2.04 Suggested Master Deed or Lease Contents
The SCHPA does not address many of the issues that need to be resolved by the master deed or lease. This lack of specificity, it is sometimes argued, allows flexibility for developers and purchasers to create agreements meeting their particular needs. In assessing the relatively skeletal Massachusetts Condominium Act, for example, one judge said: "[l]awyers, mortgagees, lienholders, developers, unit owners and others involved with .. .condominiums have considered [the act] as affording a measure of flexibility with respect to the condominium's creation and development and have tailored sophisticated condominium documents to work out the equitable interests of the parties on a host of issues ..."49 The statement, unfortunately, is based on the false premise that unit owners play a role in negotiating the condominium documents, which of course they do not. The "equitable interests," other than those of lending institutions large enough to have market influence, will be resolved in favor of the developer, the drafting party. This "flexibility" is not, however, necessarily in the developer's interest.50 When there is a statutory mandate for a particular provision that allocates the interests, a court presented with a dispute will interpret the legislation, considering statutory language and legislative intent. Where, however, the statute is silent, there is the opportunity for at least three possibilities, none of which is in the developer's interest.
(1) The documents fail to address the disputed issue. Developers have not always fared well in such instances as the question is easily raised, if the developer wanted the issue addressed, the documents drafted by the developer could have done so.51
(2) There is ambiguity in the documents concerning the disputed issue. Generally, ambiguity in condominium documents is construed against the drafter, i.e., the developer.52
(3) After the documents have been drafted, statutes addressing the issue in dispute are adopted. The developer whose interests are injured by an arguably retroactive application of such statutes would undoubtedly argue impairment of contract, but such arguments have not always been successful.53
The absence of detailed requirements for master deeds and leases in the SCHPA, therefore, puts considerable responsibility on the developer, and thus the developer's counsel to protect the developer's interests. What follows is a review of some of the issues that need to be addressed in the master deed or lease. Obviously, the contents of the documents will be greatly influenced by the particular needs of the developer, market conditions, lender requirements, and unique aspects of the project.
A. Submission Clause
A clause commonly required to appear in condominium documents is one expressly submitting the property to condominium ownership. The SCHPA states that a horizontal property regime is created when the lessee, sole owner, or co-owners expressly declare, through the recording of a master deed or lease, the desire to submit the property to the regime established by the act.54 This would seem to require a submission clause. Such a clause is easy enough to draft, but potentially dangerous. One peril results from the description of the property submitted to condominium ownership. As obvious as it might seem, it bears noting that the property submitted is indeed submitted. In some cases developers mistakenly submitted recreational facilities (that were intended to be the subject of leases) to condominium ownership for 99 years.55 When the developers attempted to lease the properties, courts decided they had retained no present possessory interest and had nothing to lease.56 Similarly, where a developer submitted an entire piece of property to condominium ownership, reserving the right to construct additional phases within seven years, all the property was found to be common area when the developer failed to complete the building phases within seven years.57 And in Heritage Federal Savings and Loan Ass'n v. Eagle Lake and Golf Condominiums,58 the South Carolina Court of Appeals found that a clubhouse appearing in the legal description of lands submitted to the regime and on a plat was a common element and could not be sold as a separate property in foreclosure.
There is also an important warning for the drafter to be found in the experience of Florida developers. Florida condominium declarations drafted in the 1960s and 1970s commonly contained language similar to the following:
.submitted to condominium ownership, pursuant to the Florida Condominium Act, Florida Statutes [§ 718.101 et seq.], as it may be amended from time to time, and the provisions of the Act are hereby incorporated by reference and included herein ...
The words that brought chagrin to Florida developers were "as amended from time to time." The Florida Condominium Act was indeed amended, nearly every year in the 1970s and 1980s. The amendments were frequently rigorous consumer protections. Many of the amendments addressed recreation and ground leases and management or maintenance contracts, documents created by developers and binding associations at a time when no unit had yet been conveyed and the developer was contracting with an association that was developer controlled. Abuses perceived by the Florida legislature in this practice were addressed by legislation. Unit owner-controlled associations then began challenging pre-existing contracts under the new legislation. Since the contracts under attack pre-dated the legislation employed in the attacks — and substantive rights were at issue — it would ordinarily be argued that enforcement of the legislation constituted an impairment of contractual obligations in violation of the Contract Clause of the Federal Constitution. Florida developers argued precisely that, but Florida courts held there was no impairment where documents contained the "as amended from time to time" language because the new statutes were "automatically adopted" by that language.59 Thus, Florida courts have held, for example, that provisions prohibiting escalation clauses in leases apply to condominiums whose declarations contain adoptive language even though, absent that language, there would be an unconstitutional impairment of contract.60 As one court stated ".it was the express intention of all parties concerned that the provisions of the condominium act were to become a part of the controlling document [of the condominium] whenever they were enacted."61 Developers, not surprisingly, viewed the idea that they had "expressly intended" to be bound by statutory amendments as pure legal fiction, and, ironically, unit owners locked into burdensome declaration requirements for which they did not negotiate might heartily agree in concept. Here, however, is another example of how the "flexibility and freedom to negotiate" may work against the developer.
While the danger of "as amended" language is great, the likelihood of the problem arising in South Carolina is small. At least three things would have to occur for the problem to happen:
(1) Master deeds or leases would have to contain the "as amended" or similarly construed language. Forewarned is forearmed.
(2) Consumer protections, or other provisions unacceptable to someone, would have to be added to the SCHPA. Note that developers are not the only ones who might be adversely affected by changes to the act. The rights of the council of co-owners in relation to its members could be altered.62
(3) South Carolina courts would have to follow Florida's lead in employing the "adoptive language" theory. Florida, it should be noted, is widely recognized as a leading jurisdiction in condominium law and its opinions in the area are considered to be of persuasive value.63
B. Amendments to the Master Deed or Lease
The SCHPA says nothing directly about amendments to the master deed or lease. It does proscribe changes to the ownership shares of the common elements without the unanimous consent of the co-owners.64 The master deed or lease somewhat resembles a constitution for the condominium65 as it creates or establishes the project as a horizontal property regime.66 Thus, amendments to the master deed or lease are very important and they are frequently challenged in court.67 The problems with amendments are apparently recognized by the SCHPA when it requires the master deed or lease to contain a "...description of the full legal rights and obligations, both currently existing and which may thereafter occur, of the apartment owner, the co-owners, and the person establishing the regime."68 This provision would seem to require a clause in the master deed or lease addressing amendments. Some courts have contended that an amendment clause in the master deed or lease puts purchasers on notice that their rights and obligations are subject to change.69
In general, developers may reserve the right to amend restrictive covenants in their sole discretion without the consent of the grantee, but must exercise that right in a reasonable manner.70 If, however, a developer fails to expressly reserve the right to amend covenants, amendments are not allowed.71 In Heritage Federal Savings and Loan Ass'n v. Eagle Lake and Golf Condominiums,72 the South Carolina Court of Appeals said a developer is permitted under the statute to ".reserve certain rights provided he states those rights with specificity in the master deed."73 The developer in Eagle Lake included a clause in the master deed providing that "until all apartment units are sold, [the developer] reserves the right to make changes in the master deed, upon advice of counsel, and as may be required by law, or [to] correct any typographical error ..."74 This, said the court, was ".designed to permit changes to the master deed necessary to carry out the intentions of the developer in establishing the regime and to ensure the recorded documents comply...
