The B Corp: An Emerging Concept

A new type of corporation has arisen in the form of the B Corp.  The term can be used to refer to either Benefit Corporations, which are recognized under the benefit corporations laws of an increasing number of individual states, or Certified B Corps, which are certified by the 501(c)3 nonprofit B Lab.  What all B Corps have in common is an emphasis on solving social and environmental problems through an increased emphasis on high standards of corporate purpose, accountability, and transparency.

Of course, that is a nice way of saying that shareholder profits take a back seat to these admirable objectives.  However, B Corps are not just an idealistic dream of socially conscious aspiring entrepreneurs.  Ben & Jerry’s recently became the first subsidiary of a publicly traded company to become a B Corp.  The ice cream company has a notable history of social responsibility, of course, which led to firsthand experience with the conflict between shareholder interests and a socially conscious corporate platform.  There was quite a controversy in 2000 when Unilever offered to buy Ben & Jerry’s, and the Board of Directors agreed, purportedly due to a fear of being held personally liable in litigation by shareholders who believed the sale was in their best interests.

While the acquired Ben & Jerry’s did not go on to become completely alienated from the social practices that defined it as many had feared, its new status as a certified B Corp assures its ability to take into account the interests of society and the environment alongside those of shareholders. It will be interesting to see what other types of corporations embrace this designation, and if it will properly safeguard their interests.  While B Corps buck traditional conceptions of corporate values, they may also allow more small and socially-driven companies like Ben & Jerry’s to grow without losing the character that helped build their success.

 

FHA Eases Condo Financing Rules

In good news for those in the condo market, the Federal Housing Administration has revised its rules for condo financing, undoing years of frustration at rules that made most condos ineligible for FHA loans and their benefits.  The changes were issued and came into effect on September 13, 2012.

The FHA requires that certain aspects of condo buildings or developments be certified before any unit can be financed or refinanced with an FHA loan.  The certification process is designed to gather information about the physical, legal, and financial condition of the condo building or development.  The process has been criticized as costly and unrealistic, and the FHA ceased to have much of a presence in the industry after the enactment of these procedures.  The result was damage to the national housing market and everyone involved in it.  The FHA fell way below its projected number of insured condo loans issued during the fiscal year 2012.

As this process was clearly not working, these changes are welcome news for those in the condo industry and the housing market as a whole.  The new rules are expected to make it easier for condo associations to get FHA certified, thus increasing the availability of FHA loans.  As many buyers prefer to use FHA financing, condo sales are likely to increase.

NOTABLE REVISIONS TO FHA ELIGIBILITY RULES FOR CONDO BUILDINGS

ASSOCIATION OFFICER LIABILITY

The new rules revise the language used to describe personal liability for association boards and officers.  The previous language required boards and officers to attest that they had “no knowledge of circumstances or conditions that might have an adverse effect on the project” or “disputes concerning unit owners,” among other broad attestations.  This made the typically volunteer position of condo board officer much less appealing to those who may have otherwise been interested.  The new language is less intimidating, and will make such involvement more attractive.    However, the penalties assigned to  “knowingly” and “willfully” submitting false information to FHA remain severe.

ALLOWED % OF OWNERS BEHIND ON ASSOCIATION DUES

Additionally, condo associations can be certified even if 15% or less of the owners are behind on their monthly fees for up to 60 days, whereas before the time restriction was only 30 days. In an economy in which many owners struggle to pay their fees, this is good news.

ALLOWED % OF INVESTOR-OWNED UNITS

As for investors, they can now own up to 50% of the total units, if at least half are occupied by other owners.  Previously, this was only 10%.

ALLOWED % OF COMMERCIAL SPACE

Also, the amount of space that can be used commercially has been increased to 35% from 25%.  In certain cases, it could be up to 50%.  This is crucial because of the development of urban condos that contain retail stores and offices and depend on them to generate revenue to finance the development.

INSURANCE COVERAGE OF MANAGEMENT COMPANIES

The insurance rules for associations have also been changed for condos that use management companies.  Such companies no longer have to obtain separate fidelity insurance for each condo, but have the option of being named on the association’s policy as an insured or be subject to the policy under an endorsement on the policy.

While the FHA refers to the rules as “temporary adjustments” in response to changes in the market, they may become permanent if they have the desired effect on the housing market.  Some in the industry hope for additional changes, such as lowering the requirement that 50% of a condo development’s units be sold to third-party buyers before it is eligible for FHA financing – a difficult task when most people want to use FHA loans, but these new rules are a step in the right direction for those involved in the condo market.

 

Landlords Beware: Recent Decision Limits Fees

A recent federal court decision rebuked a large landlord for charging non-refundable amenity fees at the start of the lease.  See Hermida v. Archstone Properties (D. Mass. Nov. 29, 2011).   United States District Court Judge William Young found that such fees, which are often charged for cleaning or for use of common facilities such as pools, violate the Massachusetts Security Deposit Act.  See  G.L.c. 186, §15B(1)(b).

Judge Young found that under Massachusetts law, landlords can charge tenants only for first and last month’s rent, a security deposit, and a key installation fee.  That’s it.  Landlords that have been charging so-called amenities fees may be in trouble.  The attorney for the plaintiff tenants in the recent case has filed more lawsuits against property management companies and Judge Young approved the case for a class action.

While it may be tempting for landlords to use such fees in lieu of a security deposit and the complex statutory requirements regarding them, or in order to offer lower rent rates, this decision shows that it is a risky choice.

Delayed and Insufficient Maintenance Exposes Condo Association to Liability

A year ago, a Massachusetts jury awarded Amedeo Gallotto nearly $7.8 million.

The reason?  Gallotto, an experienced boilermaker, was severely burned and traumatized in a water heater explosion at a condominium complex.  He had been called to repair a leaking gasket, but the heater was still under pressure when he opened it, causing the incident.

Gallotto sued the condominium association, and a jury found that it had been negligent because its agents had failed to completely drain and depressurize the tank.  Additionally, the gauges had not been updated in 41 years, skewing the thermometer reading such that Gallotto could not properly judge the pressurized conditions of the tank.  This was alleged to have happened because the agents were trying to ensure that enough hot water remained for the residents to shower, as there had been a problem retaining a sufficient amount of hot water to service all of the units.  Cost cutting measures had prevented the installation of new gauges and proper maintenance by an outside contractor.  All maintenance had been done in-house, by people who apparently did not have the necessary expertise.

This case constitutes a cautionary tale about how condo associations can be held liable for large amounts of money due to delayed maintenance and work performed by unqualified workers.  Condominium associations and similar entities must make sure they have properly trained personnel and procedures in place to avoid dangerous situations that may not seem serious but could result in significant liability for the associations.   When it comes to the maintenance of their properties, condo associations must be vigilant about not putting convenience before safety, even when it seems like the time or money-saving measures are minor.  Even seemingly small issues, like leaving a small amount of hot water in the tank for resident showers, can have very costly outcomes.

Using Comparable Condo Units to Challenge Your Property Tax Assessment

If you are a condo owner, you may have discovered that the assessed value of your property differs from the assessed value or sale price of similar units in your condo development.  As a result, you may have come to the conclusion that your unit has been overvalued and requested an abatement from your assessors.  If this abatement was denied, but you feel the denial was erroneous, you may consider appealing to the Massachusetts Appellate Tax Board.

Many people who appeal property taxes to the Massachusetts Appellate Tax Board represent themselves, and may not know how to effectively present evidence to support their claims of overvaluation.  It is important to know that you, the appellant, have the burden of proving you are entitled to an abatement.  See Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974).  While the assessment is presumed valid, the assessors are required to assess your property at fair cash value. Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).

You may meet your burden of proof by establishing that the assessors erred in their method of valuation, or by presenting affirmative evidence of a fair cash value. See  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984).

If you try to introduce the assessed value or sale prices of comparable units as evidence of the fair cash value of your unit, you must make adjustments for factors that would otherwise cause disparities in the comparable prices or values.  See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082.  For example, in Nathan T. & Shirley F. Krasignor v. Assessors of Wayland, Mass. ATB Findings of Fact and Reports 2009-254, the unit in question had a finished basement. Other units in the complex that the appellants alleged were comparable did not have a finished basement, which lowered their relative value.  The appellants failed to present evidence of any of the amenities of these condos, such as by providing property record cards.  Failure to account for unit features or aspects of the sale (i.e. a transaction that is not arm’s-length) of purportedly comparable properties will make it difficult for you to meet your burden.

Additionally, when you do attempt to make adjustments, you must be sure to adequately substantiate them. In Krasignor, the appellants argued that the cost of the basement remodel was less than the difference between the assessed value of their property and that of comparable units. See id.  However, the appellants supported this contention with only a self-prepared valuation statement, photographs of the finished basement, and a contractor’s quote for a remodel of the basement.  They never provided any information substantiating the actual costs of the remodel.  Self-compiled documents containing unverifiable or unsubstantiated information will not meet your burden, even if they contain data from credible sources or that you know to be true.  You cannot simply asks your neighbors the value of their units and submit a sheet listing this data, or Google their addresses and take a value off the Internet. But see Edward S. & Ann F. Turner v. Assessors of Lunenberg, Mass. ATB Findings of Fact and Reports 2012-912, 915; Krasignor, Mass. ATB Findings of Fact and Reports 2009-254, 256.  Instead, consider presenting property record cards  or other credible data. See Krasignor, Mass. ATB Findings of Fact and Reports 2009-254, 257.

Some condo owners may assume that making improvements to their units, such as adding a finished basement, results in a lowered fair cash value. See Turner, Mass. ATB Findings of Fact and Reports 2012-912, 916.  This is based on the premise that the cost of the repairs should be deducted from the assessed value.  In reality, these improvements typically increase the fair cash value of your unit.  See id. at 917.  An improved unit will likely be more attractive to willing buyers.

One last thing to note is that if you introduce an appraisal report that supports your valuation but do not bring the appraiser to the hearing to testify, the appraiser’s opinions of value and adjustments will be considered unsubstantiated hearsay and will not help you meet your burden. See id. at 915. Only the factual information contained in the report will be allowed to speak for itself and be taken into consideration. See id.

The bottom line is that you must do your homework and be sure to substantiate claims your claim of overvaluation. Visit the Tax Board’s website and check out this helpful guide and in preparation of your appeal.  Finally, look through past findings of fact and reports (there is a search function to find appeals that may raise similar issues as yours) in order to get a sense of how the process works and what evidence you should offer to be a successful appellant.

Introducing the Schofield Law Group

It has been nearly nine years since I formed my own law firm and thirteen years since I started practicing law, and during that time I have learned that the best part of my job is serving as an advisor and advocate for my clients.  I take great pride in helping my clients to resolve disputes, manage assets, and grow their businesses, and it is this commitment to client success that will be the guiding principle of the Schofield Law Group.