Converting a multi-family property into condominiums can be very profitable for investors. Understanding the process is essential to a successful conversion. The Massachusetts Condominium Act outlines the requirements for condo conversions in this state. There are additional state and local laws as well. Below is a brief overview of the the legal documents for condo conversions in Massachusetts.
Condominium Master Deed
The master deed is a legal document that converts the property into a condominium. It provides details on the property, such as the individual units and any common areas. Typically, condo owners retain a percentage interest in common areas, which would be provided in the master deed. Most master deeds limit the use of units and common areas, for the benefit of the overall condominium. There are also provisions on how the deed can be changed in the future, if needed. This document, as well as any amendments to it, are filed with the local registry of deeds and are made publicly available.
Declaration of Trust
The second most important of the legal documents for condo conversions in Massachusetts is the Declaration of Trust. This is also commonly referred to as by-laws. It essentially creates a managing body for the condominium, such as a formal condo association and/or designation of trustees. The managing body is responsible for overseeing day-to-day condo operations such as collection of condo fees, management of funds, coordinating repairs to common areas, etc. The success of a condominium (and therefore retention of property value) is closely tied to how well a condominium is operated. Thus, this document is very important.
The declaration of trust is also where the rules and regulations of a condominium are provided. They cover everything from penalties for failure to pay condo fees to general rules for the property, such as:
- Pets allowed or restricted.
- Noise policies.
- Guidelines for usage of common amenities.
- Parking rules.
- Restrictions on smoking and related activities/products.
Declarations of Trust are also filed at the Registry of Deeds.
A budget for the condominium is something that most buyers and lenders will ask to see. This would include a forecast of income from condo fees, projected maintenance and other expenses, and a condo reserve. What most look for in this document is a sense of whether condo fees are sufficient to cover ongoing expenses and to build a capital reserve for larger costs in the future. Any shortage could result in an assessment charged to the unit owners, which is not ideal.
For instance, let’s assume the building needs a new roof at a cost of $30,000. If the association only has $10,000 in condo reserves, unit owners might be assessed the remaining $20,000, split among the owners based on percentage interest in common areas (as outlines in the condominium master deed). This could lead to a financial hardship for many. Alternatively, condo associations may opt to finance the repair and increase the monthly condo fees to recoup the cost gradually.
Most condo buyers will look to the condo budget to confirm that the association is in good financial health. Although they are not submitted into public record, they are still extremely important. Any signs of distress would negatively impact property values and/or deter potential buyers.
Summary of Legal Documents for Condo Conversions in Massachusetts
The above is just a quick overview of the 3 most important legal documents for condo conversions in Massachusetts. There are many other things to keep in mind as you convert properties in Massachusetts. You will incur certain expenses related to condo conversions. There are also state and city/town laws regarding existing tenants, such as notice timeframes and rights of first refusal. Working with an attorney experienced with condo conversions will ensure that you don’t miss any critical steps in the process. Contact Martino Law Group for more information on and for assistance with condo conversions in Massachusetts.