The “Beneficial Interest” Question

The “Beneficial Interest”
Question
The Issue
• The question raised is that:
The formula for determining “Beneficial
Interest” contained in the “Trust” document
has been incorrectly applied such that some
units unfairly benefited.
Key Definitions
• “Beneficial Interest”
– This is the relative interest allocated to each
of the 5 Maushop Condos expressed as a
percentage of the whole.
– The method of determining this figure is
provided in Exhibit “A” of the Maushop Village
Declaration of Trust.
Key Definitions (cont’d)
• “Undivided Interest”
– The relative interest each unit has within a condo.
Each condo is treated separately for this exercise.
– This figure is contained in the Master Deed for each
condo as well as any amendments.
– The deed states that “the percentage interests [of
each unit] have been determined upon the basis of
the relative fair value thereof bears to the fair value of
all units….”
What Was Reviewed
• All documents governing Maushop Village
• All relevant documents, memoranda,
letters, etc. which could be found between
1980 and 1987 (when all construction of
condos had been completed)
The Findings
• New Seabury’s calculation of “beneficial
interest” (1987):
– Condo A
– Condo B
– Condo C
– Condo D
– Condo E
24.82%
17.58
24.30
20.21
13.09
The Findings (cont’d)
• In May 1987, pursuant to a discussion at
an owners’ meeting, Harry Howell, a
Maushop Village trustee, obtained
information from New Seabury in order to
re-compute the “beneficial interest” figures
The Findings (cont’d)
• Mr. Howell did the calculations two
different ways (Details are contained in
Exhibit A):
– Calculating the figures at the end of each year
as new units were added
– Calculating the figures in what he called the
“big jump” which assumed all units were
added at one time
The Findings (cont’d)
• The “every year” calculations produced the
exact same “beneficial interest” calculated
by New Seabury
• The “One Big Jump” method produced
exactly the same figures again
The Findings (cont’d)
• Most importantly, the “beneficial interest” figures
in use today in allocating costs are identical and
have been so since 1987:
–
–
–
–
–
Condo A
Condo B
Condo C
Condo D
Condo E
24.82%
17.58
24.30
20.21
13.09
The Findings (cont’d)
• The issue of “Undivided Interest” is also resolved
by examining the historical record.
• In order to do this, each unit’s percentage was
reviewed.
• Key to this review is understanding that except
for “Condo A” the unit number that used to
appear on each unit is NOT the same as the
“legal” number for that unit. It is the “Legal”
number that appears in the documents.
The Findings (cont’d)
• Each unit’s “undivided interest” is found in the
Master Deed as ammended for that condo. The
last amendment providing for this data was for
condo “E” in June of 1987.
• Nothing has changed since that time.
• The data were checked against the figures Mr.
Howell had, the various deeds and the current
allocation. They are identical
The Findings (cont’d)
• One word of caution:
– Much if not all of the calculations contained a
significant amount of “subjective” input since
they involved the estimation of the value of
new properties added and their relative value
to properties in existence years before. The
determination of a property’s value also
sought to put it in context of real estate values
on the Cape at the time. This is the method
which is required by the Condominium Act,
M.G.L. Chapter 183A.
The Findings (cont’d)
• With regard to a bias in favor of the “Maushop
Fifty”
– A comparison was made between the “Undivided
Interest” assigned to like units within a condo of New
Seabury owned units and similar units within that
condo
– All of the “Maushop Fifty” are found in Condos A, B
and C with about 17 units in each Condo
The Findings (cont’d)
• Although there was a slight advantage for
like sized units of the “Maushop Fifty,” the
advantage was slight (about 10-15%).
More importantly, the difference in
locations of units makes a precise
calculation impossible.
• Thus, it would appear that there is no
significant, provable bias in favor of those
units.
The Findings (cont’d)
• A similar exploration of the values
assigned to free-standing cottages.
• With few exceptions, “undivided interest”
for cottages is significantly lower than for
condos.
The Findings (cont’d)
• Following are some relevant facts (keep in mind
that “undivided interest” figures can be
compared only within a given condo and not
across condos):
– In Condo”A”, the average for cottages is 1.73% with 2
of these directly on the water and the other just a little
back, but with an unobstructed view. There is no
condo that low and in fact, 10 of 37 condos have an
interest in excess of 3%.
The Findings (cont’d)
– In Condo “B,” the average for cottages is 2.27% with
4 of the 7 having a front row location. Of the 28
condos, 20 have higher undivided interests while 12
have one higher than 3%.
– In Condo “C,” the average is 1.63% with 4 cottages
having unobstructed front locations . Of the
remaining 31 condos, 24 have higher undivided
interest levels.
– In Condo “D,” the average is 1.99% (1.85% if the
highest cottage is eliminated) with 3 having front
locations. Of the remaining 27 condos, 20 have
higher levels than all but the highest cottage
The Findings (cont’d)
– In Condo “E,” the three cottages have an
average undivided interest of 2.18% versus
an average of 4.45% for the condos.
The Findings (cont’d)
• The comparison of the undivided interest of
cottages and condos is presented to address
another issue which has been raised numerous
times in the past.
– Keep in mind that all undivided interest levels are
contained in the condo deeds which accompany each
sale
– The levels for all units, including the cottages is,
according to the documents, based on the same
criteria.
Conclusions “Beneficial Interest”
• The “Beneficial Interest” levels for each of
the 5 condos follow the relevant condo
document precisely and are correct
• The “Beneficial Interest” levels have
remained unchanged since 1987 (which is
appropriate since no new units have been
added since that time)
Conclusions “Undivided Interest”
• The individual unit “Undivided Interest”
levels are specified in the condo deeds
• These can only be changed with the
agreement of 100% of all affected unit
owners within a condo.
Conclusions Bias in Undivided Interest
• There appears to be no significant, provable bias
in favor of the “Maushop Fifty”
• Even if there were a bias, the levels can be
changed only with 100% concurrence of the
affected owners
• Cottages generally appear to have a significantly
lower Undivided Interest
• Here again, the levels were set by the relevant
deed and can be changed only with 100%
concurrence of the affected owners
Next Steps
• The Village Trustees will review with
counsel:
– Whether there is a need to codify the village’s
“Beneficial Interest” levels
– If so, how to most effectively, appropriately
affect this change
Next Steps
• The Village Trustees consider all of the issues
contained in this presentation: CLOSED
• Notwithstanding, owners are welcome to readdress any of these issues provided that they
present hard evidence including any and all
supporting documents and specific calculations
used to arrive at their position. Without such
support, any further discussion will be deemed
“Out of Order.”
Exhibit A