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

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.

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.

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.