Court decision recognizes loophole in the NH condominium act - by Thomas Aylesworth

The New Hampshire Condominium Act is probably not on your upcoming summer reading list. The Act, codified at RSA 356-B, contains no fewer than 70 sections, including numerous lengthy and detailed provisions establishing requirements that a condominium developer—referred to in the Act as the “Declarant”–must satisfy when creating a condominium. Many of the Act’s provisions require the Declarant to make a written record, including the condominium “Declaration,” which is a complex legal document that includes highly detailed information about the condominium. The Declarant must also prepare site plans showing the location of buildings and amenities, and floor plans depicting the layouts of the units. All of the materials must be submitted in a public offering statement for approval by the New Hampshire Attorney General’s Office. Once approved, the Declarant must record the materials with the local Registry of Deeds, and upon the recording, the condominium is born. 

What is the Act’s purpose in requiring the Declarant to go through a fairly arduous process just to create a condominium? The answer is to protect the public, or more specifically, to protect people who wish to purchase condominium units. The main focus of the Act is to provide notice to prospective unit purchasers so that they make a fully informed decision whether to by a unit. One of the most important considerations for prospective unit owners is the Declarant’s plan for building more units in the future, commonly known as “phasing.” Under the Act, prospective and existing unit owners are entitled to know how many units will be built and whether the units will be constructed on existing condominium land or land that will be added to the condominium. The Act provides two options to a Declarant who intends to phase future units. The first option, called “convertible land,” allows the Declarant to phase units on existing condominium land. The second option, called “expandable condominium,” allows the Declarant to phase units on land to be added to the condominium. Notably, the Act provides time limits for both options—10 years for phasing on convertible land, and 14 years for phasing on an expandable condominium. The Declaration and public offering statement must specify which phasing option is chosen by the Declarant. The Act’s time limits give certainty to unit owners who understandably do not wish to live in a construction zone indefinitely and who want autonomy from the Declarant.

In a recent court case, however, a Declarant found a loophole in the Act and was able to maneuver around the phasing time limits. In Condominiums at Lilac Lane v. Monument Garden, LLC, the Declarant argued that it was not subject to the Act’s phasing time limits because when it created the condominium, the Declarant chose neither the convertible land nor the expandable condominium options. Instead, in the Declaration, the Declarant identified the number of units to be phased in the future and submitted site plans showing where the new buildings and units would be located. The Declarant argued that it was not required to choose the convertible land or expandable condominium options, and instead it simply chose a third option that has no label or definition and is not expressly provided in the Act. Under this third undefined option, the Declarant argued it could build additional units into the future with no time limit. 

In deciding the case on appeal, the New Hampshire Supreme Court agreed with the Declarant. The Court considered language in the Act that allows a Declarant to identify future “improvements” as “not yet begun” or “not yet completed.” The Court reasoned that units are improvements, and the Act allows improvements to be made outside the convertible land and expandable condominium options. Thus, the time limits that restrict phasing under those options did not apply to the Declarant’s proposed future units. 

The Court’s decision in Lilac Lane is troubling because it is not in line with the Act’s fundamental purpose to protect the interests of the public. The Court interpreted the Act to mean that condominium units merely depicted on the Declarant’s plans (referred to as “paper units” or “land only units”) and recorded with the Registry of Deeds are actually “units.” This means that, in theory, a Declarant may be able to market and sell paper units to unsuspecting purchasers, harkening back to the days of unscrupulous developers selling condominium units in Florida that were nothing more than swampland. Moreover, the decision sends a signal to New Hampshire condominium developers that they can avoid the phasing time limits simply by not choosing the convertible land or the expandable condominium options. With the third undefined phasing option now in play, it seems unlikely that any New Hampshire declarant will ever choose the time limited options of convertible land or expandable condominium. In other words, the Court has found a loophole in the Act, and Declarants can now easily avoid the Act’s phasing time limits. 

The New Hampshire Supreme Court may not necessarily have the last word on this subject. After the Court’s decision in Lilac Lane, the New Hampshire House of Representatives presented a bill to close the loophole. If the bill becomes law, Declarants who wish to phase units will be required to choose either the convertible land option or expandable condominium option, both of which are time limited. The bill is winding its way through the New Hampshire legislature, and supporters of the bill are hopeful that it will become law later this year. 

The full citation for the New Hampshire Supreme Court’s decision is: Condominiums at Lilac Lane Unit Owners’ Association v. Monument Garden, LLC, 170 N.H. 124 (2017).

Thomas Aylesworth is an associate with the law firm of Moriarty Troyer & Malloy LLC, Braintree, Mass.