Change Ripples from D.C. and Beacon Hill

By Christopher R. Vaccaro
Special to Banker & Tradesman

 The Greek philosopher Heraclitus stated centuries ago that change is the only constant in life. A few things expected to bring change to the Massachusetts real estate industry in 2025 are discussed below.

The MBTA Communities Act

The MBTA Communities Act requires 177 Massachusetts cities and towns with access to MBTA service, to create at least one zoning district where multifamily housing is permitted as of right. The Executive Office of Housing and Livable Communities’ guidelines set minimum multi-family unit capacities for these MBTA communities. EOHLC issues determinations of compliance to communities that meet its guidelines.

Most MBTA communities have achieved full or interim compliance with EOHLC guidelines, but not the town of Milton. The guidelines require Milton to establish a 50- acre zoning district accommodating at least 2,461 multi-family housing units. Milton’s town government tried to comply, but local opposition thwarted its efforts. The opposition organized a referendum, and Milton’s voters rejected the zoning change.

Attorney General Andrea Campbell promptly sued Milton in the Supreme Judicial Court, seeking an injunction requiring Milton to adopt a compliant zoning amendment.

The attorney general’s suit relies on provisions of the Zoning Act that give courts jurisdiction to enjoin zoning violations. Courts typically use this power against property owners who disregard zoning limitations on building dimensions or uses. The attorney general’s lawsuit to force a municipality to adopt a specific zoning bylaw is an unusual use of the Zoning Act.

The SJC heard arguments on this case in October. It is expected to issue a decision early next year. The real estate community and housing advocacy groups are standing by.

The Affordable Homes Act, enacted last August, includes numerous spending and housing production policies, many of which will take years to deliver results. But one component of the AHA is likely to have a meaningful impact soon.

Affordable Homes Act

The AHA requires that local zoning laws allow at least one accessory dwelling unit (ADU) as-of-right in single-family zoning districts throughout Massachusetts (but not in Boston).

Municipalities cannot require owner occupancy of either ADUs or principal dwellings. The size of an ADU is limited to the lesser of one-half the gross floor area of the principal dwelling or 900 square feet. Reasonable regulations for site plan review, building dimensions and short-term rentals are allowed.

This simple zoning law change has excellent potential to add badly needed dwelling units in Massachusetts.

Offshore Wind Turbine Projects

Massachusetts is expected to be a major staging area for offshore wind turbine projects in federal waters south of Martha’s Vineyards. Vineyard Wind is already under construction, promising to generate clean energy for over 400,000 homes and businesses.

However, Avangrid’s Commonwealth Wind project stalled. That project was expected to generate enough clean energy for over 700,000 homes.

Avangrid originally entered into long-term power purchase agreements (PPAs) with several utility companies at set prices. Later, it sought to undo the PPAs, claiming that the project was now uneconomic because of inflation, higher interest rates, supply chain problems and other disruptions.

The Department of Public Utilities approved the PPAs over Avangrid’s objections, whereupon Avangrid withdrew from the project.

Another clean energy firm may build this project, but President-elect Donald Trump is no proponent of offshore wind turbines, which depend on leases and other financial incentives from the federal government. The growth of this industry in Massachusetts is at risk.

The End of Chevron Deference

Chevron deference is a legal doctrine that gave federal agencies broad latitude to interpret enabling legislation and promulgate regulations.

The U.S. Supreme Court formulated this doctrine four decades ago in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. In that case, the EPA issued new air pollution regulations that eased permit requirements for polluting industries that modify their plants.

The Supreme Court ruled against an environmental watchdog group that challenged the EPA, holding that when Congress implicitly delegates authority to an agency, courts cannot substitute their own construction of the enabling legislation for the reasonable interpretation of the agency’s administrator.

Last June, the Supreme Court overruled Chevron in Loper Bright Enterprises v. Raimondo. Owners of fishing vessels had challenged a National Marine Fisheries Service’s regulation requiring the fishing industry to pay for on-board observers enforcing the service’s fishery management plan.

Courts now must exercise independent judgment in deciding whether an agency acted within its statutory authority. They cannot readily defer to agency interpretations of ambiguous statutes.

Loper gives federal courts more scrutiny over federal agencies’ actions, which is expected to increase litigation involving those actions.

Download the article as seen in Banker & Tradesman on October 28th, 2024. Learn more about Christopher R. Vaccaro.

Historic Tax Credits Sweeten the Pot for Developers

By Christopher R. Vaccaro
Special to Banker & Tradesman

Developers looking to reposition historic properties have a double advantage in Massachusetts – federal and state income tax credits based on qualifying historic rehabilitation costs.

The federal historic rehabilitation tax credit program is administered through the Internal Revenue Service and the National Park Service. The credit amounts to 20 percent of “qualified rehabilitation expenditures” on a “qualified rehabilitated building,” as determined by the National Park Service.

The credit is available for substantial rehabilitations of “certified historic structures,” which are buildings listed in the National Register of Historic Places or certified by the National Park Service as contributing to the significance of a registered historic district. In general, a building is considered “substantially rehabilitated” if, during a 24-month measuring period, the qualified rehabilitation expenditures exceed the greater of the adjusted basis of the building and its structural components, or $5,000. The U.S. Department of the Interior publishes detailed standards and guidelines governing rehabilitations that qualify for the tax credit.

The federal credit is only available for capital expenditures on existing depreciable buildings that are income-producing. It is not available for personal residences. The federal credit is unavailable for acquisition costs, newly constructed buildings, and enlargements or additions to buildings, but it is available for qualified expenditures that increase floor area through interior remodeling. The federal credit cannot be claimed for landscaping, sidewalks, or parking lots. Unlike the Massachusetts historic rehabilitation tax credit discussed below, the federal credit generally is not transferable.

Before 2018, the entire 20-percent federal tax credit could be taken in a lump sum, but now it must be spread out over a 5-year period. The federal rehabilitation credit is one of the general business credits that taxpayers can claim against income tax. As such, if the available credit exceeds income taxes owed in a given year, taxpayers generally can carry back for one year and carry forward for up to 20 years the unused portions of the federal tax credit.

AHA Expands State Investment

The Massachusetts historic rehabilitation tax credit is available through the Massachusetts Historical Commission. The historic rehabilitation tax credit can offset state income taxes for up to 20 percent of a developer’s qualified expenditures to rehabilitate an historic building. Qualified buildings are those listed with the National Register of Historic Places or deemed eligible by the MHC for such listing. Qualifying projects must be certified by the MHC. The credit is earned when the completed project is placed in service.

This state tax incentive program originally was only in effect from 2005 through 2009, with a limit of $10 million in annual tax credits. The program became popular with developers and the state legislature, which amended the statute a few times. The annual limit was soon increased to $15 million, then to $50 million in 2006, and eventually to $55 million in 2018. The sunset provision of the program was steadily extended beyond 2009 to 2027.

Gov. Maura Healey’s Affordable Homes Act, enacted in August, significantly increased the commonwealth’s financial commitment to this tax incentive program, doubling the annual limit on the tax credit from $55 million to $110 million, and extending its expiration date to 2030. Because of the annual limit on the Massachusetts credit, investors must go through an approval process to qualify, and the MHC has discretion when allocating the available credit.

In making this allocation, state regulations require MHC to consider several enumerated factors, such as whether the project will create affordable housing, the historical significance of the building being rehabilitated, the availability of other beneficial funding sources to the taxpayer and the overall economic effect of the project on the surrounding community.

Similar to the federal tax credit, the Massachusetts credit is not available for personal residences, or for acquisition costs. But unlike the federal historic tax credit, taxpayers who qualify for the Massachusetts tax credit can transfer the credit to a different taxpayer without transferring the qualified historic structure itself. This is particularly useful for developers whose taxable income is less than the amount of the credit. Taxpayers can only carry forward unused credits for only up to five years, but taxpayers’ ability to transfer tax credits enables those who cannot utilize the full credit, to realize a financial benefit by selling the unused credit to a taxpayer who can use it.

Historic rehabilitation tax credits are attractive for those committed to preserving historic buildings, but taxpayers must use them with caution. There are numerous complexities that cannot be fully explained in a short column. Consultation with tax professionals is advised.

Download the article as seen in Banker & Tradesman on October 28th, 2024. Learn more about Christopher R. Vaccaro.

Serving Up a Smorgasbord of Housing Incentives

By Christopher R. Vaccaro
Special to Banker & Tradesman

How much new and rehabilitated housing can $5.16 billion buy? We will find out over the next five years when the results of the new Massachusetts Affordable Homes Act (AHA) become evident.

Enacted in August, the AHA offers a smorgasbord of spending and housing production policies. About $2.5 billion will be made available to the Executive Office of Housing and Livable Communities (EOHLC) for a wide range of initiatives related to housing, including programs supporting disabled individuals, capitalization of the Affordable Housing Trust Fund, climate change mitigation, and funding for low-income housing and innovative developments.

The AHA will provide $2 billion to upgrade thousands of state-aided public housing units across the Commonwealth. Another $426 million will be distributed among local housing authorities to promote, create, and renovate affordable housing. The state treasurer is authorized to issue up to $5.16 billion in bonds to pay for these programs.

New tax credits will encourage the construction of affordable dwelling units for first-time homebuyers with moderate incomes and conversions of commercial properties into mixed-use projects. Existing tax credits for community investment corporations and for historic rehabilitation projects are expanded.

The AHA requires EOHLC to use resources wisely. EOHLC may not spend more than 2 percent of authorized funding on administrative costs. It must promulgate guidance and regulations for its programs and then report its progress to the legislature within 18 months. EOHLC is also charged with delivering comprehensive housing plans every five years, covering supply and demand data, affordability challenges, and needs by region, as well as local zoning responses to housing needs. The Legislature and the governor’s office will have the ability to hold EOHLC accountable under the AHA.

A Roadmap for Regulatory Reform

The AHA makes noteworthy changes to the Massachusetts Zoning Act, which governs local zoning laws in every municipality except Boston.

At least one accessory dwelling unit (ADU) will be allowed as of right in single-family zoning districts throughout Massachusetts (but not in Boston), subject to reasonable regulations for site plan review and building dimensions, and restrictions on short-term rentals. Municipalities cannot require owner occupancy of either ADUs or principal dwellings. They can require one additional parking space for each ADU but not for ADUs located near MBTA stations.

In addition, the AHA amends the Zoning Act to restrict the merger doctrine applicable to undersized lots. Massachusetts courts invoked this doctrine to “merge” contiguous nonconforming lots that would otherwise be buildable lots if separately owned when such lots come under common ownership.

The merger doctrine rendered such lots non-buildable. Now, adjacent lots under common ownership cannot be treated as a single lot under local zoning, if the lots met existing dimensional requirements when established under a subdivision plan, have at least 10,000 square feet of area and 75 feet of frontage, and are located in a zoning district that allows single-family residences.

This amendment will enable home construction on these nonconforming lots. However, single-family homes built on such lots cannot exceed 1,850 square feet of heated living area, must contain at least three bedrooms, and cannot be used as seasonal homes or short-term rentals.

Abutters Discouraged

Other changes to the Zoning Act are intended to discourage abutters from filing court appeals against developers to delay or block projects.

Those appeals create significant and unpredictable financial problems for developers and often prevent worthy projects from coming to fruition. Such abutters now must sufficiently allege and plausibly demonstrate, using credible evidence, that specific measurable injury to a private legal interest will likely flow from the zoning decision. This requirement is likely to result in more dismissals of abutters’ appeals.

Also, the maximum amount of appeal bonds that courts may require from abutters was increased from $50,000 to $250,000. Appeal bonds are intended to indemnify and reimburse developers for damages and increased expenses if the court finds that the harm to the developer or the public interest caused by the appeal outweighs the financial burden on the abutter.

Courts may require a bond without determining that abutters are acting in bad faith or with malice. Courts may also assess a developer’s reasonable attorneys’ fees against abutters if they find that abutters acted in bad faith or with malice in making the appeal.

The AHA approaches the Massachusetts housing shortage from many different directions. But in the end, there is only one metric that matters when determining whether the AHA is successful – how many dwelling units are created or rehabilitated in Massachusetts over the next five years. That metric should be easy to determine.

Download the article as seen in Banker & Tradesman on September 30th, 2024. Learn more about Christopher R. Vaccaro.

Restaurant Claims Harvard Project Led to Demise

By Christopher R. Vaccaro
Special to Banker & Tradesman

Classic Restaurant Concepts LLC had high hopes when it started building out what was intended to be a destination restaurant in Harvard Square in early 2016. Unfortunately, those hopes were dashed when its landlord, Harvard University, began renovations for its nearby Smith Campus Center.

Harvard disclosed the renovation project to Classic Restaurants Concepts before Classic committed to the lease. But soon after the renovation began, Harvard’s contractor, Consigli Construction Co., closed Holyoke Street to vehicular traffic and restricted pedestrian access. Consigli informed Harvard that it expected the closure to continue until August 2018.

Although Harvard had advised Classic of the renovation project in advance, it had not warned Classic about the street closure. After the closure occurred in early 2016, Harvard assured Classic that the street would reopen before school started that fall, when Classic planned to open its restaurant.

Classic spent about $470,000 in pre-opening expenses, mostly on hiring and training staff, managers and chefs. The En Boca restaurant opened that fall, but quickly failed. Classic ceased operations in June of 2017, after paying Harvard only two months’ rent. Holyoke Street remained closed until 2018, as Consigli had predicted.

Classic blamed the street closure for the restaurant failure, and sued Harvard in Superior Court for fraud, negligent misrepresentation, nuisance, breach of the implied covenant of good faith and fair dealing, breach of the covenant of quiet enjoyment of its leased premises, unfair and deceptive trade practices in violation of Massachusetts General Laws Chapter 93A and a declaratory judgment that it owed no rent to Harvard under its lease. Harvard counter-claimed against Classic for lost rent.

Harvard filed a motion for summary judgment, seeking a Superior Court disposition of the lawsuit in its favor without a trial. The Superior Court accepted Harvard’s arguments, dismissed all of Classic’s claims and entered judgment for Harvard on its counterclaim for lost rent of $1.4 million plus $300,000 in costs and attorneys’ fees. Classic appealed most of this judgment, but not the dismissal of its negligent misrepresentation and nuisance claims.

Fraud Claim Not Substantiated

Because the Superior Court had ruled for Harvard on summary judgment without a trial, the Appeals Court was required to draw all reasonable inferences from the evidence brought before the Superior Court in favor of Classic. The Appeals Court had to determine whether Harvard showed that there was no genuine factual dispute between the parties, and that Harvard was entitled to judgment as a matter of law.

The Appeals Court agreed with the dismissal of Classic’s fraud claim, noting that Classic offered no evidence that Harvard knew, before Classic signed the lease, the extent to which Holyoke Street would be closed.

However, the Appeals Court ruled that genuine issues of material fact existed on all of Classic’s remaining claims against Harvard.

The court first considered Classic’s claim that Harvard breached the implied covenant of good faith and fair dealing. Massachusetts courts read that covenant into all leases and contracts. The implied covenant protects each party’s contractual expectations from being defeated by inconsistent acts by the other party.

The court found that the closure of Holyoke Street could reasonably be expected to impair Classic’s restaurant operations, thus defeating the purpose of Classic’s lease. According to the court, there was evidence that Harvard breached the implied covenant when its contractor closed Holyoke Street.

Restaurant Gets Second Try

The court also noted that the street closure blocked vehicles and restricted pedestrian access to Classic’s restaurant. This amounted to evidence that Harvard breached its covenant of quiet enjoyment in the lease, under which landlords cannot interfere with tenants’ use and enjoyment of their leased premises.

As to Classic’s Chapter 93A claim, the court ruled that Harvard’s understatement
of the length of time for the street closure, despite the information provided by Consigli, was evidence that Harvard may have violated that statute. Finally, the court found evidence that the street closure may have amounted to a constructive eviction of Classic, absolving Classic of its obligation to pay Harvard rent.

The Appeals Court upheld the Superior Court’s dismissal of Classic’s claims for fraud, misrepresentation and nuisance, but vacated the dismissal of Classic’s claims for breach of the implied covenant of good faith and fair dealing, breach of the covenant of quiet enjoyment, violation of Chapter 93A and the judgment awarding Harvard lost rent plus costs and attorneys’ fees.

Classic’s appeal succeeded, but this case is far from over. Classic still must prove sufficient facts in Superior Court to prevail on its claims against Harvard and defeat Harvard’s counterclaim for lost rent.

Download the article as seen in Banker & Tradesman on August 26, 2024. Learn more about Christopher R. Vaccaro.

SJC Rules Against Tenant in Eviction Case

By Christopher R. Vaccaro
Special to Banker & Tradesman

In a case involving the Massachusetts appeal bond statute in a summary process eviction case, the Supreme Judicial Court recently ruled against a family that had been occupying a foreclosed property for 11 years without making mortgage or rent payments.

Dorothy Menzone refinanced her Webster home in 2012. Her mortgage loan required monthly payments of about $1,400. Dorothy made regular mortgage payments to her bank until she died the following year. After Dorothy’s death, her daughter Elizabeth continued to live in the house without making mortgage payments. Elizabeth’s adult son Shawn and her daughter Jennifer lived there as well.

The bank did not foreclose its mortgage until 2019, after which it transferred the property to Edward Cianci, who in turn transferred it to Raymond Frechette and himself. Elizabeth and her children continued to live in the house without paying rent.

In 2022, Frechette and Cianci began eviction proceedings against Elizabeth and her children in Housing Court. The court ordered them to pay $1,500 per month in interim use and occupancy payments, which they failed to pay. The court eventually rendered a judgment of possession to Frechette and Cianci in 2023, but Elizabeth appealed. Her failure to make interim use and occupancy payments continued. This delinquency totaled $16,500 at the time of her appeal.

Frechette and Cianci moved for the Housing Court to require Elizabeth to pay for an appeal bond. Elizabeth filed an affidavit of indigency and asked the court to waive the appeal bond requirement, which the court agreed to do. However, the judge ordered her to make use and occupancy payments of $1,275 per month as a condition of her appeal, as required under the appeal bond statute.

Monthly Payment During Appeal Deemed Fair

Elizabeth initially argued that Frechette and Cianci, who had purchased the property from the bank after the foreclosure sale, lacked standing to evict her. The SJC disagreed, ruling that they, as owners of the property, clearly had standing to evict Elizabeth and her children. Elizabeth next argued that the statute allowing courts to waive the appeal bond for indigent tenants in eviction cases, also released her from any obligation to make use and occupancy payments during her appeal. The SJC found this argument to be contrary to the appeal bond statute, and ruled that tenants in eviction actions must make use and occupancy payments, even if the court waives the appeal bond.

Elizabeth next tried to convince the SJC that requiring her to make use and occupancy payments violated her rights to due process and equal protection under the U.S. Constitution and the Massachusetts Declaration of Rights, because she and her children lacked the ability to pay $1,275 per month to occupy the house.

The SJC was unmoved. It noted that Elizabeth had not made mortgage or rent payments for 11 years, and that she and her children were not making use and occupancy payments required by court order in 2022. The SJC noted that a $1,275 monthly use and occupancy payment was rational and represented “a fair balancing of interests between the parties.” Given the circumstances of this case, the SJC ruled that requiring Elizabeth to make modest use and occupancy payments to maintain her appeal did not violate her constitutional rights.

The SJC concluded that a trial court judge may not waive the statutory requirement that tenants make use and occupancy payments pending their appeals in eviction cases. It also ruled that when competing interests and constitutional rights of landlords and tenants are at stake, a motion judge may order use and occupancy payments that exceed the amount a tenant can pay, as long as the judge properly weighs relevant factors when balancing the interests of the parties.

The SJC’s well-reasoned decision required 32 pages of typed double-spaced text. But looking beyond the decision’s lengthy legal analysis, the most important aspect of this case is that Elizabeth resided in a house, without making any mortgage or rent payments whatsoever, for 11 years. It is difficult to pity her and her children.

Download the article as seen in Banker & Tradesman on July 29, 2024. Learn more about Christopher R. Vaccaro.

Neighbors Squabble over Right to Buy Beach House
By Christopher R. Vaccaro
Special to Banker & Tradesman

A Land Court judge in early April ruled on a dispute over a peculiar real estate side agreement between Provincetown neighbors.

Pamela Cyr and Joyce Holupka pur­chased 485 Commercial St. in Provincetown in 2008. Nine years later they purchased 487 Commercial St. next door for $1.25 million. Both properties are tiny lots with closely spaced dwellings and a small beach on Provincetown Harbor.

After renovating 487 Commercial Street, Cyr and Holupka wanted to sell it. They de­cided against listing it with a broker, so they could maintain control over the sale. They hoped to sell to a buyer that would reside at the property on a long-term basis, instead of selling to an investor that might convert the property into rental units.

Cyr and Holupka met Katherine Smith at a house party in 2018. The three women en­tered negotiations resulting in Smith’s pur­chase of 487 Commercial Street for $2.5 mil­lion. The sale was subject to a short, poorly drafted side agreement that gave Cyr and Holupka the right to repurchase 487 Com­mercial St.

If Smith decided to sell the property within four years, she first had to first notify Cyr and Holupka, who could repurchase the property for $2.5 million with a compound annual growth rate of 1 percent. If Smith wanted to sell after four years, Cyr and Ho­lupka could repurchase the property for $2.5 million with the 1 percent compound annual growth rate, or for 5 percent below the best offer, whichever was less.

For a couple of years, Cyr, Holupka, and Smith were good friends, socializing with each other on the private beach. This  friendship disintegrated when Smith told Cyr and Holupka that she was considering selling 487 Commercial St. Cyr and Holupka offered to pay Smith $2.8 million for the property.

Their offer included a request that if Smith listed the property for sale, Smith would allow them to buy the property for the amount offered, less 5 percent. The offer also asked Smith to add them to the exclusion list under any listing agreement. Smith sent them an email stating her intent to list the property, and agreeing to add them to the exclusion list.

An Obligation to Offer Property

After receiving Smith’s email, Cyr and Holupka hired a lawyer. Cyr then personally handed Smith a formal letter notifying Smith that she was exercising her right to purchase 487 Commercial St. for $2.5 mil­lion plus the 1 percent compounded annual growth rate. An upset Smith chose not to list the property for sale. Cyr and Holupka sued Smith in Land Court, to enforce the side agreement and compel Smith to sell them the property.

The Land Court judge considered whether the side agreement gave Cyr and Holupka an option to purchase 487 Com­mercial St., a right of first refusal, or some­thing else altogether.

Cyr and Holupka argued that as soon as Smith shared her thoughts about selling 487 Commercial St., they had an option to re­purchase the property from her. The judge disagreed with this argument, because it did not address the possibility that Smith could change her mind and decide not to market the property.

The judge also declined to characterize the side agreement as a right of first refusal, because Cyr’s and Holupka’s right to repur­chase the property did not require Smith to first market the property and receive a bona fide offer to purchase from a third party.

The judge instead determined that the side agreement was a “right of first offer” obligating Smith to offer 487 Commercial St. to Cyr and Holupka for a set purchase price, before offering it to anyone else. He also ruled that the parties modified the side agreement when Smith agreed to put Cyr and Holupka on the exclusion list if she listed the property for sale.

Under the modified agreement, if Smith listed the property and received an accept­able offer, she would have to sell 487 Com­mercial St. to Cyr and Holupka for 5 percent less than the amount offered. Smith later decided not to sell the property, so accord­ing to the judge, she did not have an obliga­tion to sell the property to Cyr and Holupka.

The judge pointed out that the side agree­ment remains in effect. When Smith eventu­ally decides to sell 487 Commercial St., she will have to contend with Cyr, Holupka, and the side agreement. It is unknown as to when Smith will sell her property. Until then, life will be much chillier and less friendly on the small private beach at 485 and 487 Commercial St.

Download the article as seen in Banker & Tradesman on April 29, 2024. Learn more about Christopher R. Vaccaro.