Trustees of Cambridge Point Condominium Trust v. Cambridge Point, LLC – SJC Proscribes “Poison Pill” and Prescribes an Uncertain Way Forward

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by Samuel B. Moskowitz

Case Focus

On January 19, 2018, the Supreme Judicial Court ruled that a condominium bylaw that, “for all practical purposes, makes it extraordinarily difficult or even impossible” for condominium trustees to sue the developer for defects in the common areas and facilities, is void as contravening public policy. Trustees of Cambridge Point Condo. Trust. v. Cambridge Point, LLC (“Trustees”), 478 Mass. 697, 709 (2018). Condominium boards celebrated the demise of this “poison pill” that developers increasingly insert in condominium documents to shield themselves from liability. Yet that celebration was premature, because the decision has limited reach and the “poison pill” continues to limit condominium trustees’ ability to initiate litigation in almost all other contexts.

Background

When the trustees of the seven-year-old Cambridge Point Condominium decided to sue the developer for $2 million in alleged common area defects, a condominium bylaw severely restricted their ability to initiate litigation. Under that bylaw, before suing anyone other than a unit owner, the trustees had to obtain the written consent of at least 80% of the unit owners. To do so, they first had to circulate their proposed complaint, specify a limit on legal fees and costs to be paid, and institute a special assessment to collect that sum. To prevent the owners from easing these requirements, the bylaw required that at least 80% of the owners must consent to its amendment. Making matters worse, the developer owned at least 20% of the units.

The trustees sued without first obtaining the requisite consent, seeking damages and a declaration voiding the bylaw. The superior court dismissed their suit, concluding that the bylaw was not prohibited by the condominium statute, G.L. c. 183A (the “Act”), and its use by developers did not constitute “overreaching” in contravention of public policy.” Trustees, supra at 691-701. The SJC granted direct appellate review.

No Violation of Condominium Act

Writing for the Court, Chief Justice Gants first addressed whether a “bylaw provision requiring unit owner consent to initiate litigation is … per se void because it is ‘inconsistent’ with the [A]ct.” Trustees, supra at 703. The Court rejected the trustees’ argument that the Act’s grant, in § 10(b)(4), to trustees of the exclusive authority to litigate common area claims proscribes any bylaw restricting that authority, reiterating the Court’s view that the Act is “essentially an enabling statute” that lays out minimum requirements for establishing condominiums and otherwise provides developers and unit owners with “planning flexibility” to work out in condominium bylaws matters not specifically addressed by the statute. Id.  at 701-02 (citing Scully v. Tillery, 456 Mass. 758, 770 (2010)). The Court also declined to apply the maxim of negative implication to invalidate a bylaw requiring unit owners’ consent for trustee litigation simply because such consent is statutorily required for some other trustee actions.

Invalid as Against Public Policy

The Court next determined whether developers’ use of the bylaw to shield themselves from common area defect claims contravenes public policy. Recognizing that the bylaw’s cumulative requirements “make it extraordinarily difficult for the trustees to sue the developer for defective construction,” the Court ruled that the “well-established public policy in favor of the safety and habitability of homes” outweighs the “public interest in freedom of contract.” Trustees, supra at 705-708. The Court noted that the right to obtain legal redress for homes that fail to meet minimum standards of safety and habitability are so vital they cannot be waived, and that “[t]his clear expression of public policy” required that the bylaw “be carefully scrutinized to determine whether it contravenes that … policy.” Id. at 708. Doing so, the Court found the bylaw more sweeping and unfair than a broad, express waiver, and it struck its use as overreaching by the developer, citing a long-standing exception to freedom of contract in condominium developments first laid out in Barclay v. DeVeau, 384 Mass. 676, 682 (1981) (“Absent overreaching or fraud by a developer, [courts] find no strong public policy against interpreting [the Act] to permit the developer and unit owners to agree on the details of administration and management of the condominium…”). Trustees, supra at 709.  In Trustees, the SJC determined that “it is overreaching for a developer to impose a condition precedent that, for all practical purposes, makes it extraordinarily difficult or even impossible for the trustees to initiate any litigation against the developers regarding the common areas and facilities of a condominium.” Id (emphasis in original)

Where Does That Leave Us?

Trustees continues the Court’s expansion of the rights of residential property owners to sue builders for defective construction, which the Court initiated in Albrecht v. Clifford, 436 Mass. 706, 710-11 (2002) (applying warranty of habitability to new home sales). It also continues the expansion of the rights of condominium trustees to sue developers for common area defects, following Berish v. Bornstein, 437 Mass. 252, 265 (2002) (organization of unit owners may sue for breach of the implied warranty of habitability over latent common area defects that implicate the habitability of individual units) and Wyman v. Ayer Properties, LLC, 469 Mass. 64 (2014) (economic loss rule does not apply to damage caused to common areas by builder’s negligence).

Yet, for condominiums, the decision is also quite narrow, because it invalidates the use of the bylaw only for building defect claims against developers. Even here, the Court provided little guidance on whether a modified bylaw might be acceptable. Would, for example, a bylaw requiring the same 75% owner consent that is statutorily required for improvements and casualty repairs be acceptable, especially if developer units cannot vote? Trustees does not say.

Moreover, the Court’s refusal to strike the provision universally presents far-reaching consequences for condominium boards. Outside of common area defect claims against developers, the provision continues to apply to all litigation by condominium trustees except suits against unit owners. Other litigation must be preapproved and specially assessed in condominiums where the bylaw exists. Is this a useful check on board power or an overly restrictive set of handcuffs that make condominium management more difficult? Those boards who celebrate the demise of the “poison pill” may come to realize that their indigestion is a long way from being over.

Samuel B. Moskowitz is shareholder at Davis Malm & D’Agostine, P.C. His practice focuses on real estate and condominium law. He is a former Chair of the Boston Bar Association Real Estate Section, the editor and a contributing author of Massachusetts Condominium Law (MCLE, May 2017). He gratefully acknowledges the assistance of Nour E. Sulaiman, a law student at Northeastern University School of Law, who contributed invaluably in the preparation of this article.