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Construction Defects In Condominiums: What Owners And Prospective Buyers Should Know About Common Areas

An often-overlooked downside to the surging real estate market is that the demand for good contractors often exceeds the supply. As a result, the risk of poor quality construction tends to rise as builders rush to complete jobs or use workers that are not up to the task. In the context of condominiums, the risks of construction defects present some unique complications for unit owners when the defect is found in a common area such as a roof, elevator, or staircase.

A defining characteristic of a condominium is that an organization of unit owners is responsible for the management and control of the common areas. Depending on whether the condominium takes the form of a corporation, a trust, or an unincorporated association, the organization of unit owners may be referred to as an "association," "board" or "trust." Here, the term "board" is used alternatively to refer to the trustees of a condominium trust, the board of managers of an unincorporated association, or the directors of a corporation. The board exercises this control according to the terms of the condominium bylaws.

For condominium owners and prospective buyers, it is important to understand how the risk of construction defects differs depending on whether the defect occurs in the owner's individual unit or in a common area. When a defect is within a particular unit, the owner can initiate litigation against the developer if the defect is uncovered within the applicable limitations period. For defects in common areas, however, the Massachusetts Condominium Act, Gen. Law c. 183A, ยง 10 (b) (4), gives exclusive authority to the board to litigate matters involving common areas.

There are many positive and common sense reasons for this statutory restriction against individual unit owners initiating litigation for construction defects in common areas. There are also some important drawbacks that prospective condominium owners should know about. In particular, individual owners and prospective buyers of a condominium should know that the bylaws of a condominium that set forth the powers of the board are drafted by the condominium declarant. Because the declarant is often the developer of the particular condominium project, there is an incentive to draft the bylaws in a way that makes it difficult for the board to initiate litigation. Indeed, in recent years there has been a rise in the use of "anti-litigation" bylaw provisions that make it increasingly difficult for a board to initiate litigation against the developer.

A case now before the Supreme Judicial Court is illustrative of the issue. In Trustees of Cambridge Point Condominium Trust v. Cambridge Point, LLC, et al., the claims brought against the developer by the board were dismissed because the board did satisfy the requirements of the bylaws before initiating the litigation. Notably, the bylaws contained what has been described as a "poison-pill provision" that required the board to get approval of 80 percent of the unit owners before filing suit--a requirement the board claims was impossible to meet because the developer still owned nearly 25 percent of the units. The board appealed the dismissal on the grounds that the anti-litigation provisions in the bylaws violate the Massachusetts Condominium Act by improperly transferring the power to initiate litigation away from the board.

If dismissal of the board's claim is affirmed, developers may have an effective road map for how to insulate themselves from litigation. It remains to be seen how the SJC will rule on the issue in Cambridge Point Condominium. In the meantime, and in the event the SJC affirms the lower court's decision, prospective buyers should be wary of purchasing any condominium unit that includes such poison pill provisions because they severely limit their rights as owners. Moreover, the declarant's decision to include such provisions may be indicative that there are problems lurking under the surface that the developer is seeking to avoid and that could become the responsibility of the board and the unit owners.

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