MBM Prevails in Land Court in Dispute Concerning Phasing Rights

MBM Prevails in Land Court in Dispute Concerning Phasing Rights

MBM recently received a favorable Decision and Order on a Case Stated in the matter captioned Michele V. Berio v. Town of Clinton et al., Land Court Case No. 22 MISC 000373 (DRR). A copy of the decision is available here. The case is emblematic of how nuanced disputes concerning condominium phasing rights can be.

This case underscores the complexities of the law relative to the development of condominiums, reserved phasing rights, competing ownership interests, and municipal taxation of reserved interests.

Factual Background

The developer-declarant of the subject condominium had submitted all the land located at 525 Water Street, Clinton, and the buildings thereon, to the provisions of G.L. c. 183A, § 1 et seq. when it recorded a Master Deed on March 17, 2006. At the time the condominium was created, there were two units. The Master Deed contemplated the phasing-in of additional units in three buildings over a ten-year period and reserved certain rights, including the reserved right to phase-in units, to the declarant. The declarant ultimately phased-in additional units and conveyed a total of five units to individual unit owners.

As an apparent result of the economic downturn in 2008, the declarant’s sales at the condominium stalled. The town recorded an Instrument of Taking in April 2009, identifying the declarant as the entity subject to taxation. Thereafter, in October 2015, the town instituted an action in the Land Court to foreclose its tax lien. Inexplicably, the condominium’s unit owners were made parties to the tax lien action but the condominium association was not. In September 2021, final judgment entered in the Land court proceeding as to “[a] parcel of land with the buildings thereon located and known as 525 Water St … . Said property consists of the property reserved by the developer of [the condominium] that has not been phased as a condominium unit(s) or common area(s) and facilities … .”

In February 2022, the town held a real estate auction, at which the plaintiff was the high bidder. The town and the plaintiff executed a Memorandum of Sale, reflecting that the plaintiff agreed to purchase the subject real estate for $2.1 million. The Memorandum of Sale described the real estate, in relevant part, as follows:

Land in said Clinton, with the buildings thereon, located and known as 525 Water Street … . Said property consists of the property reserved by the developer of [the condominium] that has not been phased in as condominium units or common area(s); excluding Unit 7, Unit 8, Unit 12 and 1 in the [condominium].

The Memorandum of Sale further provided, relative to title, that in the event the plaintiff claimed a “material defect in the recorded title,” the plaintiff should notify the town in writing, and the town could either terminate the agreement or perfect title. In the event the town could not perfect title, it was obligated to refund the deposit.

In accordance with the terms of the Memorandum of Sale, the plaintiff delivered a $210,000 deposit. Subsequent thereto, the plaintiff raised concerns relative to the town’s title, claiming a material defect therein. The town disputed the claimed material defect in the record title and declined to return the deposit.

Procedural History

The case presented certain unique procedural components. While the Complaint asserted a single cause of action for breach of the Memorandum of Sale and sought damages (not a claim over which the Land Court has jurisdiction), because the Land Court had previously rendered judgment in the tax title action and because the question as to whether there had been a breach of the Memorandum of Sale focused on whether there was a title defect (a substantive matter suited to the Land Court’s jurisdiction), the plaintiff filed suit in the Land Court. The judge in the Land Court was authorized to sit as a Superior Court judge to resolve the dispute. Additionally, both parties agreed to proceed on a case stated, submitting all pertinent facts for the court’s consideration.

Land Court Decision

The central issue in the case was whether there was a material defect in the record title. Notably, the case did not call upon the Land Court to resolve title, but merely to ascertain whether there was sufficient doubt in title to compel the town’s return of the deposit monies.

In its Decision and Order on a Case Stated, the Land Court first considered what constitutes a material defect in title. The court observed that a buyer is entitled to receive title free from encumbrances “beyond a reasonable doubt.” This standard does not require that title be free “from the mere possibility or suspicion of a defect,” but free from obvious defects. In summarizing case law as to what constitutes a material defect, the Land Court recited a well-established standard: “The buyer did not have to buy a law suit.”

The Land Court first assessed the Master Deed to determine the property interests that were reserved and retained by the condominium’s declarant. Reciting foundational principles of condominium law, the court held that all the land constituting 525 Water Street, Clinton, had been submitted to condominium status and comprises the condominium, with the exception of the declarant’s reserved rights, including its phasing rights.

The Land Court then proceeded to review the specific provisions of the subject Master Deed, and the parties’ differing interpretations relative to same. In broad strokes, the town claimed a continuing interest in eight “units” that had never been phased-in to the condominium, as well as certain portions of the common areas. The plaintiff, on the other hand, argued that the declarant’s reserved phasing right expired ten years after the creation of the condominium (that is, in 2016) and, thus, the town owned nothing. Don’t want to concede their arguments were plausible because there may be another lawsuit.

While describing the plaintiff’s interpretation of the Master Deed as “compelling,” the court noted that it need not resolve the meaning of the Master Deed language. Rather, all the court was being called upon to do was to ascertain whether there was a material defect in the record title. The Land Court observed: “In light of the ambiguous and potentially contradictory provisions of the Master Deed and the nuanced caselaw regarding reserved and retained rights in phased condominiums, I conclude that the answer to the question of what property rights, if any, were sold at [the] tax action is far from clear.” Citing the potential claims of the condominium’s trustees and unit owners, the court determined that there was a material defect in title in the subject real estate. As such, the court held that the plaintiff was entitled to a return of her deposit.

Takeaways

This case underscores the complexities of the law relative to the development of condominiums, reserved phasing rights, competing ownership interests, and municipal taxation of reserved interests. Engaging counsel with expertise in condominium phasing law was critical to demonstrating a material defect in the town’s title in this case.

For more detailed guidance or assistance with your real estate matters, please contact our office.

Kimberly A. Bielan Condo Law Blog

If you have any need for legal services related to this article, or any similar matter, you can email Kimberly at kbielan@mbmllc.com or contact any of our other attorneys at Moriarty Bielan and Malloy LLC at 781-817-4900 or info@mbmllc.com.

Kimberly A. Bielan