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Commercial Real Estate, Real Estate

Future of Rent Acceleration Clauses in Doubt

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Appeals Court: Landlord Can Collect Actual, Not Liquidated, Damages
By Christopher R. Vaccaro
Special to Banker & Tradesman

Commercial leases typically give landlords several rights and remedies when tenants default, including lease termina­tion, eviction and suits for contract damages. But for some landlords these remedies are not enough, so they add rent acceleration as an additional remedy.

Rent acceleration clauses let landlords evict defaulted tenants, and also demand that tenants immediately pay as liquidated damages all remaining unpaid rent through the end of the lease term. Tenants get no offsets for the fair rental value of the va­cated premises or rents received from new tenants if the premises are relet.

Rent acceleration clauses let landlords evict defaulted tenants, and also demand that tenants immediately pay all remaining unpaid rent through the end of the lease term.

Despite the harshness of this remedy, Massachusetts appellate courts have upheld rent acceleration clauses. For example, in 2007, the Supreme Judicial Court ruled in Cummings Properties, LLC v. National Communications Corp. that a tenant had to pay more than $500,000 in accelerated rent. The Appeals Court in 2019 enforced a rent acceleration clause in Cummings Proper­ties, LLC v. Calloway Laboratories, Inc., requiring a tenant to pay over $1.8 million as liquidated damages.

A tenant narrowly escaped a rent acceler­ation clause in SpineFrontier, Inc. v. Cum­mings Properties, LLC, a 2019 Appeals Court decision. The tenant’s lease in that case automatically renewed for five years unless the tenant sent the landlord a termi­nation notice. The tenant emailed its land­lord a termination notice, but the lease re­quired that notices be sent by constable, certified mail, or courier service. The land­lord claimed that the lease renewed auto­matically because the emailed termination notice was ineffective, and demanded more than $1.7 million in accelerated rent for the unused renewal term. Fortunately for the tenant, the Superior Court and the Appeals Court ruled that the emailed notice and the tenant’s other communications with the landlord were sufficient to terminate the lease, rendering the landlord’s accelerated rent claim academic.

Last December, the appeals court directly ruled on the validity of a rent acceleration clause in Cummings Properties, LLC v. Hines. Plaintiff Darryl Hines organized the Massachusetts Constable’s Office Inc. (MCO) as a civil process service firm. The firm developed a reputation for using ag­gressive tactics to serve process and make arrests, which earned Hines and MCO un­wanted attention in the local media.

Cummings Files for Further Review

After MCO secured a contract with the Massachusetts Department of Revenue in 2016, it rented space in Woburn from Cum­mings Properties under a five-year lease. Hines personally guaranteed the lease. Like many of Cummings’s commercial leases, MCO’s lease had a rent acceleration clause. Less than a month into the lease, DOR sus­pended its contract with MCO, whereupon MCO defaulted on the lease. Cummings sued MCO in District Court for eviction and $74,000 of accelerated rent. Hines signed an agreement for judgment on behalf of MCO, without an attorney’s assistance, awarding Cummings possession and $74,000 in dam­ages. A year later, Cummings signed a new lease with a different tenant. One might think that the new lease would have ended Cummings’s desire to collect accelerated rent, but it did not.

Years after Cummings and MCO signed the agreement for judgment and Cummings secured the new tenant, Cummings sued Hines under his lease guaranty in Superior Court for the accelerated rent. At trial, for reasons that are unclear, Cummings dis­avowed the agreement for judgment against MCO in District Court when MCO did not have an attorney. Cummings stated that it was pursuing rights against Hines under the lease and the guaranty only. A Superior Court judge entered a judgment against Hines for $82,000, concluding that the accel­erated rent clause was enforceable because it was a reasonable estimate of Cummings’s anticipated damages. Hines appealed.

The Appeals Court noted that rent accel­eration clauses may be enforceable as liqui­dated damages provisions as long as they are not punitive, and Hines had the burden of proving that the clause was unenforce­able. However, the court observed that Cummings’s acceleration clause allowed it to recover possession of the leased prem­ises, relet it and collect rent from a new ten­ant, and still claim accelerated rent from MCO, without accounting for the rent re­ceived from the new tenant. Therefore, the accelerated rent clause bore no reasonable relationship to Cummings’s expected dam­ages, rendering it an unenforceable penalty. The Appeals Court ruled that under these circumstances, Cummings could only col­lect its actual damages, not liquidated dam­ages, from Hines under his guaranty.

Cummings has applied to the Supreme Judicial Court for further appellate review of this decision. Many commercial land­lords and tenants, and their lawyers, will be watching with interest as to how the SJC rules on that application.

Download the article as seen in  Banker & Tradesman on February 27, 2023. Learn more about Christopher R. Vaccaro.

Trusts & Estates

Don’t Give Your Children Your House!

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Published By
Andrea Rutherford
Associate, Estate Planning

 

 

It’s a tempting thought – why wait until I am gone?  Why not just deed the family home to my kids now?  In almost every case, this is a mistake.

A little bit of Taxation 101.  Let’s imagine a couple bought a house for $200,000 in 1990.  Now, it’s 2023 and the children are grown, maybe with their own children.  The parents deed the house to a child or children.  Ten years later, in 2033, the parents pass away and the children decide to sell the house – for $350,000.

Under this scenario, the children’s capital gain will be calculated all the way back to when the parents bought the house in 1990.

The gain is $150,000.  If the house isn’t the children’s primary residence, this entire amount is taxable capital gain.  The parents intended to give their children a house – instead, they gave them a house and a large tax bill.

So does this mean that you can’t give your children your house?

Not at all.

A properly drafted trust ensures that your children will get your house.  But by keeping some rights (such as a right to receive income if the property is rented) in the hands of the parents, the trust turns the gift into a gift upon death – a totally different ballgame under the tax laws.

Let’s look at our example under this scenario. The parents buy the house for $200,000 in 1990.  In 2023, instead of deeding the house to their children, they sit down with an attorney and create a Trust naming their children as beneficiaries.  Ten years later, the parents pass away – at that time, the house is worth $350,000.  The children sell the house a year later for $360,000.  The taxable gain is only $10,000.  So the parents have used the Trust to give the house to the kids, but they haven’t passed on the tax obligation.

Don’t be put off by the term “Trust.”  Creating a Trust is probably easier than you think.  Speak with one of our estate planning attorneys today to start creating your estate plan. The first meeting is always free.

Real Estate

Understanding Mechanic’s Liens

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Published By
Christina Petrucci
Partner, Dalton & Finegold  

 

 

Mechanic’s liens can be a complicated issue for homeowners in Massachusetts. A mechanic’s lien is a legal claim against a property that is filed by a contractor, subcontractor, or supplier who has provided labor or materials for a construction project and has not been paid. In this blog post, we’ll discuss what mechanic’s liens are, how they work in Massachusetts, and how to deal with them.

What is a Mechanic’s Lien?

To uncover any liens, such as mechanic’s liens, title examiners search the registry of deeds.

A mechanic’s lien is a legal claim against a property that is filed by a contractor, subcontractor, or supplier who has provided labor or materials for a construction project and has not been paid. The lien gives the contractor or supplier a legal right to seek payment from the property owner, even if the property owner has already paid the general contractor.

How do Mechanic’s Liens Work in Massachusetts?

In Massachusetts, mechanic’s liens are governed by Chapter 254 of the Massachusetts General Laws. Under this law, any person who furnishes labor or materials for the improvement of real property has a right to file a mechanic’s lien if they are not paid. The lien must be filed within 90 days of the last day of work or the last delivery of materials.

Once the lien is filed, it must be served on the property owner, and the lienholder must file a lawsuit within 90 days to enforce the lien. If the lien is not enforced, it becomes invalid after one year from the date it was filed.

How to Deal with Mechanic’s Liens in Massachusetts?

If you are a homeowner who is facing a mechanic’s lien, there are a few things you can do to protect yourself. First, it’s important to determine if the lien is valid. Check to see if the contractor or supplier followed all the necessary legal requirements when filing the lien, and make sure that you were properly served with the lien.

If the lien is valid, you have several options for resolving the issue. You can negotiate a settlement with the lienholder, pay the lien in full, or challenge the lien in court. If you choose to challenge the lien, you should seek the advice of an experienced real estate attorney.

Mechanic’s liens can be a complicated issue for homeowners in Massachusetts. If you are facing a mechanic’s lien, it’s important to seek the advice of an experienced real estate attorney who can guide you through the process and help you protect your rights.  For more information on Mechanic’s Liens or other liens affection real estate, contact one of our attorneys from our residential department.  If you receive a notice or have been served with a mechanics lien contact our litigation department.

Commercial Real Estate, Real Estate

Economic Disruptions Threaten Financing for Salem Wind Project

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Former Power Plant Property Eyed for Staging
By Christopher R. Vaccaro
Special to Banker & Tradesman

In his introduction to “The Scarlet Let­ter,” Nathaniel Haw­thorne wrote, “And yet, though invariably hap­piest elsewhere, there is within me a feeling for Old Salem, which, in lack of a better phrase, I must be content to call affection.”

Tourists and historians share Haw­thorne’s affection for Salem. Salem’s 400- year history has some blemishes, such as the 1692 witch trials. But it also has note­worthy successes, such as its involvement in global maritime trade during the 18th and 19th centuries and in manufacturing during the 20th century. Today, renewable energy firms eye Salem as a staging area for off­shore wind turbine projects.

Whether this Gateway City ultimately serves this role depends on Avangrid Inc. and its Commonwealth Wind project. Avan­grid is a foreign-owned utility company that delivers electricity and natural gas to mil­lions of ratepayers in New England and New York. Through its subsidiary Avangrid Renewables, it promises to generate clean energy using offshore wind turbines. With its Vineyard Wind project already under construction, Avangrid also plans to de­velop other offshore wind turbine projects known as Commonwealth Wind and Park City Wind on the continental shelf south of Martha’s Vineyard.

Developers Signed Purchase Agreements with Utilities

Commonwealth Wind is the largest off­shore wind project on the drawing board for New England. It is expected to gener­ate 1,200 megawatts of clean energy, enough for 700,000 Massachusetts homes. The project will reduce greenhouse gas emissions by 2.35 million tons per year, the equivalent of removing 460,000 gasoline-powered cars from the road. Park City Wind is expected to generate another 800 megawatts for ratepayers in Connecticut.

A major industrial investment in a Gateway City north of Boston could come undone thanks to economic disruptions and a dispute between a major multinational company and state power regulators.

Avangrid entered into long-term power purchase agreements (PPAs) with several utility companies at set prices for Com­monwealth Wind.

Crowley Maritime, a specialist in port management and logistics, purchased the site last October for $30 million through a public-private partnership with the city of Salem. Avangrid will be its anchor tenant. The terminal will be used for turbine pre-assembly and component storage, trans­portation, and staging activities. Common­wealth Wind is expected to create thousands of jobs and attract millions of dollars of state investment to Salem. Ter­minal construction is scheduled to begin this year, with completion in 2025.

Utilities Dispute Terms of Agreements

Plans for Commonwealth Wind and the Salem Harbor Wind Terminal look promis­ing, but there is a catch. Avangrid recently sought to renegotiate the PPAs with the utility companies, to improve the return on its anticipated investment. When the utility companies balked, Avangrid filed a motion with DPU in December to stop DPU’s re­view of the PPAs and dismiss the utility companies’ petitions. Avangrid claimed that Commonwealth Wind cannot be fi­nanced or built under the current PPAs for several reasons, including the Ukraine war, inflation, higher interest rates, supply chain problems and other economic dis­ruptions.

The utility companies urged DPU to re­ject Avangrid’s attempt to stop DPU’s ap­proval process, arguing that if DPU were to dismiss their petitions at this late stage, offshore wind projects in Massachusetts would be undermined. The attorney gen­eral and Department of Energy Resources reaffirmed their support for the PPAs.

DPU approved the PPAs over Avangrid’s objections on Dec. 30. DPU found that Commonwealth Wind satisfied eligibility criteria for offshore wind energy genera­tion, the PPAs will facilitate project financ­ing, and the project will enhance the elec­trical grid’s reliability while stabilizing winter electricity pricing. It also found that the PPAs ensure that cost overruns will not be borne by ratepayers, the project can be completed in a reasonable time­frame, and the project will be properly paired with energy storage systems. DPU noted that Commonwealth Wind will miti­gate environmental impacts and produce economic benefits in a cost-effective man­ner that will further the public good. Given these benefits, it is unsurprising that DPU approved the PPAs.

Regardless of this approval from DPU, the future of Commonwealth Wind and the Salem Harbor Wind Terminal depends on whether Avangrid can secure financing and materials in a changing economic en­vironment. If Avangrid cannot do so, the goal of weaning Massachusetts ratepayers off fossil fuels over the next few decades will be at risk. That setback would be a challenge for Gov. Maura Healy’s nascent administration.

Download the article as seen in  Banker & Tradesman on October 31, 2022. Learn more about Christopher R. Vaccaro.

Trusts & Estates

What To Do When Your Child Turns 18

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Althea Volper, Esq.

Published By
Althea Volper
Associate, Dalton & Finegold

 

 

 

No parent wants to imagine their child getting into an accident.  But, without the right documentation in place, parents can face a time-consuming and expensive legal process before they can make medical decisions for an adult child.  While as parents we cannot eliminate the possibility of unfortunate events, we can create a safety net of legal documentation that would allow us to step in and make the best decisions for our children should the unthinkable happen.

If your children are 18 or older

Whether they’re off to college or working – you should make sure they execute a few important documents. Once they are legally adults, you won’t have automatic access to their medical records or be able to make health care and financial decisions for them.

The first set of documents that your child should execute relate to health care: a Health Care Proxy, a HIPPA Authorization, and a Living Will / Medical Directive.

  • A Health Care Proxy — also referred to as a Health Care Power of Attorney — allows your adult child to name you as his or her health care agent or agents, authorizing you to make medical decisions if he or she were incapacitated.
  • A HIPAA Authorization waives the confidentiality of your child’s health and medical information, allowing you to speak with your child’s doctors and other medical professionals about their medical needs.
  • A Living Will — also referred to as a Medical Directive or Advanced Directive — allows your child to specify their medical care choices under various scenarios, including life-extending measures and end-of-life care. For parents, this requires us to think about the unthinkable. However, having our adult children express their wishes regarding such medical treatments means that we, as their health care agents, would be able to honor their wishes.

How a Durable Power of Attorney Helps

The last important document is a Durable Power of Attorney.  A Durable Power of Attorney allows your adult child to name an agent or agents who are authorized to manage his or her property and finances. You may be thinking, “my child doesn’t have anything to manage.” But consider bank accounts, school loans, automobiles, car loans, club memberships and subscription services—all of these could be left in legal limbo if your child is incapacitated.  If your child is enrolled in college or university, a Durable Power of Attorney allows you to communicate directly with the school on your child’s behalf.

Without a Power of Attorney in place, parents of an incapacitated child would need to spend valuable resources and time in court to be appointed conservator so that they could access their child’s bank account; deal with other assets, including real estate; modify contracts; pay bills and manage school loans.

For the helicopter parents among us, it’s worth noting that, these documents would be crucial if your child were unconscious, incapacitated or otherwise unable to make their own decisions. For parents of healthy kids, it’s hard for us to contemplate a scenario when these documents would be needed. Nevertheless, given life’s uncertainties, parents are best advised to speak with their adult children about these issues.

As your children come into adulthood and build their own lives and families, they may wish to update their documents to name their partners or spouses. In the meantime, with the proper documents in place, parents can rest assured that they will be able to make important decisions for their adult children should the need arise.

For more information, reach out to one of our Estate Planning attorneys.

Commercial Real Estate, Real Estate

A Tale of Two Turnpike Air Rights Developments

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As Parcel 12 Rises, 1000 Boylston Descends into Legal Battle
By Christopher R. Vaccaro
Special to Banker & Tradesman

Boston is an attractive city with many desirable attributes, but it remains scarred by the 20th century public transportation project known as the Massachusetts Turnpike, an urban canyon that separates the Back Bay and South End.

Decades ago, turnpike air rights developments for the Hynes Convention Center, Prudential Center, John Hancock garage and Copley Place bridged some of this gap, but no similar projects have been completed since the 1980s. This is not surprising, given the engineering, permitting and financial challenges involved when constructing buildings over an eight-lane interstate highway and adjacent railroad tracks.

The city of Boston and the then-Massachusetts Turnpike Authority tried to facilitate air rights developments in 1997 with a memorandum of understanding that gave the city a role in approving those projects.  The city published “A Civic Vision for Turnpike Air Rights in Boston,” which offered project guidelines on 23 air rights parcels delineated by the Turnpike Authority, but the 2008 financial crisis and subsequent Great Recession stalled development.

In 2018, Weiner Ventures placed a major project on the drawing board involving parcel 15, an 11,000-square-foot air rights parcel near the Hynes Convention Center. The Weiner project would have combined parcel 15 with adjacent properties for a mixed-use project holding 108 condominium units, a 175-space parking garage and a 45,500 square-foot retail component. To satisfy Boston’s inclusionary development policy, the Weiner project would have created at least 51,000 square feet of affordable housing at locations to be negotiated with the Boston Planning & Development Agency.

Teaming Up with Suffolk Construction

Weiner formed a joint venture with an entity controlled by John Fish, the president of Suffolk Construction Co., to develop parcel 15. Suffolk was engaged as general contractor.  State and local government did their part to support the Weiner project. The BPDA successfully petitioned the Boston Zoning Commission to establish parcel 15 as a planned development area, and the state legislature passed a law specifically authorizing the Massachusetts Department of Transportation to double the maximum air rights lease term for parcel 15 from 99 years to 198 years.

By summer 2018, most of the permitting for the Weiner project was in place or forthcoming, leaving Weiner to negotiate financing.  Suffolk mobilized a construction team  to start site work. But the deal abruptly fell apart in 2019, after Weiner and Fish had already invested over $80 million in project costs. Weiner’s principal, Stephen Weiner, became uncomfortable with project risks.  He refused to sign a personal guaranty for the project, and was reluctant to pledge liquid collateral to secure a limited recourse guaranty.

In August 2019, Weiner announced that the parcel 15 project would not proceed.  Fish scrambled to find substitute investors for Weiner and structure a financial arrangement that would enable Weiner and him to recover their investments, but without success.  MassDOT terminated the development agreement for parcel 15 in October 2019.

At a topping-off ceremony in September, Samuels & Assoc. marked the completion of vertical framing for an office and life science tower anchored by CarGurus’ headquarters on Massachusetts Turnpike air rights parcel 12. Photo courtesy of Samuels & Assoc.

Fish filed suit in Superior Court against Weiner for breach of contract, intentional misrepresentation, tortious interference and unfair and deceptive business practices.  Weiner answered with the expected denials, affirmative defenses and counterclaims.  Discovery by the parties is ongoing and is expected to be completed next year.  A once-promising collaboration between Weiner and Fish has degenerated into nasty litigation.

CarGurus HQ and Hotel Rise on Boylston Street

Meanwhile, a few hundred feet down Boylston Street to the west of parcel 15, there is good news to report. Samuels & Assoc. is making steady progress developing the 1.8-acre Mass Pike air rights plot known as parcel 12 with MassDOT.  Suffolk, which lost work when Weiner’s parcel 15 project was abandoned, is handling construction at parcel 12.

Samuels and Suffolk reached a significant milestone this year when they completed the decking over the Mass Pike. The decking will support a 657,000 square foot mixed-use project containing office, life science and retail space, together with a half acre public plaza. The office building will serve as corporate headquarters for CarGurus, and another building will accommodate a citizenM Hotel. Public benefits include improved access for pedestrians, cyclists and commuters. Samuels is also expected to make housing and jobs exaction payments to the city totaling over $5 million under a development impact project agreement with the BRA.

The parcel 12 project is an overdue step toward healing the urban wound caused by the Mass Pike. Contrast this with the abandoned parcel 15 project, which failed to heal the urban wound, and instead inflicted a wound on the relationship between two of Boston real estate’s biggest players.

Download the article as seen in  Banker & Tradesman on October 31, 2022. Learn more about Christopher R. Vaccaro.

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