Casting new light on a continuing problem: re-considering the scope and protections offered by Massachusetts's Condominium Conversion regulations.

• Author: Chabot, Douglas E.

"Unless the available stock of rental housing, and the tenants who reside therein, receive further protection from the consequences of conversion of said accommodations to condominiums and cooperatives than the law now affords, this rental housing shortage will generate serious threats to the public health, safety, and general welfare of the citizens of the commonwealth, particularly the elderly, the handicapped, and persons and families of low and moderate income." (1)

1. INTRODUCTION

   Twenty-five years ago, the Massachusetts General Court declared an emergency regarding rental housing in the Commonwealth. (2) It responded by enacting the Massachusetts Condominium Conversion Act (the Conversion Act), which regulates the conversion of rental housing into condominiums. (3) The Act grants current tenants, particularly those who are elderly, handicapped, and low-to-moderate income, numerous protections if they reside in housing undergoing conversion. (4) It also provides minimum requirements for all apartment conversions in Massachusetts, permits cities and towns to adopt additional protections, and exempts certain municipalities from its provisions. (5)

   The same emergency declared twenty-five years ago continues to be a problem today for elderly, handicapped, and low-to-moderate-income tenants, in part because condominiums remain a significant percentage of the Massachusetts real-estate market. (6) Condominium sales reports typically do not indicate whether the sale was of a newly constructed condominium or of a converted condominium; this makes it difficult to specifically determine the number of condominiums converted from rental housing. (7) The conversion of rental housing to residential condominiums appears to be a large share of Massachusetts condominium sales, despite the lack of precise statistics on the structure of condominium sales. (8) Of particular concern to this Note, converted condominiums containing fewer than four units constitute roughly one-third and possibly as many as two-thirds of all converted rental units. (9)

   Small unit volume (SUV) rental-housing conversion, the conversion of rental housing containing less than four units, is problematic for current tenants and landlords because the Conversion Act does not apply to rental housing with fewer than four units. (10) A tenant living in a three-unit residential apartment building, such as a townhouse, for example, receives no protection under the Conversion Act if the landlord or building owner decides to convert the building into condominiums. (11) Additionally, municipal ordinances that provide exemptions or additional protections from the Conversion Act differ in their applicability to housing with four or more units. (12)

   This Note argues that there should be more protection for tenants and buyers of converted SUV residential properties. Part II examines rental-housing conversion practices and provides a summary of federal, state, and local laws designed to protect individuals and the public from the adverse effects of conversion. (13) Part III begins with a discussion of the current law's failure to adequately protect the elderly, handicapped, and low-to-moderate income SUV tenants from conversion's negative effects. (14) Then, Part III argues that eliminating the SUV rental-housing exemptions, requiring developers to report condominium conversions to government agencies, and compiling conversion statistics will increase public awareness and enforcement of tenant protections. (15)

2. HISTORY

   1. A Brief History of Condominiums and Conversion

      Since state governments passed the first condominium enabling statutes in the 1960s, condominiums have represented a significant percentage of the United States's residential real-estate market. (16) During the last forty years, the conversion of rental housing into residential condominiums has paralleled and in some areas even exceeded the construction of new condominiums. (17) Condominium developers are motivated to convert existing properties, rather than construct new physical properties, because conversion is typically less expensive than new construction. (18) Property owners favor conversion because it ensures immediate profitability from the sale of the property, rather than potential long-term profitability from renting the property. (19) Purchasers, especially single persons and young couples, create a large market for conversion because condominiums in general, and converted condominiums in particular, are less expensive to purchase than single-family homes. (20)

      Rental property conversion in urban areas contributes to the gentrification of American cities. (21) Condominium conversions and the gentrification of urban areas can be detrimental to poor, elderly, and disabled residents. (22) Conversion often displaces tenants from their current rental housing because tenants cannot afford to purchase the converted condominium units and, simultaneously, conversion shrinks the overall rental-housing stock. (23) This trend increases the difficulty of securing alternative affordable rental housing, especially for low-to-moderate income, handicapped, and elderly tenants. (24) New construction of affordable housing, while significant, fails to adequately supplement the loss of rental housing caused, in part, by conversion. (25) Current apartment vacancy rates in Massachusetts remain low, ranging between 5 and 6 percent; however, this is not quite as low as the vacancy rates experienced during the affordable-housing crisis of the late 1970s and 1980s. (26)

      Recently there has been a movement to convert SUV rental housing. (27) During the 1970s and 1980s, the conversion of SUV rental housing was uneconomical because the tax and property benefits to the converter were too insignificant to encourage conversion. (28) Recent trends, however, particularly in Cambridge, Massachusetts, strongly suggest that SUV conversions now have economic benefit. (29) In Cambridge, the conversion of SUV rental housing into one-, two-, and three-unit residential condominiums may constitute two-thirds of all rental properties undergoing conversion. (30)

      In Massachusetts, the three legislative areas that significantly impact condominium conversions are the Conversion Act, individual municipal ordinances, and, under federal law, the Condominium and Cooperative Conversion Protection and Relief Abuse Act (CCCPARA). (31) This Note will examine each of these legislative areas to determine the current protection offered to tenants, property owners, and property buyers. (32)

   2. The Massachusetts Conversion Act

      In 1983, the Massachusetts legislature passed the Conversion Act in response to the Commonwealth's rental-housing shortage. (33) The Act's goal was to protect low-to-moderate income, elderly, and handicapped tenants from the loss of rental housing due to condominium conversions. (34) This original version of the Act supplemented existing tenant protections within the typical landlord-tenant relationship, such as the prohibition on tenant eviction prior to lease termination without showing just cause. (35) In 1989, the Massachusetts legislature amended the Act primarily to clarify the form, as well as the period when landlords must give notice of intent to convert to tenants. (36) The Conversion Act remains in effect today, despite the 1994 repeal of rent control throughout the Commonwealth. (37)

      Under the Conversion Act, tenants must receive at least one- or two-years notice of an owner's intent to convert the rental housing, and owners cannot evict tenants during this notice period. (38) Tenants have the right to purchase the converted units on terms substantially similar to the terms offered to the public, and if tenants do not exercise their right to purchase, they may be entitled to relocation expenses. (39) Landlords are required to provide assistance in finding alternative housing for some tenants. (40) The Conversion Act also restricts landlords from drastically increasing rental prices until the notice period expires. (41) Owners who do not comply with the Act can face a minimum $1,000 fine, a sixty-day confinement, and injunctions from further violations. (42) The Act does not affect buyers of converted condominium units because the conveyance to a bona fide purchaser remains valid despite any violations committed by the owner. (43) The Act, however, does create a moratorium on conversions; its entitlements result in delays but not prohibitions. (44)

      The rights and obligations created by the Conversion Act are enforceable in Massachusetts courts. (45) Tenants, however, are seldom aware of the Act or the protections it provides. (46) District attorneys have the authority to prosecute violators; unfortunately, they rarely use this authority. (47) Instead, tenants often have to assert their rights under the Act as a defense during an eviction proceeding. (48)

      The Conversion Act contains two major limitations that prevent it from applying to all converted rental properties. (49) First, the Act's definition of "housing accommodation" creates an exemption for conversion of buildings with fewer than four residential units. (50) The justification for this exception is unclear because the legislative history does not provide a reason for defining "housing accommodation" as a building with four or more units. (51) Second, as originally passed, the Conversion Act exempts five municipalities from the Act's requirements because the legislature had previously authorized these municipalities to govern condominium conversion. (52) The Act allows all other municipalities to provide additional tenant protections through a two-thirds vote of the municipal or town legislative authority. (53) Any additional protections and conversion ordinances governing the five exempt municipalities must have the purpose of protecting current tenants. (54) The next section will examine several of the cities that have condominium conversion...