Board members and unit owners frequently ask us: What does “beneficial interest” mean? Beneficial interest is an important concept for Massachusetts condominium boards and unit owners to know and understand. Beneficial interest is the percentage of ownership that the owner of each condominium unit is entitled to in the common areas and facilities of a condominium. Also sometimes referred to as “undivided interest,” beneficial interest is typically listed by unit in an exhibit or schedule to the master deed of a condominium. The beneficial interest of each unit must also be listed in the unit deed, pursuant to the Massachusetts Condominium Statute, General Laws Chapter 183A (“Chapter 183A”), Section 9. The total of all unit beneficial interests should add up to one hundred percent, that is, one hundred percent of the ownership of the common areas.

Beneficial interest is an important topic to understand given its level of influence on many essential parts of condominium governance, from budgeting to voting. Boards and unit owners alike should familiarize themselves with the beneficial interest of units as contained in the governing documents of their condominium.

Once boards and unit owners understand the concept of beneficial interest, they often want to know how it is set. Developers set the beneficial interest of each unit as units are created in the master deed. Pursuant to Chapter 183A, Section 5, Subsection (a), the beneficial interest of each unit “shall be in the approximate relation that the fair value of the unit on the date of the master deed bears to the then aggregate fair value of all the units and may include determinations of whether and how to weigh a restriction relating to value imposed on 1 or more, but fewer than all, units by covenant, agreement or otherwise.” Massachusetts courts have generally interpreted the phrase “approximate relation” broadly, and the developer’s approximate relation of fair market value can lead to different beneficial interests for each unit even if the square footages and exclusive use areas of each unit are similar.

The next beneficial interest concept to understand is how and what beneficial interest controls. Generally, pursuant to a condominium’s governing documents, each unit owner is entitled to vote in the amount of his or her beneficial interest. This means that a unit with a higher beneficial interest has a greater say in all voting decisions, from the election and removal of trustees to voting for or against amendments to the master deed and declaration of trust. Beneficial interest is also essential for calculating quorum, that is the required beneficial interest of unit owners that must be in attendance, usually in person or by proxy, at a meeting at which a vote is to be taken, in order for that vote to be valid.

Beneficial interest is also used to set each individual unit owner’s monthly condominium common charge. Pursuant to Section 6 of Chapter 183A, Section 6, “all common expenses shall be assessed against all units either in accordance with their respective percentages of undivided interest in the common areas and facilities or, if stated in the master deed or an amendment thereto duly recorded in the approximate relation that the area of the unit bears to the aggregate area of all the units[.]” In simple terms, this means that a yearly condominium budget is to be multiplied by each unit’s percentage interest in order to set the unit’s yearly portion of the budget, which is then typically broken down into monthly charges. Obviously, this should make beneficial interest a topic of interest for any unit owner, and while a higher beneficial interest results in greater voting power, it also results in higher condominium common charges.

Beneficial interest can also be a source of conflict and questions regarding the total overall amount of interest held by the unit owners. A consequence of the ability of a developer to set the beneficial interest of each unit is that sometimes a developer will miscalculate the beneficial interests of each of the units. This can result in a total beneficial interest which adds up to greater than one hundred percent. A beneficial interest of more than one hundred percent should be an impossibility as units cannot have more than a one hundred percent interest in the ownership of the common areas and facilities of a condominium and can cause many issues for a condominium related to budgeting, quorum, and voting, each an important item for any Board and property manager to deal with as part of the everyday business of condominium governance. This is why it is important for developers to calculate beneficial interest correctly, whether at the initial creation of a condominium, or during a process of phasing new units into a condominium, during which it is common to see errors in beneficial interest.

Given these issues, unit owners and boards of trustees may wonder how an issue with beneficial interest can be fixed. As the beneficial interests are usually contained within an exhibit to the master deed, a condominium’s master deed could be amended to change the beneficial interest of a unit or units. In order to amend the Master Deed of a Condominium, Boards and owners should consult with counsel and study the amendment provision of their governing documents. However, there are special requirements to do so when changing beneficial interest.

To make an amendment which changes the beneficial interest of a unit or the beneficial interests of multiple units, the consent of all unit owners whose beneficial interest is being changed is necessary. Chapter 183A, Section 5(b)(1) requires that “The percentage of the undivided interest of each unit owner in the common areas and facilities as expressed in the master deed shall not be altered without the consent of all unit owners whose percentage of the undivided interest is materially affected[.]” Massachusetts courts have frequently insinuated that any change to beneficial interest of a unit owner is material. Also, most master deeds contain an additional requirement that any unit mortgagee must consent to a change in the beneficial interest of that unit. These can be burdensome requirements especially if all beneficial interests must change, such as in the case of a condominium where beneficial interests may add up to greater than one hundred percent.

In the absence of obtaining the consent of all unit owners to change beneficial interest, another option may be equitable reformation through a court action. Massachusetts courts have held that legal instruments, including deeds, may be reformed through court action due to mutual mistake. See Lhu v. Dignoti, 431 Mass. 292, 294, (2000). However, reformation has not yet been applied to a condominium’s beneficial interest and it may be difficult to justify that a mutual mistake has been made by a unit owner or unit owners who have purchased with knowledge of their beneficial interest or beneficial interests. See Crapser v. Bondsville Partners, Inc., No. 300634, 2006 WL 2237667 (Mass. Land Ct. Aug. 4, 2006). Any court action for reformation would also be subject to a six-year statute of limitations. See CBK Brook Ltd. P'ship v. Berlin, No. 243966, 2004 WL 870122, at *20 (Mass. Land Ct. Apr. 23, 2004), aff'd sub nom. CBK Brook House I Ltd. P'ship v. Berlin, 64 Mass. App. Ct. 913, (2005).

Beneficial interest is an important topic to understand given its level of influence on many essential parts of condominium governance, from budgeting to voting. Boards and unit owners alike should familiarize themselves with the beneficial interest of units as contained in the governing documents of their condominium.