This case involves a cooperative that was formed in 2004 with the intention of being a mixed-use property. It has 2 separate buildings that are connected through an area that was designated as commercial space. The commercial space was to be owned by the cooperative and leased out to various commercial tenants. Because of this arrangement, the original declaration did not allocate any of the common expenses or votes to the commercial space. Early in the development phase and before the developer sold any shares to cooperative members, it was determined that this arrangement would have negative tax consequences for the cooperative. Therefore, the developer devised a scheme by which certain portions of the cooperative would be carved out as separate legal parcels and conveyed to a group of commercial investors, who would then lease those spaces to the commercial tenants. The parcels that were sold off included not just the commercial space, but portions of what were considered the cooperative's common areas, including portions of the parking garage as well as elevator lobbies and other common areas within the buildings
The Minnesota Common Interest Ownership Act, Chapter 515B (“MCIOA"), provides specific procedures for the severance of a portion of a common interest community as well as the conveyance of any common elements or any portion of a cooperative. Severance under Minnesota Statutes 515B.2-124 requires a written severance agreement containing specific provisions approving the severance of part of the community, approving an amendment to the declaration accomplishing the severance, authorizing the association to execute and record the amended declaration, allocating the assets and liabilities between the association and the severed units, etc. The agreement must be executed by at least 67% of unit owners and recorded in the property records and must specify a date by which the severance must be accomplished by the recording of the amendment to the declaration. There is also a separate statute regarding conveyance of common elements or portion of a cooperative, Minnesota Statutes 515B.3-112. This section provides that in a cooperative, part of the cooperative may be conveyed if 67% of the votes of the association, including 67% of the votes allocated to units in which the declarant has no interest, approve the action in writing or at a meeting. After the approval has been obtained, the association has a power of attorney coupled with an interest to convey the property and to sign any necessary instruments.
Over time, the commercial owners had requested and paid for maintenance and repairs to portions of the building despite there being nothing in the easement agreements requiring such payment. In 2019, on request of the commercial owners, the cooperative undertook a large-scale project involving the replacement of a roof that benefitted only the commercial units and major work on the exterior building envelope of one of the buildings. As per their normal course of action, the cooperative requested that the commercial owners pay a fair share of those costs that benefitted their tracts. However, for the first time (and likely based on the much larger cost), the commercial owners refused to pay anything and asserted that they are not obligated to contribute to the upkeep of the building that supports and surrounds their tracts. It was at this point that the cooperative discovered the errors in the initial conveyance of the commercial tracts and that those tracts were never severed as required by statute and that the attempted conveyance was void for failure to follow the required statutory procedures. As such, the cooperative asserted that the commercial tracts remained part of the cooperative and that the Commercial Owners were obligated to pay common expenses of the cooperative, including expenses for maintenance, repairs and replacements of building components that directly benefitted them. However, neither the declaration nor the amended declaration included any allocation of expenses or voting rights to those tracts, despite the fact that MCIOA requires the declaration to allocate expenses and voting rights to all units, so the cooperative devised a fair way to allocate expenses and made demand for payment based on that allocation. The commercial owners again refused to pay anything and brought a declaratory judgment action seeking a declaration that they were not required to pay any of these costs. The cooperative brought counterclaims for the commercial owners' share of those costs that specifically benefitted the commercial tracts based on the statutory requirements that the declaration must allocate common expenses to all units, as well as equitable arguments based on the parties' course of conduct and the inequities that existed when the commercial tracts were deeded and the easements entered into. The parties brought cross motions for summary judgement.
The issues that concern the LAC and the reason we are seeking to file an amicus brief are twofold; 1) the incorrect application of the 2-year statute of limitations for challenging an amendment to the declaration to the facts of this case and 2) the court's utter disregard for the statutory requirements for severance or conveyance of property out of a common interest community and the fact that a severance was never even attempted and that the statute says that failure to comply with the requirements to convey part of a cooperative renders the attempted conveyance void.
Amicus Brief
Supreme Court of Appeals, State of Minnesota, Opinion
Court: Minnesota Supreme Court
Topic: Minnesota UCIOA
Brief Author: Tony Smith of Smith Jadin Johnson, Bloomington, Minnesota
Filed: April 3, 2023
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee
Mr. Stephen Marcus, Esq., CCAL, Co-Chair of Amicus Committee
Ms. Hope Carmichael, Esq., CCAL (NC)
Mr. Stefan Richter, Esq., CCAL (PA)
Mr. Thomas Ware, Esq., CCAL (CA)
Mr. Brian Fellner, Esq. (MD)
Mr. Scott Pointer, Esq. (IL)