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February 6, 2018

Legal Update
Dylan Sanders

Condominium developers cannot use bylaw voting rights to block lawsuits for construction defects

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The Supreme Judicial Court has struck down as against public policy a condominium bylaw requiring trustees to obtain the approval of a supermajority of the unit owners before commencing litigation, where the developer of the condominium continues to own a sufficient number of units to shield itself from liability for common area defects. The court’s decision, Trustees of the Cambridge Point Condominium Trust v. Cambridge Point, LLC, is an important win for condominium trustees, as it removed a significant obstacle to some construction-defect suits. At the same time, the decision left untouched other common condominium-governance provisions that may discourage or hamper such litigation.

In a condominium, it is the trustees who have the authority and responsibility for remedying defects in common facilities and systems—typically defined by the condominium documents to include roofs, exterior of windows and doors, and HVAC and plumbing systems, for example. Indeed, it is only the trustees who are, as the SJC has previously ruled, permitted by law to sue to remedy such defects.

At issue in the Cambridge Point case was a set of condominium bylaws that limited the trustees’ power to bring such lawsuits. The bylaws required that before bringing suit, the trustees had to provide copies of the proposed suit to all unit owners, establish a specific and limited amount to be spent on legal fees and expenses in the proposed litigation, impose with advance notice to all unit owners an up-front special assessment for the owners’ shares of the projected legal fees and expenses, and obtain consent to the filing of the suit from at least 80 percent of the unit owners.

After problems of water infiltration and other issues with common systems surfaced at the Cambridge Point condominium, the trustees filed a lawsuit against the developer and its contractor, alleging negligence and breach of the implied warranty of habitability. Before filing suit the trustees met all of the other requirements of the bylaws, but could not obtain the required supermajority approval from the unit owners, primarily because the developer itself owned or controlled more than 20 percent of the units.

The trustees’ lawsuit sought to bypass this obstacle by asking the court to declare that what they characterized as “anti-litigation provisions” of the bylaws were void—because they conflicted with the Massachusetts Condominium Act (General Laws Chapter 183A), and because they were contrary to public policy.

A superior court judge rejected these arguments. The trustees appealed, and the SJC chose to take the appeal directly.

SJC: requiring unit-owner consent to litigation does not contradict the Condominium Act.

The SJC rejected the trustees’ argument that any bylaw requiring unit-owner consent before commencement of litigation was per se inconsistent with the Condominium Act. The court acknowledged that the Act expressly gives trustees the “right and power… to conduct litigation” concerning common areas and facilities, but said that a bylaw requirement of unit-owner consent does not necessarily conflict with this power. Reviewing other provisions of the Act, the court concluded that the legislature had generally viewed unit-owner consent to management decisions as consistent with the power granted to trustees, and that this should extend to decisions to commence litigation.

SJC: But requiring approval of 80 percent of unit owners, where the developer controls more than 20 percent, does contravene public policy

The bylaw at issue in Cambridge Point, however, violated public policy. Requiring “the consent of at least eighty per cent of all unit owners” when “the developers or their affiliates retain an ownership interest in at least twenty per cent of the units” made it “effectively impossible for the trustees to sue the developers for damages arising from the defective construction and design of common areas or facilities.” This would leave the condominium without a remedy for such defects, and amounted to an impermissible advance waiver of all such remedies.

“The public policy of Massachusetts strongly favors the safety and habitability of homes. In order to effectuate this public policy, we have consistently recognized the rights of individuals to obtain legal redress when their homes fail to meet minimum standards. These rights—whether grounded in the implied warranty of habitability or in the building code as enforced through G. L. c. 93A—are so vital that we have consistently held that they cannot be waived.”

The full scope of the Cambridge Point decision’s impact on future condominium litigation remains to be seen. The Cambridge Point trustees had asked the court to strike down all of the bylaw provisions that gave the unit owners a say in whether to commence litigation, but the court declined to do so. Nor did the court make clear whether it would view the supermajority-consent provision as invalid in a case involving litigation against someone other than a developer.  The court did say that such bylaws must be “carefully scrutinized” to determine whether they contravene public policy, considering the “totality of the circumstances” in each specific case.