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A WORD OF CAUTION FOR TWO-TRUSTEE CONDOMINIUM TRUSTS

A recent (unpublished) Rule 1:28 decision, Hancock v. Chambers, 85 Mass. App. Ct. 1106 (2014), reminds both condominium owners and trustees and attorneys of the care that needs to be taken when drafting-and attempting to enforce-condominium trust documents so that they ultimately make operative sense.

This advice especially applies, it seems, when the condominium trust is set up to have only two trustees, say, when there are only two condominium units in a two-family structure.

In Hancock, there were two condominium units, and the usual common areas. Plaintiffs and Defendants each held undivided interests in the common areas. Specifically, Plaintiffs (husband and wife) owned one unit and held the majority of the condominium trust's beneficial interest, while Defendants (two women) owned the other unit and held the remainder minority interest. One Plaintiff and one Defendant each served as trustee of the trust.

Problems started when the city inspectional services notified the Defendants that there were several building and zoning code violations in the common area, which were to be "corrected immediately due to the life safety issues involved." Right away, Plaintiffs reached out to Defendants (via counsel) to request that the corrections be made.

Presumably after no response or action from Defendants, the Plaintiffs reached out several more times over the next year to prompt Defendants to fix the problems, and also to threaten (a few times) the removal of Defendant-Trustee as trustee at various proposed special meetings. Incidentally, intervening these communications from Plaintiffs, was another, more sternly worded, notice from inspectional services that included possible legal action.

Ultimately, after Defendants failed to attend the proposed meetings or correct any of the common area issues, Plaintiffs voted to remove Defendant-Trustee as trustee, and replace her with the other (non-trustee) Plaintiff.

The essence of Plaintiffs' claims against Defendants in the Superior Court action were 1) that Defendant-Trustee breached her fiduciary duties as former trustee, and 2) that both Defendants breached their obligations under the condominium documents (i.e. misuse of the common areas). On summary judgment, the court ruled in favor of Plaintiffs. Defendants appealed on the grounds that "plaintiffs had improperly removed [Defendant-Trustee] as trustee and therefore lacked standing to bring the underlying suit." Specifically, the Defendants argued that the Plaintiffs failed to comply with the several provisions of the declaration of trust that set forth the proper manner for removing a trustee.*

The Appeals Court set forth some black letter condominium/contract law before making its analysis:

A trust should be construed 'to give effect to the intention of the settlor as ascertained from the language of the whole instrument considered in the light of the attendant circumstances.' [citations omitted] [E]very word and phrase of a contract should, if possible, be given meaning, and none should be treated as surplusage if any other construction is rationally possible. [citations omitted] Common sense is as much a part of contract interpretation as is the dictionary or the arsenal of canons. [citations omitted] If literalness is sheer absurdity, we are to seek some other meaning whereby reason will be instilled and absurdity avoided.

Using these principles, the Appeals Court ultimately determined that the Defendant-Trustee was not improperly removed (and thus Plaintiffs' had standing to maintain their suit).

First, despite Defendants' arguments, there was no requirement that a special meeting of unit owners be noticed or held first; there is no such reference within the trustee removal provision. Second, and perhaps more importantly, the court noted that the lack of a quorum was not determinative in any ability to properly remove a trustee:

Because the trust at issue has only two trustees, literal application of these provisions [§§ 4.7.1 and 4.8.1] would render impossible the removal of [Defendant-Trustee] as trustee. Neither method of removal under § 4.3 would be feasible. Pure obstinacy would guarantee that the majority of trustees would never reach the required number of two. By refusing to attend a meeting at which the plaintiffs sought her removal, a trustee could ensure her permanent place as a trustee. The trustee would retain her position against valid grounds for her removal.

We cannot accept this interpretation of the declaration of trust. It appears intended for condominium trusts containing three or more trustees, and not for the confined structure of a two-trustee entity. Not only is the interpretation at odds with common sense, but it renders § 4.3 as pure surplusage and leaves the condominium governance in a state of dysfunctional paralysis. To avoid this unworkable result, we conclude that a majority of trustees under § 4.3 need not comprise a minimum of two trustees. (emphasis added)

Once again, though Hancock is merely available for persuasive consideration, it does remind attorneys to be careful when drafting condominium documents, and to pay particular attention to provisions that might not make sense in the two-unit situations. Similarly, trustees and purchasers of condominium units should carefully review the language set forth in these documents, and seek the assistance of counsel if something doesn't add up.

* Here is the specific provision (Section 4.3) of the declaration of trust that the Appeals Court analyzed with respect to trustee removal:

A Trustee ... may be removed from office:

(a) with or without cause by the vote of the Holders of the majority in interest of the Beneficial Interests, but such removal shall take effect only when approved by vote of a majority of the Trustees then in office, exclusive of the Trustee or Trustees to be removed; or

(b) for cause by vote of a majority of the Trustees then in office (emphasis added).

The Defendants also relied on the language set forth in other provisions:

Subsection 4.7.1: "[a]t any meeting of the Trustees, a majority of the Trustees then in office shall constitute a quorum."

Subsection 4.8.1: (in pertinent part), that trustees may act "by a majority vote at any meeting at which a quorum is present. In no event shall a majority consist of fewer than two Trustees...."

Written by Kristen M. Ploetz, Esq., of Green Lodestar Communications & Consulting, LLC, on behalf of Jeffrey T. Angley, P.C. Edited by Jeffrey T. Angley, Esq.

Copyright (c) 2011-2014 by Jeffrey T. Angley, P.C. All rights reserved.

Disclaimer: The information contained in this post is general in nature and for educational purposes only. No personal legal advice is being provided. If you have an actual legal issue that needs to be addressed, you should seek the advice of competent legal counsel. This post does not create an attorney-client relationship between the reader and Jeffrey T. Angley, P.C., Phillips & Angley or their attorneys.

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