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Massachusetts Agencies

Phasing Lease


When a condominium is created in phases a logistical problem can arise. If phases are simply added as units are constructed then the owners of the units when sold not only will hold title to those units but also will have an interest in the common areas, which may include those areas not yet phased in. If in mid-stream the developer wishes or needs to raise capital to continue the project, the land, including the yet-to-be-phased-in areas may not be able to be used as collateral, because the various unit owners have fractional interests therein. In such instances, the developer would have to obtain those unit owners' consent to mortgage the other areas, because they hold these fractional interests. This problem is solved many times by the developer first taking a lease of all the areas on which the condominium will be built. The lease is taken in the name of an entity different from but controlled by the developer. As phases are constructed and dedicated to the condominium regime the developer, as owner, executes the amendment to the master deed phasing in the phase and the entity holding the lease, as tenant, terminates the lease with respect to that particular area. Any bank mortgages can be placed on the land not phased in by having the entity holding the lease give a leasehold mortgage to the lender.

For a further discussion on this concept, see also, Eno and Hovey, Massachusetts Practice - Real Estate Law with Forms, West Publishing Co., (Third Edition, 1995), §14.16.