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Commercial Real Estate, Real Estate

New Mandates Loom for Massachusetts’ Vacationland

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Property Owners Subject to Septic Upgrades
By Christopher R. Vaccaro
Special to Banker & Tradesman

A Massachusetts Department of Environmental Protection map shows watersheds that will be automatically designated as nitrogen sensitive areas (pictured in dark green) as it updates the Title 5 septic regulations.

Changes are com­ing to regulations affecting waste­water management on Cape Cod and south­eastern Massachusetts, but the scope of these changes and their po­tential impact on prop­erty owners are still taking shape.

The Massachusetts Department of Envi­ronmental Protection is responsible for reg­ulating private on-site sewage disposal sys­tems, commonly known as septic systems. For decades, DEP has regulated septic sys­tems through Title 5 of the State Environ­mental Code. Conventional septic systems collect wastewater in watertight septic tanks where solids, grease, and fats are sep­arated from liquids, and partial treatment of solid waste occurs. Liquids are then distrib­uted over subsurface leaching fields, where microbial action removes some pollutants before the liquids seep into the soil and groundwater.

Nitrogen, usually in the form of ammo­nia, is a major pollutant found in wastewa­ter. Septic systems are designed to use bac­teria to convert nitrogen compounds into harmless nitrogen gas, a relatively inert molecule that is the primary component of the earth’s atmosphere. However, conven­tional septic systems only reduce nitrogen pollution by an unimpressive 5 to 10 per­cent. The untreated pollutants seep into the groundwater, and often into nearby wet­lands. The results of incomplete pollutant reduction are notable on Cape Cod, where water quality in many harbors, estuaries and marshes is already significantly de­graded, and getting worse.

To address this problem, DEP seeks to enhance pollution prevention standards on septic systems serving Cape Cod and south­eastern Massachusetts, by amending Title 5 and adding new watershed permit regula­tions. DEP’s initiative would identify water­sheds vulnerable to nitrogen pollution, and designate them as “nitrogen sensitive areas”

(NSAs). DEP has not completed its designa­tion of NSAs, but towns on Cape Cod from Bourne to Orleans would certainly have NSAs, and much of Martha’s Vineyard, Nan­tucket and the western shore of Buzzards Bay would likely be included. DEP’s pro­posed amendment to Title 5 would require all septic systems located in NSAs, includ­ing existing systems, to be upgraded to em­ploy “best-available nitrogen-reducing tech­nology” within five years.

However, if a community obtains, or files a notice of intent for, a “watershed permit” from DEP, the community’s property own­ers would be exempt from the upgrade re­quirement.

Expensive New Technology Required

DEP’s website offers helpful information on different kinds of septic systems that use the best available nitrogen-reducing technol­ogy, or BAT, for short. BAT systems can re­duce nitrogen pollutants by over 70 percent, a significant improvement over the lacklus­ter performance of conventional systems.

But BAT systems are expensive, and may cost over $35,000 each. If thousands of property owners are required to install BAT systems, the overall financial burden would be exorbitant. Whether there are enough qualified professionals available to com­plete thousands of upgrades within five years is questionable. The upgrade mandate would also likely have an adverse effect on construction and housing costs on Cape Cod. State government would probably have to create new funding sources and loan programs for property owners to pay for upgrades.

DEP is sensitive to these concerns. The proposed regulations would offer communi­ties a way to shift the upgrade requirement from individual property owners to the community in general, using watershed per­mit regulations. Under DEPs proposed reg­ulations, communities could seek a 20-year permit to implement long-term wastewater planning for entire watersheds. This would give communities time to develop innova­tive approaches to better wastewater man­agement, including possible expansions of public sewer systems. Individual property owners would not be required to upgrade their septic systems during the 20-year pe­riod that the watershed permit is in effect.

Communities seeking watershed permits would be expected to commit to wastewa­ter management plans demonstrating that at least 75 percent of the necessary pollutant reduction levels would be achieved within 20 years. Those communities would have to provide annual progress reports to DEP, and implement adaptive management pro­grams to produce the necessary reductions. If a community fails to satisfy the require­ments of its watershed permit, DEP could terminate or revoke the permit and reim­pose the Title 5 upgrade requirement on in­dividual property owners. DEP’s initiative is clearly intended to encourage communities to take a holistic and proactive approach to wastewater treatment in NSAs, so individ­ual property owners are not saddled with upgrade costs.

DEP held public meetings last year and in January seeking comments on its proposed regulations. While many participants at those meetings expressed concerns about upgrade costs, many others supported DEP’s efforts to improve water quality on Cape Cod. The time for comments is now over, and Cape communities will soon learn what will be expected of them to achieve that goal.

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

Commercial Real Estate, News, Real Estate

Courts Force Abutters to Take Appeal Bond Seriously

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Plaintiffs Dealt Seatback in Salisbury 40B Case
By Christopher R. Vaccaro
Special to Banker & Tradesman

A recent Supreme Judicial Court ruling imposes new requirements on abutters challenging the approval of housing developments.

The 2021 amend­ment to the Mas­sachusetts Zoning Act was intended to encourage multifamily housing production by  making it easier for mu­nicipalities to change local laws to allow higher density housing projects and for de­velopers to obtain special permits for such projects, and by requiring communities with MBTA service to establish zoning districts permitting multifamily housing as of right.

The amendment also changed Section 17 of the Zoning Act, which allows “persons aggrieved” to appeal local zoning decisions in court. Such appeals often impose finan­cial hardships on developers and prevent housing projects from going forward.

But now judges hearing appeals of spe­cial permits, variances and site plan ap­provals may require plaintiffs to post surety or cash bonds of up to $50,000 to secure payment of developer’s costs, when poten­tial harm to developers or the public inter­est resulting from delays outweighs the fi­nancial burden of the bond on the plaintiffs. Recent decisions by the Supreme Judicial Court and the Superior Court in Marengi vs. 6 Forest Road LLC offer in­sight into how courts will apply this bond­ing requirement.

Abutters Challenged 40B Development

The developer in Marengi obtained a comprehensive permit under Chapter 40B from the Salisbury Board of Appeals for a 56-unit project with 14 affordable units in 2021. Abutters appealed to the Superior Court, arguing that the comprehensive per­mit should not have been issued because the developer lacked a valid purchase and sale agreement, there was no economic jus­tification for the project, the town already exceeded the statutory minimum of 10 per­cent subsidized housing units under Chap­ter 40B and the Zoning Board failed to fully consider the project’s impacts.

The developer moved for a court order requiring the abutters to post a $50,000 bond to cover some of the developer’s esti­mated $250,000 in costs caused by the ap­peal, including increased construction costs, consultant fees, higher interest rates and attorney’s fees. The Superior Court judge ordered the abutters to post a $35,000 bond, without conducting a hearing. The abutters appealed, claiming that the bond requirement does not apply to appeals of comprehensive permits; that the bond order was improper because their appeal was not brought in bad faith or with malice; that the bond impermissibly included costs outside of the scope of the statute; and that the Su­perior Court judge abused his discretion. The SJC took up the appeal, and issued its decision last December.

Superior Court Gets the Last Word

The SJC noted that the bond requirement specifically applies to appeals of site plan approvals, which are a necessary compo­nent of applications for comprehensive per­mits. Therefore, the bond requirement can be imposed when abutters appeal compre­hensive permits. However, the SJC noted that the Zoning Act only allows costs to be awarded against plaintiffs who “acted in bad faith and with malice in making the ap­peal.” The Superior Court cannot order a bond without a specific finding that the abutters’ appeal “appears so devoid of merit that it may be reasonably inferred to have been brought in bad faith.”

As to what costs are properly covered by the bond, the SJC found a middle ground between the developer’s argument that the bond should cover all of its costs caused by the appeal, including expert fees, attorney’s fees, carrying costs and delay damages, and the abutters’ argument that the bond should only cover “taxable costs” such as filing fees, travel costs and nominal witness fees.

The SJC ruled that the bond could cover expert fees, but not attorney’s fees, carrying costs, and other delay damages. Because the Superior Court’s order lacked specific findings of bad faith or malice by abutters and discussion of what costs can be cov­ered by the bond, the SJC was unable to de­termine if the Superior Court judge properly exercised his discretion. The SJC vacated the bond order and remanded the case to the Superior Court.

Last month the Superior Court got the final word on this, issuing a harsh decision against the abutters. The court ruled that the abutters’ arguments against the compre­hensive permit were so devoid of merit that they could be reasonably inferred to have been brought in bad faith. The court issued a new order, reinstating the $35,000 bond requirement. The abutters accepted a dis­missal of their appeal.

Marengi vs. 6 Forest Road LLC shows that Massachusetts courts are mindful of the purposes behind the recent amendment to the Zoning Act, and they are prepared to require hostile abutters to put up serious money if, without good reason, they chal­lenge zoning relief granted to housing devel­opers.

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

Commercial Real Estate, Real Estate

How a Smart Growth District Changed Downtown Reading

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Housing Production Follows Zoning Updates
By Christopher R. Vaccaro
Special to Banker & Tradesman

Reading’s smart growth district zoning attracted projects such as Oaktree Development’s 30 Haven, which includes 53 apartments and 22,000 square feet of retail space steps from an MBTA commuter rail station.

The Smart Growth Zoning and Housing Production Act, codified at Chapter 40R of the Massachusetts General Laws, is intended to promote multifamily housing developments.  The results have been mixed, as many communities balk at these developments. But the town of Reading, located along Interstates 93 and 95 and served by the MBTA’s commuter rail and buses, has embraced Chapter 40R, with positive outcomes.

Chapter 40R encourages cities and towns to establish smart growth zoning overlay districts, where higher density residential developments are allowed as of right, near public transit facilities and town centers. The Massachusetts Department of Housing and Community Development oversees this program.

To obtain DHCD approval, proposed smart growth districts must allow at least eight units per acre for single-family dwellings, 12 units per acre for two- and three-family dwellings, and 20 units per acre for multi-family dwellings. At least 20 percent of units must be affordable – that is, available for families earning less than 80 percent of area-wide median income. Chapter 40R enables municipalities to direct high-density developments to better suited locations, unlike Chapter 40B of the Massachusetts General Laws, which lets developers circumvent local zoning restrictions in communities lacking sufficient affordable housing.

Payments Offer Incentives for Density

Participating municipalities qualify for one-time zoning incentive payments under Chapter 40R, based on the number of additional housing units permitted as of right in their smart growth districts. Zoning incentive payments can be as high as $600,000 for smart growth districts allowing over 500 additional housing units. Chapter 40R also provides for one-time density bonus payments of $3,000 per housing unit upon issuance of building permits.

Reading has established two smart growth districts. Its Gateway Smart Growth District is on the former campus of Addison-Wesley Publishing near I-95. Housing developments there added 424 dwelling units, of which 200 are within the smart growth district and 43 units are affordable.

Reading’s Downtown Smart Growth District, in the commercial center, has five completed projects that added 192 units, including 43 affordable units. An additional 42 units are approved for construction in that district.

The two smart growth districts earned Reading $700,000 in zoning incentive payments, and over $1 million in density bonus payments. Projects on the drawing board are expected to generate another $123,000 in density bonus payments. Reading also recently approved three significant Chapter 40B products. The Metropolitan and Schoolhouse Commons projects, both located near the commuter rail station, added 88 rental units. The Eaton Lakeview project added 12 ownership units and 74 rental units.

A Faster Path to Compliance

Some of Reading’s Chapter 40R and Chapter 40B projects set aside 25 percent of their rental units as affordable, instead of the usual 20 percent. This increased percentage provides a noteworthy advantage.  As mentioned above, Chapter 40B enables developers to avoid local zoning laws in communities with insufficient affordable housing. But municipalities whose subsidized housing inventory (SHI) exceeds 10 percent of its total inventory, qualify for a “safe harbor.”

Under this safe harbor, if the local zoning board of appeals denies a comprehensive permit application for a proposed Chapter 40B project, the developer cannot successfully appeal to DHCD. Affordable units are included in municipalities’ SHI when determining whether they qualify for the safe harbor.

If a municipality increases the required percentage of affordable rental units from 20 percent to 25 percent, it can include all rental units at those projects in its SHI, not only the affordable units. This benefit helped Reading increase its SHI by 334 units since 2013, resulting in a 10.49 percent SHI and safe harbor protection under Chapter 40B. Reading now has better control over locations and densities of future housing developments.

However, SHI percentages can fall below 10 percent if market-rate units are added to the inventory by new construction or conversion of affordable units to market-rate units. Reading’s planning department continually monitors its SHI.

Andrew MacNichol, the town’s community development director, is also focused on the 2021 Massachusetts Zoning Act amendment, requiring that MBTA communities like Reading to have at least one zoning district where multifamily housing is permitted as of right. The Massachusetts attorney general warned this month that MBTA communities that fail to comply risk liability under federal and state fair housing laws.

MacNichol is confident that Reading will comply, noting that the town “has prioritized working with stakeholders and engaging in a robust public process for all housing developments. Support from the public at large and governing bodies has been an immense benefit. We will continue with these efforts for all future opportunities and needs.”

One town alone cannot solve the housing shortage in Massachusetts, but Reading is doing its part.

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

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.

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