SUMMARY OF NEW CONDOMINIUM LEGISLATION

Copyright 1994 A. Joseph Ross. All rights reserved.

Two pieces of legislation passed in recent years by the Massachusetts Legislature have made important changes to the laws governing condominiums. The new laws give condominium associations new rights to collect delinquent charges from unit owners. They also impose new obligations on associations and managers to assure that they are accountable to the unit owners.

This is a summary of the most important provisions of the new legislation. It is not intended to be a complete description of all provisions or to imply specialization in topics discussed here, nor does it constitute specific legal advice.

TOPICS COVERED

Chapter 554 of the Acts of 1991

Chapter 400 of the Acts of 1992

CHAPTER 554 OF THE ACTS OF 1991

This legislation, which took effect 1 March 1992, provides new powers for an association of unit owners to collect delinquent common charges due from owners who rent out their units to tenants.

Expanded definition of "Common Expenses"

The definition of a unit owner's share of the common expenses now includes all costs of collection, including all reasonable attorneys' fees, plus interest, late fees, and fines lawfully assessed by the association.

The act reiterates that a unit owner's share of common expenses constitutes a lien on the unit. This lien has priority over all other liens except municipal liens and first mortgages of record. This priority was later enlarged by Chapter 400 of the Acts of 1992, which is discussed below.

Power to Collect Rents

If a unit owner is 25 days or more late in paying his or her share of common expenses, the association may collect rent due the unit owner from any tenant renting the unit and apply it against the amount owed by the unit owner. This right is subject to any existing rights of a first mortgage holder.

The procedures for an association collecting rent from a tenant in the unit are as follows:

(a) First, the association must send a written notice to the delinquent unit owner. The notice must be sent by any form of mail or delivery which provides a signed receipt. It must set forth the exact amount the association claims is due and state that the association intends to collect the amount from rent, along with any amounts which become due in the future in the current fiscal year and remain unpaid for 25 days after they become due. A copy of the notice must also be sent to any first mortgagee of record who has previously requested in writing that the association notify it of any delinquency.

(b) The unit owner has 10 days after receiving the notice to file a written response with the association signed under pains and penalties of perjury. For any dispute over a monthly installment, the response must include proof, in the form of a cancelled check, receipt, or other document showing that the installment was paid. For any other disputed charges, the response must state in short and plain terms all the unit owner's grounds for maintaining that the amount is incorrect and must state exactly what amount, if any, the unit owner admits is owed.

(c) If the unit owner fails to file a timely response which complies with these requirements, or if the unit owner admits that any amount is owed, the association may immediately notify each tenant renting the unit to pay rent to the association.

(d) If the unit owner filed a response which was timely and complied with these requirements, the tenant pays to the association no more than the amount the unit owner admitted was due in the response. Otherwise, the tenant must pay the amount the association claimed was due. The association may continue to collect rent from the tenant until that amount, plus any charges which later become due, is paid in full.

(e) The unit owner may bring suit seeking injunctive relief or a judicial determination of the amount owed. The association may also bring suit to enforce its lien, to establish the amount owed, or to obtain a court order requiring tenants in the same unit, or in other units in the condominium owned by the same owner, to pay rent to the association.

(f) In any legal action brought to establish the amount due, if it is found that the unit owner knowingly misrepresented any material fact in any response filed with the association, the association may recover from the unit owner three times the amount the unit owner owed at the time of the response, as well as charges thereafter becoming due, and all of its costs in the litigation, including reasonable attorneys fees.

(g) A unit owner is prohibited from taking any retaliatory action against a tenant who pays rent to the association. The laws which protect tenants from reprisals by landlords apply to any reprisal taken by a unit owner against a tenant who paid the association or expressed an intention to do so. Any waiver of these provisions in any rental agreement is void as against public policy.

Rights of First Mortgagee to Collect Rents

Some mortgages give the mortgagee the right to an assignment of rents. To that extent, a first mortgagee may collect the rent from the tenant. It must exercises its rights by written notice recorded at the registry of deeds and send notice by certified or registered mail to the head of the association's governing board. Then, the first mortgagee may collect the rents, starting with the next rental period, but not for any prior period.

If the first mortgagee collects the rents, it must pay all future expenses lawfully assessed by the association, including late fees and charges, interest, collection costs, reasonable attorneys' fees, assessments, and special assessments, and is subject to all other provisions of the condominium law, the master deed, trust, bylaws, and rules and regulations.

If the first mortgagee collects the rents, it may also have to pay any common expenses or other charges which were due and payable to the association prior to the first mortgagee's collection of the rents. This obligation exists to the extent that the monthly rent it collects exceeds the monthly installment of principal and interest which was due before the default, plus the monthly installments of real estate taxes and mortgage insurance, the monthly share of common expenses, and the customary and ordinary unit repair, operation, and maintenance costs. The first mortgagee must make these payments until all arrearages due the association from the delinquent unit owner are paid in full.

Other Provisions

The association has priority over any junior lien holder (such as a second mortgagee) to receive funds collected from the tenant.

An association may adopt or amend its master deed, trust, bylaws, or rules and regulations to provide additional protections, remedies, or rights for the association.

A first mortgage on a condominium unit executed after the effective date of the act cannot contain any condition which affects the right of the association to collect rent under this legislation.

CHAPTER 400 OF THE ACTS OF 1992

This legislation, which took effect on 6 April 1993, further enhances the ability of condominium associations to collect rents by providing a limited priority for the association's lien over the first mortgage. It also imposes new requirements on condominium associations and managers designed to make them more accountable to unit owners.

New Notice Requirements

Unit owners must provide written notice of their names and addresses to each mortgagee and to the association within 60 days of the effective date of the act or upon becoming owner of the unit. They must update the information whenever it changes. The association and mortgagees may rely in good faith on the most recent notice given.

Condominium associations must provide written notice of their names and addresses to mortgagees and must update the information whenever it changes.

Mortgagees must provide written notice of their names and addresses to the association within 60 days of the effective date of the act or at the time of acquisition of title to the unit and must update the information whenever it changes. The association and mortgagees may rely in good faith on the most recent notice given.

Unit owners must also provide the association in writing the names of all tenants or occupants of the unit other than visitors for less than 30 days.

Changes in the names of trustees and in the mailing address of the association must be recorded in the registry of deeds. Within 90 days of the effective date of the act, all associations must record in the Registry of Deeds a certificate showing the names of the trustees and the mailing address of the association if this information differs from the information most recently recorded.

New Rules on Common Expenses

Common expenses must be assessed at least annually, based on a budget adopted at least annually, in accordance with the master deed, trust, or bylaws.

Ordinarily, common expenses must be assessed against all units according to their percentage interest. This legislation provides an exception to that rule. Any expense incurred by the association as a result of a unit owner's failure to abide by the requirements of the condominium law, the master deed, trust, bylaws, restrictions, rules or regulations, or by the misconduct of any unit owner or his/her family members, tenants, or invitees may be assessed against that unit owner. The assessment constitutes a lien against the unit and is enforceable as a common expense assessment.

The association may also assess any fees, attorney's fees, charges, late charges, fines, costs of collection and enforcement, court costs, and interest against the unit owner as a common expense and a lien against the unit.

Unit owners are not entitled to any offset, deduction, or waiver of common expenses or other charges assessed by the association. This statutory provision codifies recent court decisions which have held this.

It is also explicitly stated that condominium associations have the right to impose charges or interest for the late payment of common expense assessments or other charges and to levy reasonable fines for violations of the master deed, trust, bylaws, restrictions, rules, or regulations of the association. No law ever stated this explicitly before.

Notice of Delinquency

When any portion of a unit owner's share of common expenses has been delinquent for 60 days (after 1 April 1993), the association must send a notice of the amount of the delinquency to the unit owner by certified and first class mail. A similar notice must be sent to the first mortgagee if the first mortgagee has provided the association with notice of its name and mailing address.

Before filing an action to enforce its lien for delinquent common expenses, the association must send a notice of its intention to file the action to the first mortgagee by certified and first class mail.

Association's Lien Has Priority

The association's lien now has priority over all other liens and encumbrances on the unit except (i) those recorded before the master deed, (ii) a first mortgage recorded before the assessment became delinquent; and (iii) liens for real estate taxes and other municipal charges.

The lien also has priority over the first mortgage to the extent of common expense assessments, based on a duly-adopted budget, for the six months immediately preceding the starting of a lawsuit to enforce the lien and to the extent of costs and attorneys' fees incurred in the lawsuit. Attorneys fees incurred prior to 1 January 1993 are limited to $2500. Payment of the assessment for the six-month period and the costs and attorneys fees will discharge the lien to the extent of its priority to the first mortgage.

The priority amount does not include any special assessments, late charges, fines, penalties, or interest assessed by the association. If the association fails to send the required notices to the first mortgagee, the priority lien will still be valid, but the priority amount will not include attorney's fees.

The association may accept a deed from the unit owner in lieu of enforcement of its lien. (However, there is nothing providing that such a deed would supercede the first mortgage. Therefore, the deed may wipe out the association's priority over the first mortgage and obligate the association to pay the mortgage. Associations should beware of accepting a deed in lieu of the lien without careful analysis by a lawyer.)

New requirements for 6(d) Certificates

The so-called '6(d) certificate' in which the association certifies outstanding common charges must be furnished within ten business days after receipt of a written request and must set forth separately any amount claimed under the priority lien. The 6(d) certificate is binding on the association, its governing body, and every unit owner.

New Requirements for Associations and Managers

Condominium associations must keep complete, up-to-date copies of the master deed, the bylaws, the minute book, and financial records. If a manager is appointed, the manager is responsible for keeping the financial records.

Records must be kept up-to-date and available for inspection by any unit owner or first mortgagee during regular business hours. Access includes the right to photocopy the records at the expense of the person making the request.

Records kept by the manager are the property of the association, and the association is entitled to review the records on request during regular business hours. At the end of the manager's employment, it must turn over all records to the association. All records must be kept for at least seven years.

The association or the manager, whichever keeps the financial records, must prepare a financial report within 120 days of the end of the fiscal year, including a balance sheet, income and expense statement, and a statement of funds available in the associations's various funds. A copy of the report must be made available to all owners within 30 days of completion and, on request, to any mortgagee.

An independent certified public accountant must conduct a review of the financial report for any condominium comprising 50 or more units. The association may modify this requirement as discussed below.

In condominiums of fewer than 50 units, a review by an independent certified public accountant must be conducted if the unit owners, by a majority of in beneficial interest, so votes at a meeting. The cost of the review is to be paid as a common expense. An individual unit owner or mortgagee may have a review or audit prepared at his or her own expense, and the association and manager must cooperate fully in providing the necessary information.

A non-for-profit affordable housing organization buying a unit may request, in writing from the selling unit owner, a copy of the financial report .

A condominium association has the right to terminate a contract between a manager and the association for cause with ten days' notice. The manager has an opportunity, during those ten days, to correct the problem. Management contracts cannot require the association to provide more than 90 days notice in order to terminate a contract without cause.

If there is a manager with responsibility for collecting assessments and common expenses or having custody of common funds, the manager is responsible for financial records. It must render a written report to the trustees at least monthly detailing receipts and expenditures and other financial transactions. The association may modify the monthly requirement as discussed below, but the report must still be at least quarterly.

The manager must maintain separate and distinct accounts for the replacement reserve fund and any other funds for which the manager is responsible. The funds cannot be commingled with the manager's own assets or with the assets of any other person or entity and are not subject to the claims of any creditor of the manager or of any other entity.

Checks from any reserve account of the association must be signed by one member of the governing board in addition to the manager, if there is one, unless there is a written agreement to the contrary between the association and the manager. The governing board designates one or more members to sign checks. The association may modify these requirements as discussed below.

In condominiums of more than ten units, the association must secure and maintain, at its own cost and expense, blanket fidelity insurance coverage against the dishonest acts of any person responsible for handling the association's funds, in an amount equal to at least one- fourth of the annual assessments (not counting special assessments). The manager must be specifically covered by the policy by a policy endorsement. The association must be named as the insured. The manager must maintain, at its own expense, its own insurance with substantially the same coverage. The association may modify these requirements as discussed below.

All condominiums must maintain an adequate reserve fund, collected as part of the common expenses, separate from operating funds. There is no definition of what is 'adequate.' The association may modify this requirement as discussed below.

The developer who created the condominium cannot use association funds to fund the costs of the construction, development, or marketing of the project, to pay the developer's share of the common expenses, or to pay for any costs not directly related to the operation of the condominium.

Associations must designate a person or entity to oversee the maintenance and repair of the common areas and notify all unit owners in writing of the designee's name and phone number and whenever there is a change in the designation.

In a rented unit, the unit owner must designate a person or entity to oversee the maintenance and repair of the unit. At the beginning of the tenancy, the owner must notify the tenant and the association in writing of the person's name and phone number and must notify the tenant of the person designated to oversee maintenance and repair of the common areas. The owner must similarly give notification of any changes in designations.

The manager, president, chairperson, or a majority of the board may be empowered to act for the association. References to the association include such a person when so empowered.

After control of the condominium has been transferred from the developer to the association, the association may modify any or all of the various provisions mentioned above. Modification requires an annual vote of 67% or more of the beneficial interest. It may be rescinded at any time by vote of a majority in beneficial interest of the unit owners.

Other Provisions

If the association is a trust or unincorporated association, an instrument signed by a majority of the trustees or board named in the master deed and duly attested may be relied on and, when recorded, is binding on the association. Anyone dealing with the trustees is entitled to rely on the records in the Registry of Deeds as to the identity of the trustees. Any recorded certificate is conclusive evidence of the personnel of the trustees or any changes therein.

Commercial condominiums may exempt themselves from the limited lien priority provisions and various other provisions.

Banking laws are amended to permit banks to establish accounts for condominium funds which are beyond the claims of management companies' creditors.

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