Jan 26, 2015
cameron

Solar Power Guide for Condominiums

Merrill & McGeary drafted the following guide for Condominium Trustees and Unit Owners who are interested in solar projects.

 

SOLAR PV SYSTEM GUIDE 

       I.   Introduction 

This Guide explains what a Condominium Trustee or unit owner should know in a general sense about the operation of a Condominium and the decision making process before any attempt to have a solar pv system installed on the roof of a Condominium building or on Condominium grounds.

The Guide responds to the following questions:

A.        How is a Condominium organized?

B.        Who makes decisions for the Condominium Association?

C.        What approval is required for the installation of the solar pv system?

D.        If Condominium common funds are to be expended for the installation of the solar pv system, who must approve the funding and what legal requirements must be met to do so?

E.        How might a solar pv system proponent approach the Trustees and win their support and that of the unit owners?

II.  Condominiums in General

             Condominiums in Massachusetts are created pursuant to the requirements of Massachusetts General Laws, Chapter 183A (hereinafter, Chapter 183A) by the recording of a Master Deed in the appropriate Registry of Deeds.  The Master Deed describes the units and common areas.  A Condominium floor plan depicting the units and common areas must also be filed with the Master Deed. The Master Deed provides for the separate creation of a unit owners’ organization to manage, maintain, and govern the Condominium.  The unit owners’ organization is generally arranged either as a Trust or an Association. If it’s a Trust, a Declaration of Trust is recorded with the Master Deed. If it’s an Association, By-laws are recorded.  Regardless of the unit owners’ form of organization, this Guide refers to all of these documents collectively as the “Condominium Documents,” and the terms “Trust” and “Association” are used interchangeably.

If one analogizes a Condominium to the creation of the United States of America, these documents are similar to the Declaration of Independence (Master Deed), Constitution (Trust or Bylaws), and maps of the states with boundaries (Plans).   In essence, a Condominium is its own country with its own rules of governance.  Each unit owner becomes bound by the terms of the Condominium Documents by accepting and recording the unit deed

Before undertaking any action to install a solar pv system, it is important to review the Condominium Documents.  Condominiums can vary in their structure and governance provisions depending on the types of buildings and use of the units.  For example, some mixed-use Condominiums that contain both residential and commercial units have both residential Trustees and commercial Trustees, as well as separate budgets.  Condominium Documents are also often amended by vote of the unit owners, so it is also important to check the records of the Registry of Deeds to determine if any amendments have been adopted.

III.  Decision Making in Condominiums

             The Declaration of Trust or the Association Bylaws provide for the election of Trustees of the Trust or Managers of the Association (together, the “Trustees”) and gives them broad powers to manage the common elements of the Condominium. Most decisions in a Condominium are made by the Trustees, including decisions about the use and maintenance of the common elements and spending common funds. The Trustees are elected by the unit owners at annual meetings and serve for terms of one or more years.  Trustees’ decisions must be made by majority vote, generally either at a Trustees’ meeting with a quorum present or by written consent.

Condominium Documents typically provide that individual unit owners have no authority to make improvements to the common elements of the Condominium or to legally bind the Condominium in any manner.  Instead, such authority resides in the Trustees.  Since a solar pv system requires an installation on a building roof or grounds, which are nearly always common elements, the Trustees must approve the plan for installation in advance.  The Trustees, as the legal representatives of the Condominium Association, must also approve any contract between the Condominium and a solar provider or utility company, as well as any permit application with the City or Town Inspectional Services or Building Department. All aspects of the solar pv system could be approved in one vote of the Trustees if the information was available and complete.

IV.  Types of Solar pv systems and Required Approvals

             Solar pv systems in a Condominium could be proposed by either the Trustees (a “Trust Project”) or by an individual unit owner (a “Unit Owner Project”), or a group of unit owners ( a “Joint Unit Owner Project”).

A.  Trust Projects

A Trust Project is a proposal by the Trustees to install the solar pv system  on common property of the Condominium roof for the benefit of all unit owners and the Condominium Association.  A majority of the Trustees must approve the Trust Project, including any contracts with solar providers and utility companies.

The installation of a solar pv system must also be approved by the unit owners, because although Trustees have the general authority to spend common funds of the Condominium, if the expenditure is for an “improvement”, unit owner approval is required.  An “improvement” includes the addition of something that did not previously exist in the Condominium.     Thus, a newly-installed solar pv system where one did not previously exist is an improvement and must be approved by the unit owners.

As is the case for all improvements, Chapter 183A and the Condominium Documents require the Trustees to provide the unit owners with a plan describing the Trust Project and its estimated cost and conduct a vote.  If unit owners entitled to seventy-five percent (75%) or more of the undivided interest in the common elements vote to approve the Trust Project, then the Trustees may proceed with it and assess the cost to all unit owners as a common expense.  If unit owners entitled to at least fifty percent (50%), but less than seventy-five percent (75%), vote for approval, those unit owners who approve may agree to allow the Trustees to complete the Trust Project and assess the cost only to those approving unit owners.

Unit owner votes are counted by the percentage interest assigned to the units in the Master Deed and not one vote per unit.  For example, if there are three units in the Condominium but one of the units is larger than the others, the larger unit might be assigned a percentage interest of 51% while the smaller units might be assigned a percentage interest of 25 and 24%.  In that case, the vote of the owner of the larger unit alone would exceed the 50% threshold but the vote of  at least one other owner  would be needed to exceed the 75% threshold.

  B.  Unit Owner Projects

A Unit Owner Project could be proposed by an individual unit owner to allow the owner to install a solar pv system on the Condominium’s roof or grounds at the owner’s own cost, for that owner’s benefit only, and not for the benefit of the Condominium as a whole. Since the Unit Owner Project benefits only one unit owner, that unit owner must obtain an easement from the Trustees authorizing the installation and maintenance of the solar pv system.  The Trustees are authorized to grant such an easement by Chapter 183A, as long as it is consented to by the unit owner’s mortgagee and the owner of any unit immediately abutting the easement area. In this case, that would be the unit located immediately below the roof or adjacent to the common area depending upon the location where the solar pv system is to be installed.

The easement agreement must be in writing and set forth the responsibilities of the unit owner and the Trustees, and be recorded at the Registry of Deeds.  The easement agreement should be prepared by the Condominium’s lawyer and can be negotiated by the unit owner. However, typically the easement agreement would refer to a plan of the area where the solar pv system is to be located and the scope of work within the common areas which has been approved to connect the solar pv system to the common utility in the Condominium.  The easement agreement would then set forth the responsibilities on the unit owner and the Trustees; for example the unit owner would agree to pay all costs for the installation of the solar pv system, maintain the system going forward and indemnify and hold harmless the Trustees and the other unit owners from any costs, losses or damages related to the installation and maintenance of the solar pv system.  The Trustees would have the authority to enforce the terms and provisions of the easement agreement including maintaining and repairing the solar pv system if the unit owner did not in accordance with the terms of the easement agreement.  Any costs incurred by the Trustees including attorney’s fees incurred by the Trust in the enforcement of the easement agreement would be assessed to the unit owner and, if unpaid, collected as an unpaid common charge.  Unpaid amounts due pursuant to the easement agreement would become a lien on the next unit owner.  A sample easement agreement is attached. Chapter 183A requires that the cost of drafting and recording the easement be paid for by the unit owner.  There could also be a separate fee charged by the Trust to the unit owner for the use of the common area for this purpose.

Before granting the easement, the Trustees should review and approve the plans and specifications for installation, the utility agreement, and building permits.  The Trustees should also approve the contractor that will perform the installation and require satisfactory evidence of insurance.   This is important as the solar pv system will be installed on the roof which is a common area under the control of the Trustees.

The request of one unit owner to the Trustees to install a solar pv system may give rise to a discussion among the Trustees and unit owners as to how the Trustees would decide to grant an easement agreement for this purpose and in so doing deny other unit owners that opportunity.  It may be that the Trustees would adopt a solar pv system “policy” which would guarantee a consistent, fair approach to the applications so that future unit owners could also take part.

 V.  Financing

If the Trustees do not have sufficient funds in reserve and do not want to levy a special assessment against the unit owners to pay for a Trust Project, and  assuming authority in the Trust, they may apply for a bank loan to finance some or all of the cost. There are a number of local banks that are willing to finance solar pv systems for Condominiums and solar loan programs.  Attached is a list of Banks who have shown willingness to lend to Condominiums.  Such loans are made to the Condominium Trust, and the loan documents are signed by the Trustees only in their capacities as Trustees. The Trustees have no personal liability for repayment, and there is no mortgage involved in the loan.  Rather, the loan is secured by a collateral assignment of common charges to the lender, meaning that the if the Trust fails to pay the loan, the lender can collect the common charges directly from the unit owners and assess additional common charges if necessary to pay the loan.   If the Trustees do not decide to have the Trust borrow to pay for the solar pv system and the Trust renders a special assessment, a unit owner would be able to apply for a home equity loan on his/her unit in order to pay the special assessment.  It may be that the solar loan program will support this financing as well.

If the Trust decides to apply for a loan the Trust will have to provide sufficient documentation to the lender to show that it has the capacity to repay the loan.  This documentation will include the Trust’s recent tax returns, recent budgets, income and expense analysis, common charge amounts, history of special assessments, prior loans, ratio of owner/occupants to investors and number of deficiencies in common charges.  Trustees or the Trust’s property manager will have to work with the lender’s underwriter to provide information to the lender to demonstrate the Condominium is qualified for the loan.

VI.   Recommended Procedure for Trust Projects

A.  Preliminary Investigations

Before any proposals are made and votes are taken with respect to the installation of a Trust Project, the Trustees should perform a cost-benefit analysis. The following factors may be important in this analysis.  Most, if not all, of these factors are also relevant to Unit Owner Projects.

1.          Identification of one or more solar providers that is qualified and available to perform the installation;

2.         Identification of a consulting engineer to provide input into

the contract documents and specifications;

3.         The estimated cost and time frame for the work;

4.         Consideration of various options relating to size and capacity;

5.         The impacts, if any, on the Condominium’s roof and the roof warranty;  This information can be obtained directly

from the roofing contractor who installed the roof;

6.         The requirements and availability of the utility company;

7.         The requirements of the City or Town for permitting and

inspections;

8.         Estimation of the Association’s resultant savings in energy costs;

9.         Identification of lenders that have expertise in solar pv systems and will finance the purchase and installation of the solar pv system; and

10.       Identification of any other resources to assist with the project such as local committees or volunteer groups.

The key elements in determining the advisability of a Trust Project are the costs and benefits to the Association and the suitability of the roof.  It must provide a benefit to the entire Association and not just appeal to those unit owners who have a particular interest in alternative energy. Unless there is a reasonable positive payback, most Trustees will not want to proceed due to the time and effort involved.

  B.  Next Steps

             Once the Trustees develop and approve a realistic and supportable Trust Project proposal, they should present it to the unit owners. Flexibility and communication are key components in obtaining the requisite level of support. One strategy to help obtain consensus is to establish a committee of unit owners that can work with the Trustees to refine the proposal and complete a final plan. Through the committee’s outreach, unit owners can be informed and educated and asked for their input.

After the committee issues a final report and recommendation, the proposal should be presented at a meeting of the unit owners and discussed as a future planned project. Prior to the meeting, the Trustees and/or the committee members should reach out to as many unit owners as possible in person, which is often far more effective than relying solely on letters and emails. At the meeting, the Trustees should solicit and evaluate feedback from the unit owners and modify the plan as needed.

Once the Trustees adopt a final plan, they should hold another unit owners’ meeting to conduct a vote.  As noted above, owners entitled to at least 75% of the undivided interest must approve the plan as an improvement if the improvement is to be funded by all unit owners. Votes may also be solicited after the meeting, and it may even be necessary to go door-to-door. A Trust Project can proceed and be paid for with common funds only after it has received approval of a majority of the Trustees as well the necessary approval of the unit owners.

VII.      Recommended Procedure for a Unit Owner Project

As discussed herein a unit owner who would like to install a solar pv system on a Condominium common area should proceed in the following manner:

l.          Identify one or more solar providers who are qualified and available  to perform the installation.

2.         Determine the best location for the solar pv system.

3.         Determine the scope of the work necessary and the specifications for the work to install the system.

4.         Determine the requirements of the City or Town for permitting.

5.         Estimate the owner’s savings in tax credits and/or utility costs.

6.         The requirements and availability of the utility company.

7.         Present the proposal to the Trustees for approval.  It may be that this will cause the Trustees to consider adopting a solar pv system policy for the Condominium.

8.         Determine if unit owner support would be of assistance to win Trustee’ support.

9.         If there is sufficient support, negotiate an easement agreement for the use of the common areas.

10.       With the permission of the Trustees proceed with the installation, apply for a building permit and coordinate the installation with the utility company.

 VIII.     Recommended Procedure for a Joint Unit Owner Project

There may be a desire for a group of unit owners to install a solar pv system in a Condominium common area (the Joint Project). The Joint Project   would proceed in the same manner in terms of investigation of the project’s viability as a Trust project or a single unit owner project.

However, in addition the group of unit owners would need not only an easement agreement from the Trust which establishes the rights and obligations of the parties, but also an agreement among the unit owners in the group as to how to share the benefits and liabilities of the Joint Project.  The agreement would be similar to a partnership agreement or LLC operating agreement in the sense it establishes legal guidelines for the group’s decision making, capital contributions and responsibilities to each other and the Trust.

This legal relationship within the group will be important in winning the approval of the Trustees for the Joint Project.  The Trustees would want to know for example, what the consequence would be if and when one of the unit owners in the group sells his/her unit.  Does the successor unit owner assume the responsibilities of the solar pv system entered into by the prior unit owner or does the group assume those responsibilities?  These issues would be resolved in the Joint Ownership Agreement.

 

 

Michael W. Merrill, Esquire

Merrill & McGeary

100 State Street, Suite 200

Boston, MA 02109

mmerrill@merrillmcgeary.com

 

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Legal Team

Michael W. Merrill, Esq.
Rita M. McGeary, Esq.
Cameron S. Merrill, Esq.
Ryan R. Severance, Esq
James Kuritzkes
Denise DeFreitas, Administrative Assistant
Margie Keith, Office Manager