Recent Important Rulings for Co-ops and Condos A Case to Remember By A.J. Sidransky A Case to Remember

Recent Important Rulings for Co-ops and Condos A Case to Remember By A.J. Sidransky

The most basic structure of our right to own and enjoy our homes emanates from two sources: legislation, and case law. At times case law is the direct reflection of statutes passed by federal, state, and local levels of our government; at other times, legislation is enacted to reflect and enshrine principles determined by case law. Regardless, these are the rules by which we live—and most importantly, our vigorous, living system of governance provides for change and amendment of those rules when necessary, through both law and legislation.

State or Federal?

As a general rule, co-ops, condominiums and HOAs are governed under statute at the state level. “Typically,” says Michael C. Kim, the principal of Michael C. Kim and Associates, a Chicago-based firm specializing in co-op, condo and HOA law, “in the condo field there are enabling statutes at the state level which authorize the creation of condominiums and how they should operate. Those statutes vary by state. There is an organization called the [Uniform Law Commission] that looks at at developing commercial statutes which are uniform. If all the states would adopt them, you could go from one state to another and have more or less the same law. There is some value in that. A number of states—approximately 30—have adopted them. Illinois has developed their own.”

There are times though, when federal authority will overrule state authority. Specifically, when the matter to be adjudicated is in conflict with a federal law like the Fair Housing Act and other anti-discrimination policies, or fair credit and collection laws meant to protect consumers nationally. Another interesting case is when there is ‘diversity’ between the parties in a lawsuit. ‘Diversity’ in this context refers to the two parties to the case being domiciled in different states, i.e. one party lives in, say, Wisconsin, and the other in Illinois. In that instance, though state statutes in the state where the suit was brought would govern the case, the case is tried in federal court.

Phyllis H. Weisberg, a managing partner at the law firm of Montgomery McCracken Walker & Rhoads LLP, which has offices in Pennsylvania, New York, New Jersey and Delaware, says, “In certain respects, the law from state to state can be very different. In Connecticut for instance, there is a statute that requires that certain information be shared with members of the association, and that they be allowed to attend board meetings, which is not the case in New York —unless a building’s by-laws require it.”

Massachusetts, like Illinois, has its own set of statutes and laws pertaining to co-ops, condos and HOAs.  “In Massachusetts we have a priority of lien,” says Jeffrey Turk, a managing partner with the law firm of Turk & Quijano LLP, located in Braintree, Massachusetts, “which allows us to collect unpaid common charges that would have a priority over the mortgages encumbering the property.  It’s a priority over everything except taxes.  That’s very different than most states.”  In the event of a purchase out of foreclosure,” he continues, “the lien of the association would be a priority over the first mortgage.  As a result, most banks will pay the common charge arrearages before foreclosing.  If we foreclosed, we would wipe out all mortgage liens.”

The other thing that sets Massachusetts apart, according to Turk, is that, “Nationally, some states have more protection for buyers, unit owners and disclosure requirements. Florida has a lot of that. Rhode Island has some of it. We don’t really have a lot of that in Massachusetts. We have a statute that sets forth what you are entitled to in the way of rights and information. It’s much less draconian than other states.”

Case Law vs. Legislation

In a mixed legal environment like ours, with both legal precedent and statutes controlling both the formal and social aspects of co-op, condo and HOA law at federal, state and even local levels, what determines who is within their rights? “Very often,” says Weisberg, “a court will interpret a statute. For example, warranty of habitability. There has been litigation over when this applies. Does it apply to co-ops? Yes. Does it apply to a condo? Basically, no. Why? Because it deals with a lease.” Co-op apartments carry a proprietary lease instead of outright ownership of the premises as in a condominium. “Then there are other issues, such as if the apartment is not your primary residence—if it’s a pied-a-terre let’s say—does the warranty of habitability apply or not?”

As concerning condominiums, Kim says, “When you look at rulings by judges, they will focus on a common law principle which is not specifically addressed in the condo act, though there is a need for interpretation.” Clearly, case law and legislation work hand in hand. Lisa A. Magill, a condominium attorney with Kaye Bender Rembaum, a law firm with offices in Florida, suggests, “Statutes, rules and court decisions all carry precedential value. Judges need to consider previous law decisions (referred to as common law) and the statutes when making rulings. Case law defines or interprets statutory law based on the specific facts presented in the case. Many new cases are really arguments over interpretation of a statute or whether that statute is applicable and how. Every now and then we get a case decided by an appeals court judge that the bulk of the industry finds confusing because it seems not to conform to the statute. In those cases very often, the statutes are amended the following year or two to clarify the point of law.” 

Attorneys use case law to argue their cases both for and against. “Since we are a statutorily created condominium state, precedent is extremely important. We rely on prior decisions of the court in all our cases,” says Turk. “The statute is the most important factor, but court interpretation is really what we rely on.” In terms of how precedent is used to the benefit of condominium associations in court, he says, “How you distinguish a case that might be adverse to yours is called being a good lawyer.  This is a relatively young area of the law. If we are talking about property rights or border disputes we can go back 200 years, but condos are a more recent creation. Many issues are still up in the air.”

Current Issues and Cases in Massachusetts

Turk says there are many issues facing housing associations in the Massachusetts courts right now. “There is legislation proposed for cooperative corporations to limit their ability to exclude potential buyers.” Turk sees cases affecting co-ops, condominiums and HOAs falling into two broad categories: those affecting the business operations of associations, and those affecting social issues. “On the business end, there was a recent case dealing with whether or not our super lien allowed for multiple liens to be filed. That’s called a rolling lien. The lien in Massachusetts is for six months of condominium fees. So the question is whether you can file one suit for six months and another for the next six months, and then another for the next six months and so on, thereby creating additional priority liens. That was decided recently and is allowed.”

“On the quality of life side,” says Turk, “there are more and more cases coming down dealing with the association’s ability to enforce behavior – and in our state, by statute we have the right to fine for violations of the condo documents, and we have the right to get a court order compelling compliance. The flip side of this question is coming up more and more. What is the obligation of the association to take such actions? They can take them - but do they have to? It’s coming up in particular with respect to smoking. It’s also now coming up with respect to marijuana. Massachusetts has legalized recreational marijuana. The big fight right now is, can an association ban marijuana, to which the answer may be yes, since they can ban smoking. The other consideration is that marijuana use is still a criminal activity in that the federal Controlled Substances Act still makes it a Class 1 drug.  If your documents say you cannot commit any illegal activity on the property, [smoking pot] is illegal activity, whether or not Massachusetts law says otherwise.”

Moreover, the legal cases and legislation affecting co-op, condo and HOA members are like living, breathing organisms. They can and should be expected to continue to evolve over time – hopefully to the ongoing benefit of associations and their members—and it’s incumbent on boards and managers to stay informed and abreast of the decisions and laws that impact how they govern and manage their communities.                        

A.J. Sidransky is a staff writer and reporter for New England Condominium.  

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