Selling Your Condominium? Don’t Forget about the Resale Fee!

Selling Your Condominium? Don’t Forget about the Resale Fee!

Increasingly, condominium boards are adopting resale fees (or transfer fees) to be assessed in connection with the sale of units in their communities. In a recent decision, Alves v. Clarendon Condominium Trust, Suffolk Superior Court Civil Action No. 2384CV01771-BLS2, the trial court considered whether a claim for declaratory judgment concerning the validity of such resale fees asserted by two former unit owners at The Clarendon Condominium (“Condominium”) should survive cross-motions for judgment on the pleadings – that is, whether the claim sufficiently states a claim suggesting an entitlement to relief. 1 In denying the motion of the Clarendon Condominium Trust (“Condominium Trust”), which argued that the unit owners did not sufficiently state a claim for declaratory judgment, and in denying the cross-motion of the unit owners, which argued they are entitled to a declaration as a matter of law, the trial court left open the issue to be resolved on another day, upon a complete factual record. A copy of the decision can be found here.

While this is only a preliminary decision that has allowed the case to survive, and the ultimate decision in the case may rest upon and establish different principles of law, there are some interesting questions raised by the decision that are worth comment.

The Case:

The plaintiffs, Caroline Alves (“Alves”) and Melissa White (“White”), two former unit owners at the Condominium located in Boston’s Back Bay, brought this putative class action suit, on behalf of themselves and others similarly situated, challenging the legality of the resale fee that residents of the Condominium must pay upon the sale of their units. Plaintiffs argue that the resale fee violates the Massachusetts Condominium Act, G. L. c. 183A and the Condominium’s governing documents, including the master deed and the Declaration of Trust (the “Declaration”)

Alves sold Unit 25A in June 2022 for $2,800,000 and Unit 27D in July 2022 for $5,200,000. In connection with the sales, Alves was subject to a total resale fee of $29,349.00. White sold Unit 17C in August 2022 for $1,700,000. White’s resale fee totaled $10,499.50. The resale fees amounted to six (6) months of common fees and parking fees, which the sellers were required to pay in order to receive a clean § 6(d) certificate. Alves and White both allege that they were unaware of the resale fee prior to purchasing their units.

The Condominium Trust adopted the subject transfer fee relying on Article V, Section 17A of the Declaration which provides, as follows:

Section 17A Fees

The Trustees shall have the right to require the Condominium Unit Owners (other than the Declarant) to pay a non-refundable fee of five hundred dollars ($500.00) whenever a tenant or owner moves into, or out of a Condominium Unit. The fee shall be a Common Charge and shall constitute a lien on the Unit, enforceable in the manner set forth in Section 2(f) of Article V. The Trustees shall have the right to change the amount of such fee at their discretion, without the vote of the Unit Owners. The Trustees shall, in addition, have the right to assess other fees including, without limitation, transfer fees and renovation fees when a Unit is conveyed. The amount of said such fees shall be determined by the Trustees at their sole discretion.

The resolution the Condominium Trust adopted provides that a transfer fee in the amount of “six (6) months’ Common Charges “shall be payable to the Clarendon Condominium Trust by the unit Owner of such Condominium Unit” at the time of sale “and shall be in the form of ‘Common Charges’ as described in Section 2 of Article V of the” Declaration.

The trial court pointed out that the resolution does not describe the purpose of the transfer fee or how the amounts collected will be spent.

The principal issue before the trial court on cross-motions for judgment on the pleadings was, on the one hand, whether the unit owners sufficiently stated their declaratory judgment claim so that it plausibly suggested an entitlement to relief and, on the other hand, whether the plaintiffs were entitled to relief as a matter of law. The trial court refused to enter judgment for either the plaintiffs or the defendant determining that there were fact issues that prevented the entry of judgment.

The Court commenced its analysis of the Defendants’ claim by observing that the Condominium Act defines “common expenses” as “ the expenses of administration, maintenance, repair or replacement” of the common areas and facilities. The Court then noted that Section 6(a)(i) of G.L. c. 183A and Section 14(b) of the Master Deed provide that at the Clarendon all common expenses should be assessed against all units in accordance with their respective percentages of undivided beneficial interest. Based primarily on those provisions, the trial court concluded that if the plaintiffs could prove that the Condominium Trust adopted the transfer fee to defray future common expenses the fee would violate the Condominium Act because it would be the equivalent of a one-time payment of common expenses that was not assessed to all unit owners according to their respective percentage of beneficial interest. For that reason, the trial court conclude the defendants could not prevail on a motion for judgment on the pleadings.

In rejecting the plaintiffs’ arguments in support of its motion for judgment on the pleadings, the trial court found that the resolution adopting the transfer fee did not, on its face, evidence the imposition of an improper common expense. In so doing the trial court rejected the plaintiff’s contention that the term “Common Charge” in the resolution was synonymous with the term common expense in G.L. c. 183A. The trial court allowed for the possibility that the term Common Charge might not have the same meaning as common expense because the purpose and function of the transfer fee might lead to a determination that it was not a fee for a common expense. In support of such finding the trial court observed that the Defendants claimed that the transfer fee was a fee to defray costs associated with the sale of a unit “which is potentially lawful” presumably because costs associated with the sale of a unit are not expenses of administration, maintenance, repair or replacement of the common areas.

While this is only a preliminary decision that has allowed the case to survive, and the ultimate decision in the case may rest upon and establish different principles of law, there are some interesting questions raised by the decision that are worth comment. These observations may be rejected, or not even addressed, by the trial court in issuing its ultimate judgment, should the case not be resolved prior thereto.

Common expenses are the expenses of administration, maintenance, repair or replacement of the common areas and facilities, and expenses declared common expenses by the chapter. A transfer fee is arguably not an assessment of a “common expense” under Section 6(a)(i) because the transfer fee does not fit that definition. A transfer fee is not premised on an expense of operation, maintenance, repair or replacement of the common areas. In fact, there is no expense that underpins or supports a transfer fee. To the contrary, it is a payment windfall to the association that is not tethered to any expense. In Ales the Defendants inexplicably appear to intentionally link the fee to an expense, but that does not, at least at first blush, seem defensible. A transfer fee generates income, but not to offset any expenditure by the association that could constitute a common expense. If that is the case, Section 6(a)(i) is inapposite as that section simply does not require that all fees charged to a unit owner be assessed according to percentage interest.

There is a question of whether the validity of a transfer fee can be determined by identifying what costs it might be intended to defray, or how the fee is subsequently spent. Because money is fungible, all income to an association unquestionably defrays all expenses, including the expenses of administration, maintenance, repair, and replacement (i.e. common expenses) and the costs associated with the sale of a unit (something the court suggests may not be common expenses). Any money in an association’s bank account reduces the need to raise additional funds and, thereby, defrays costs. In any event, if the answer to the question were based on such criteria it would be so easily manipulated by accounting sleight of hand as to be meaningless. Finally, in this circumstance, it is unclear how costs associated with the sale of a unit are not expenses of administration that would, themselves, constitute common expenses, so the effort to distinguish may be based on a false premise.

The fact that the fee is clearly disclosed in the Declaration put any prospective purchaser on notice of the possibility that a transfer fee might be adopted. That should have been more than enough to impose a duty upon the purchasing unit owner to inquire. The question could have been posed directly to the seller or the association. As any buyer is charged with record notice of what is recorded in the chain of title to the property it acquires, the mere fact that the certificate referencing the transfer fee was one of several is not compelling. The Condominium Act has been repeatedly described by the appellate courts of the Commonwealth as an enabling act, which provides planning flexibility to a developer. The fact that the authority to levy such fee is contained in the Declaration, coupled with the argument that the fee does not appear to directly conflict with G.L. c. 183A section 6(a)(i), provides a sound basis in this circumstance to enforce the provision of the Declaration empowering the Condominium Trust to charge the transfer fee.

1The unit owners asserted a number of counts, but this article focuses on the court’s treatment of the unit owners’ claim for declaratory judgment concerning the validity of the resale fee.

Laura Brandow Condo Law Blog

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

Amanda Rountree