to commence litigation. Drafting prophylactic language discouraging litigation to the point that unit owners cannot meet the burden of the conditions precedent in the condominium documents will be held void as a matter of public policy. Creating by-laws that comport with the parameters of the Cambridge Point decision enables developers to protect against small, burdensome lawsuits while allowing unit owners the ability find redress should the need arise.
