Blog Archive

Thursday, December 14, 2017

Supreme Judicial Court to Decide Enforceability of Condominium Poison Pills


In last October, the Massachusetts Supreme Judicial Court heard oral argument in the case of Trustees of the Cambridge Point Condominium Trust v. Cambridge Point, LLC, et al.  In this case, the trustees of a condominium association sought damages against the developer/declarant for a variety of
construction defects.  The case never made it to trial because a Superior Court Judge dismissed the claims of the plaintiffs, the condominium trustees.  The trial court did so in reliance on so-called “poison pill” provisions that the developer had placed into the condominium documents to shield itself against just such litigation.  REBA filed an amicus brief with the SJC in support of the plaintiffs.  I had the privilege of co-authoring REBA’s amicus brief, with Tom Moriarty, who currently co-chairs REBA’s Condominium Law and Practice Section.

As a condominium practitioner regularly involved in advising both developers and trustees of new condominium associations at the time of turnover to unit owner control, I have noticed that these poison pill provisions seem to have proliferated of late – appearing almost routinely and also appearing in a variety of forms.  In Cambridge Point, those procedural hurdles included:  requiring an 80 percent vote of the unit owners prior to commence litigation except lawsuits to enforce condominium liens, requiring that the trustees present a litigation budget and draft complaint to the unit owners prior to this vote and requiring the vote to be successfully concluded within sixty (60) days of the call to vote.  Notably, in Cambridge Point, there was a factual dispute about whether the developer, and its affiliates, had retained units with 20 percent or greater of the beneficial interest so as to be able to block such a vote.

The Plaintiffs argued that Chapter 183A confers on the Trustees the exclusive power to conduct litigation as to common areas and the poison pills and further argued that the poison pills constituted overreaching under the seminal case of Barclay v. Deveau, and interfered with Trusts’ relationship with its attorney.

REBA and the Abstract Club filed an amicus brief asking the SJC to strike the poison pill provisions as violating public policy and being contrary to both the spirit and the terms of the provisions of Chapter 183A.  In addition, and more specifically, because of the exclusive, unrestricted power of the Trustees to conduct litigation under Chapter 183A involving the common areas and facilities.  REBA’s brief also argued that poison pills prevent recovery for breach of the judicially established implied warranty of habitability and I looked to the Uniform Acts (the Uniform Condominium Act and Uniform Condominium Interest Ownership Act).  The latter expressly prohibits a unit owner vote as a precedent to institution of legal proceedings.

I attended the SJC oral argument in October and share some of the questions from the Bench.  Not surprisingly, counsel for the Condominium Association was asked at the outset to address the fact that the disputed provisions were contained in the recorded Condominium Documents, such that buyers would have knowledge of the provisions and could choose to buy units in the Cambridge Point Condominium, or not.  In this and other questions, the Bench cautioned that in only very limited circumstances a warrant judicial intervention to set aside recorded terms in Condominium Documents. 

Further questions from the Bench probed both counsel as whether any sort of pre-litigation vote might be lawful.  For instance, in a question to the Trustees’ counsel: Would it be less problematic if the threshold vote was a 51 percent beneficial interest?  A similar question was posed to counsel for the Declarant, but at the other end of the spectrum:  Would a 99 percent vote violate public policy?  Another question reflected concern about the Unit Owners: “What remedy would the Unit Owners have if a Condominium Board entered into litigation that cost millions of dollars?”  Plaintiffs’ counsel responded by explaining that Condominiums are the purest form of democracy, such that unhappy Unit Owners always have the ability to vote to remove and replace the governing Board.  Ultimately, questions from the Bench reflected the difficult decisions which potentially face a new Association at turnover:  “If a lawsuit is not pursued by the Board, then wouldn’t the Unit Owners would bear 100 percent of the repair cost without contribution from the Declarant and the Unit Owners would be assessed for that?”  And, the final question from the Bench to Developer’s counsel, reflecting the ultimate dilemma facing a prospective purchaser: “So if I’m a prospective purchaser and I read everything recorded at the registry of deeds as a diligent buyer and I notice the 80 percent vote requirement, how am I supposed to know that the developer holds a 20 percent controlling interest and that I’ve effectively given up the right to sue?”  And further, “What about if I’m an early buyer so I have no reasonable way of knowing the developer’s plans to hold onto a controlling interest?” 

The SJC is expected to issue its decision in approximately 120 days from the date of the oral argument.


A partner at Prince Lobel Tye LLP and a founding chair of the Association’s condominium law and practice section, Diane Rubin currently serves as REBA’s president and is also a member of REBA Dispute Resolution’s panel of neutrals. She has extensive experience as construction and real estate counsel to private, public, and nonprofit clients including property developers and other owners, notably colleges, universities, awarding authorities, and condominium associations.  Diane can be contacted at drubin@princelobel.com

Wednesday, December 13, 2017

Appeals Court Requires Unanimous Unit Owner Consent To Expand Over Existing Exclusive Use Area


A recent decision by the Massachusetts Appeals Court concerning a unit owner’s right to unilaterally expand her unit into exclusive use common area previously granted by virtue of the master deed has
raised some uncertainty as to how condominium boards effectuate grants of limited common area, and more specifically, what rights unit owners have to alter existing exclusive use area.

In Cavalo v. Raspallo, 92 Mass.App.Ct. 350 (2017), the Appeals Court concluded that a unit owner may not “annex” exclusive use common area to her unit without the unanimous consent of the other unit owners holding a legal interest in that common area, despite the fact the area is for the exclusive use of the expanding unit owner. Cavalo involved a two-unit condominium in Dennis, Massachusetts where most of the common area was designated in the master deed as “exclusive use” for one unit or the other. In 2011, one-unit owner, Cavalo, constructed a 111 square-foot enclosed addition to her home which was situated entirely on her exclusive use area. The Raspallos challenged her ability to construct the addition and filed suit seeking injunctive relief both on their own behalf and derivatively on behalf of the association. After affording the parties an opportunity to resolve the matter privately, the trial court ultimately determined that the addition was not properly authorized, ordered its removal and required the Raspallos to pay attorneys’ fees to the association in connection with the derivative aspect of the claim.

The Appeals Court agreed with the trial court and appears to articulate a new standard requiring consent from 100% of all condominium unit owners when a unit owner seeks to expand their unit into previously granted exclusive use common area. The reasoning for the Court’s conclusion, however, is largely pinned on two cases from the 1990’s with substantially different factual scenarios, as well as certain amendments to M.G.L. c. 183A, s. 5 which govern the grants of exclusive use areas in a manner different than what underpins the Court’s concerns.

The Court initially relies upon Strauss v. Oyster River Condominium Trust, 417 Mass. 442 (1994) which involved a similar expansion of a unit into exclusive use common area, however in that circumstance the master deed purported to allow unit owners to expand their units into common area needing only the consent of the trustees. In Strauss, the area into which the owners expanding their units was not originally exclusive use area, which resulted in the need to recalculate percentage interest in the common areas for all other owners, which constituted a deprivation of property interests in violation of the master deed and c. 183A.

In Kaplan v. Boudreaux, 410 Mass. 435 (1991), the Court was confronted with similar circumstances in which the trustees attempted to implement an amendment to the condominium’s bylaws granting a single unit owner exclusive use over a portion of common area that was not originally granted in the master deed. As a result, other unit owners lost their right to use that portion of the common property, the deprivation of which created a need to recalculate the relative interest of all unit owners in the common area, something which would have required consent of 100% of the percentage interest.

Distinguishing Cavalo

Both Kaplan and Strauss involve instances where the common area over which the unit owner expanded their unit was not exclusive use area prior to the expansion, which ultimately deprived other owners of their interest in that portion of the common areas. In Cavalo, the unit owner already possessed the exclusive use area so it presents a legitimate question as to whether the other unit owner(s) are actually deprived of any property right, as they were not previously permitted to utilize that portion of the common area in the first instance. Further, as no unit owner was deprived of such a right to enjoy that portion of the common to which they previous possessed, the need to recalculate the percentage interests of all owners was not triggered. Nevertheless, the Court relied upon the reasoning in Strauss and Kaplan in concluding Cavalo’s actions were not permitted.

The Cavalo Court expressed concern that if it adopted Raspallo’s position then “condominium trustees could unilaterally assign common area to the exclusive use of a unit owner and then allow that unit owner to take fee simple possession of that former common area by building on it.” That concern, however, is belied by the specific statutory framework regarding grants of exclusive use area, which was modified in 1994, partially in response to Kaplan and Strauss. M.G.L. c. 183A, s. 5(b)(ii) requires that when a board desires to grant limited common area to a unit owner which was not otherwise granted in the original master deed it must obtain the consent of all unit owners abutting the area which will become exclusive use as well as 51% of all first mortgagees; such a grant cannot be made by the trustees acting alone, which effectively eliminates the concerns raised by the Cavalo Court. In fact, the 1994 amendments to Section 5(b), and the assumed underlying motivation for the changes, are irrelevant to the circumstances present in Cavalo because there was no grant of limited common area by the trustees.

Raspallo has filed an Application for Further Appellate Review (FAR) asking the SJC to consider whether the expansion of a unit occurring entirely within an existing exclusive use area appurtenant to that unit materially affects the ownership interests of other unit owners. If the SJC accepts the case for further review its decision may ultimately rest on grounds other than those articulated by the Appeals Court, as the issue may in fact turn on whether certain types of expansion are permitted over existing exclusive use areas (e.g. patios, decks, etc.), versus whether the ruling addresses only those enclosed expansions that are considered annexations of the exclusive use area, which would require consent from 100% of the unit owners, despite the fact no new limited common area is being created and no recalculation of percentage interests is required.

Practical Considerations

If you are a developer or represent a developer it is important to make your intention with regard to the creation of the limited common area manifest in the master deed. If the grant of exclusive use common area is to include the right to fully enclose the space, state it clearly in the master deed. If the intention is not to allow enclosure, but to allow something more than the maintenance of unimproved open space, identify in the master deed with as much precision as possible the unilateral rights possessed by the unit owner in such regard;

If you are a condominium board or a manager advising a board that is considering granting a unit owner exclusive rights to occupy the common area, but without the addition of elements which enclose otherwise open common area land, whether it simply be to pass and re-pass through an opening in a common area wall for the purposes of joining two units or to allow unenclosed construction on a deck constructed on exclusive use common area, consider granting both an easement and creating limited common area under 183A Section 5(b)(2)(i)&(ii) and be specific in regard to what the unit owner can and cannot do with and on the exclusive use area. In such cases, the circumstances can be very different, and the board should include, with the advice of counsel, such conditions as are appropriate (including conditions identified below when advisable); and

If the intention is to allow a unit owner the right to fully enclose and effectively incorporate a portion of unimproved exclusive use common area as part of an owner's unit, the safest approach is to get 100% of the unit owners to approve along with consent from the requisite percentage of first mortgagees.

If, on the other hand, the decision is made to rely on the power granted to the organization of unit owners in the statute, without 100% of the unit owners, then the board should:

a. Review the master deed to determine if such grant is inconsistent with other provisions in the governing documents;

b. Check with its insurance agent to ensure that the elements of the structure can be, and are insured and include in the grant an obligation on the part of the unit owner to reimburse the board for any costs associated with same;

c. Include in the grant a signed acknowledgement that the board is not guaranteeing the efficacy of any such grant and that the unit owner does not rely on the board and accepts fully the risk associated with the contemplated construction and agrees to pay to remove same and restore the common area should a court determine the construction violates the law; and

d. include in the grant an acknowledgement by the unit owner of its responsibility to pay any costs incurred by the association in connection with the improvement


There are many other issues of concern associated with a unit owner performing construction on the common area including the need to ensure the construction is good and workmanlike, insuring the structure during building operations, liability and workers' compensation insurance, architectural integrity, etc. which go beyond the simple exercise of the power to grant the easement or create the limited common area-and go beyond the subject matter of this article-which should be reviewed in detail with counsel in connection with any such undertaking. 

Originally posted December 5, 2017 on tlawmtm.com:

Chris is a founding member of Moriarty Troyer & Malloy LLC and brings nearly fifteen years of litigation and trial experience in the areas of community association, real estate and complex construction law. Chris’s practice also focuses on condominium construction defect and transitional litigation at the trial and appellate level of the state and federal courts as well as in various alternative dispute resolution forums.

In his condominium and real estate practice Chris represents residential and mixed-use condominiums, homeowner associations and property management companies in a broad range of matters and provides advice on operational and governance issues, interpretation and amendment of governing documents, rules and bylaw enforcement, developer transition issues and common area disputes. Chris also manages the firm’s common area lien enforcement practice.

Chris represents a wide variety of clients including condominium and homeowner associations, building owners, developers, general contractors, construction managers, subcontractors and suppliers in all aspects of construction transactions, disputes and litigation including defective work claims, breach of contract, and violations of M.G.L. c. 93A. Chris has expertise with disputes involving both public and private construction projects and has extensive experience with complex multi-party construction defect litigation.

Tuesday, December 12, 2017

The Expansion of the Housing Court with Chief Justice Timothy F. Sullivan


Judge Sullivan will discuss the ongoing expansion of the Housing Court throughout the Commonwealth. Many attorneys have questions about how this expansion is unfolding. Landlord/tenant attorneys in particular must be aware of the new rights that tenants have to transfer cases from District Courts to the Housing Court.  Judge Sullivan will talk about the changes to the Housing Court that are necessary to absorb the influx of new cases.

Friday, December 8, 2017

TEARING DOWN A HOUSE ON A GRANDFATHERED LOT CAN EXTINGUISH G.L. c. 40A, § 6 RIGHTS


The law of pre-existing non-conforming lots, building and uses is more complicated than just saying that something is “grandfathered”. It used to be fairly simple to prove that a building
or a use was lawfully pre-existing non-conforming when the period of historical records required to prove the protection was only 10 or 15 years; but today the research required often spans 60 years or more.

Usually to prove that a lot is a lawfully pre-existing non-conforming vacant lot, it has become customary to have a title examination performed of all the surrounding land and provide a certification and back up documentation to the building commissioner in support of a request for a determination that the subject lot was not held in common ownership since the date that the lot became non-conforming and has at least 5,000 sq ft of area and 50 feet of frontage. Usually, eventually, we receive a written response from the building commissioner concluding that the lot is buildable. However, recently a new building commissioner found it unbelievable that a pre-existing lot would not be subject to dimensional requirements, so in his written response, although he agreed that the lot was protected as a non-conforming lot, he also wrote that a special permit was required before any construction could be initiated.

I tried to persuade him otherwise, but as 30 days after his decision approached, pursuant to the warnings contained in Purcell v. Sherrill, No. ESCV201002209B, 2012 WL 1325028, (Mass. Super. Feb. 27, 2012), it was necessary to file an appeal with the ZBA. It took over 5 months from the original submission to the building commissioner to the expiration of the appeal period from the ZBA decision before the client was able to prove that she had a buildable lot. As we all know, you have may rights, but sometimes it takes time and money to be able to exercise those rights.

Although the above thoughts seem somewhat random, they came to me as I read the recent Land Court decision in Falardeau v. Seelen, No. 04 MISC 297674 (JCC), 2017 WL 1905777,1 (Mass. Land Ct. May 9, 2017), judgment entered, No. 04 MISC 297674 (JCC), 2017 WL 1900331 (Mass. Land Ct. May 9, 2017). The landowner owned a lawful pre-existing non-conforming lot with a dilapidated cottage. The Building Commissioner sent a letter to the lot owner advising the lot owner that the cottage was uninhabitable and “in serious need of immediate repair.” The Land Court decision also states that the Building Commissioner “also offered his opinion that, because the cottage had been built on the Lot prior to enactment of zoning in Hingham, the Lot was protected under G.L. c. 40A, § 6 ‘as a lot for one or two family residential use, which contains at least 5,000 square feet and 50 feet of frontage.’ He gave his further opinions that the existing cottage could be ‘renovated or reconstructed as it presently stands on the lot,’ and that ‘since this lot has the protection of General Laws Chapter 40A, you may either make basic repairs to the existing structure to stabilize it until such time as it is ready to be renovated, or you may raze the existing structure and clear the lot of all debris, saving it until such time as it is feasible to reconstruct.’ The Building Commissioner went on to relate his opinion that, in either event, any dwelling eventually built on the lot ‘may be constructed with present setbacks so long as it does not further reduce any non-conforming dimension.’ ”

Of course, the Building Commissioner was not entirely correct.

The lot owner demolished the cottage, and eight years later sought to sell the lot to a party who intended to build a new home on the lot. The buyer sought variances from the table of dimensional requirements, and the ZBA granted the variances with a finding that lot size variances were not necessary because the lot was grandfathered.

Several residents filed a timely appeal. The Land Court found that that lot was not protected under G.L. c. 40A, § 6, ¶ 4. “When the nonconforming cottage was demolished, the nonconforming use of the land, i.e., the location of a dwelling on a lot lacking the required minimum frontage and area, was discontinued. When the use was not re-instated within two years, the right to continue to use the undersized Lot as the site of a residential dwelling was extinguished − not only the right to rebuild a dwelling with the same nonconforming setbacks as the cottage. See Dial Away, 41 Mass. App. Ct. at 171 (‘[I]t is apparent...that when a building is totally demolished, the use to which it was put is necessarily discontinued.’).

“Accordingly, on the basis of the undisputed facts before me, I find that once the undersized Lot was then left vacant for more than two years after the nonconforming residential cottage was razed, the protected nonconforming single family residential use of the undersized Lot was discontinued by virtue of Subsection 4 of Section III–G of the Hingham Zoning By-law, which expressly terminates the right to continue a nonconforming ‘use of...land...in the event of non-use or non-restoration for a period of not less than two (2) years.’ ” Falardeau v. Seelen, No. 04 MISC 297674 (JCC), 2017 WL 1905777, at 8.

Although Land Court cases do not create precedent, they can (and often do) provide knowledge and warnings. The Falardeau decision is consistent with the Appeals Court case in Dial Away. Once a landowner proposes to modify or reconstruct a preexisting single or two-family dwelling, the protections contained within the fourth paragraph of Section 6 fall by the wayside, and the provisions of the first paragraph apply (complicated by the variations or the standards found in local zoning bylaws). A footnote in a 2003 Superior Court decision concluded that “The Dial Away case, note 8, supra, appears to hold that the first and fourth paragraphs of section 6 are mutually exclusive, and that a parcel which has once been improved with a residence cannot be treated as vacant and thus within paragraph 4, even if the right to reconstruct under paragraph 1 has been lost by abandonment.”   Wells vs. Zoning Bd. of Billerica, Mass. Super., No. CA005487 (2003)

Paul Alphen’s column, “Contemplations, Ruminations and Musings of a Country Lawyer,” is a regular feature of the REBA Blog and REBA News.

A former president of REBA, Paul currently serves on the association’s executive committee and co-chairs the long-range planning committee.  He is a partner in the Westford firm of Alphen & Santos, P.C. and concentrates in residential and commercial real estate development, land use regulation, administrative law, real estate transactional practice and title examination .As entertaining as he finds the practice of law, Paul enjoys numerous hobbies, including messing around with his power boats and fulfilling his bucket list of visiting every Major League ballpark.  Paul can be contacted at palphen@alphensantos.com

How Technology Has Changed Recording Practices

By Richard P. Howe Jr.

The first decade of the twenty-first century was a time of rapid technological change at the Middlesex North Registry of Deeds. The registry successfully navigated Y2K at the start of 2000, stopped printing record books in 2001, installed the ACS computer system in 2002, implemented full
Middlesex North Registry of Deeds
electronic recording in 2005, made all documents and images from 1629 to the present freely available online in 2006, and implemented while-you-wait scanning for walk-in customers in 2007.
 
History tells us that new technology does not immediately change human behavior. It takes people time to figure out how to use new things. That was the case with the printing press, the telephone and the computer. It was certainly the case with these technical innovations at the registry of deeds, especially electronic recording.
Now, a dozen years after electronic recording’s implementation, its effect on registry operations can be fairly assessed. Electronic recording has drastically reduced the number of people who come to the registry to record documents. Prior to electronic recording, documents came to the registry in two ways: they were carried by customers or delivered by the post office. The best way to illustrate how much things have changed is to compare how documents were recorded in 2009, when electronic recording was still novel, with recording practices in 2017, when electronic recording has reached maturity.
In 2009 (January through November)

·         60,756 documents were recorded

·         7,484 were e-filed (12%)

·         15,582 were mailed (26%)

·         37,690 were walk-ins (62%)

In 2017 (January through November)

·         54,243 documents were recorded

·         29,771 were e-filed (55%)

·         8,441 were mailed (16%)

·         16,031 were walk-ins (29%)
Because registry customers tend to record groups of related documents at the same time, the reduction in foot traffic is best measured by comparing the number of “sets” recorded on particular days. Here are the statistics for the last day of June, which is historically the busiest day of the year at the registry:
On June 30, 2009
·         484 documents were recorded

·         47 were e-filed (10%)

·         66 were mailed (14%)

·         371 were walk-ins (77%)

·         The walk-ins came in 131 sets, with 2.8 documents per set
 
On June 30, 2017
·         541 documents were recorded

·         315 were e-filed (58%)

·         41 were mailed (8%)

·         185 were walk-ins (34%)

·         The walk-ins came in 60 sets, with 3.1 documents per set

This ongoing shift from walk-in to electronic recording has affected the registry in many ways. As the number of walk-in customers has decreased, the need for countertop recording terminals, scanners, and public access computers has been reduced proportionally. Because it takes the registry less time to process electronically recorded documents than walk-in ones, recording wait times have also been reduced.
The growth of electronic recording ratifies its utility and reliability, but there are still some additional features that could improve the system. For example, today when a customer clicks “send to the registry” on an electronic recording, the digital document package is launched into cyberspace, beyond the control of the submitter. The registry sometimes gets frantic calls from customers asking that a package they just transmitted be rejected due to a late-discovered error. A new system might include an electronic “string” attached to a submitted package so that a customer could pull it back right up until the instant it was recorded.
The value of this pull-back feature would be enhanced by a virtual queue that would allow customers to see documents that came before them in the queue. While concern over the pre-recording run down gap has not suppressed the growth of electronic recording, providing customers with more precise information about what is in front of them in the recording queue would help ease lingering concerns.
A third capability that would improve electronic recording would be a real-time communications link, either video or text, between the submitter and the registry clerk. With walk-in recordings, the exchange of information between the customer and the clerk can be an important part of the recording process. Technology could bring that same capability to electronic recording.
While these and other features should be part of the next generation registry of deeds computer system, the pace of future change is largely in the hands of registry users. As more and more lenders, attorneys and homeowners migrate to fully electronic closings – which the registry is even now ready to accept for recording - the volume of electronic recordings will continue to rise, and the amount of mail and walk-in documents will decline even more.
Still, not everyone who owns real estate has a smart phone, or is comfortable using one for complex financial transactions. Consequently, walk-in recordings, and walk-in customer service, will always be an important part of the mission of the registry of deeds.
Dick Howe’s column, “From the Recording Desk...,” is a regular feature of REBA News.  Dick has served as register of deeds in the Middlesex North Registry since 1995.  He is a frequent commentator on land records issues and real estate news.  Dick can be contacted by email at richard.howe@sec.state.ma.us.

Wednesday, December 6, 2017

Dispute Resolution: What It Is and Why It's Important


Join Joel M. Reck, Esq., formerly of Brown Rudnick and presently the dean of REBA Dispute Resolution, and the Hon. Harry M. Grossman (ret.), former Associate Justice of the Land Court and presently REBA/DR's most prolific neutral, for a discussion of dispute resolution (DR), what DR is, the types of dispute resolution offered, and why DR is a potent tool for resolving disputes. Whether you are a transactional attorney or a litigator, finding ways to resolve controversies, without the cost and uncertain outcomes inherent in litigation, is invaluable. It is, therefore, essential for new attorneys to learn about dispute resolution, and to incorporate it into their practices. 

Tuesday, December 5, 2017

Devils in the Details—Defining “Fair Market Rent” in Commercial Lease Extension Option Provisions


In commercial leases, it is common for the tenant to be granted options to extend the term of the lease beyond the original term. At the time of lease execution, however, it is difficult or impossible to ascertain and negotiate the rental rate for the future extension term. While the rent for the initial term
is negotiated within the known market conditions and going rental rates at the time of lease execution, the extension period usually will not commence until as many as five or ten years later, by which time market conditions, and going market rental rates, are likely to be significantly different. Accordingly, landlords and tenants will often agree to “punt” the issue for later determination, and provide in the lease that the fixed rent payable during the extension period will be the “fair market rent” in place at (or around) the time of the tenant’s exercise of the extension option.

...like many provisions in a commercial lease, the devil is in the details, and both landlords and tenants need to be attentive to these details to be sure that they do not get burned by hidden devils five years down the line when they are trying to establish the extension period rent.

For purposes of determining the “fair market rent” at that future time, the lease will typically include a provision setting forth standards and factors to be applied in the analysis and calculation of the extension term rent. But, like many provisions in a commercial lease, the devil is in the details, and both landlords and tenants need to be attentive to these details to be sure that they do not get burned by hidden devils five years down the line when they are trying to establish the extension period rent. The following is a brief discussion of a few common “devils” that each party would be well served to identify at the time of lease execution:

(i) Comparable Space. Typically, fair market rent will be based on the market rents then being charged for “comparable” space in comparable buildings in a defined market area. There is usually little dispute that the comparable space must (at least) be of equivalent size (in terms of the number of square feet) as the subject premises, but there are a host of other factors that play into whether the comparison space is actually “comparable.” For instance, the rents charged for comparably sized space can vary significantly based on variabilities in the fit and finish of the spaces, so if a landlord has (under the original lease) built out the tenant’s space with a host of special features and finishes, it will want to ensure that the fair market rent is not determined by reference to comparably sized space built out only to lower building standard finishes. Thus, the landlord should ensure that the definition of “fair market rent” refers to comparable space with “comparable fit and finish” to the subject premises.

Similarly, the location of the comparable space within the comparison building can affect the market rental value. If an office tenant’s space is on the second floor of a downtown office tower, the tenant certainly will not want its extension rent to be based on rents paid by otherwise comparably sized space on the penthouse level of the comparison office tower. Tenants should also ensure that the rents are comparable for “as is” space, since, four purposes of the extension term, the tenant usually takes its space its condition at the time of the extension. Thus, the tenant will not want its extension rent to be based on rents paid under leases the landlord is making (or giving the comparison tenants allowances for) substantial tenant improvements, as the costs of those improvements are usually built into the tenant’s rental structure (in terms of higher fixed rent) and amortized over the initial term of the comparison tenant’s lease.

(ii) Comparable Term. The fair market rent clause should also stipulate that fair market rent will be based on rents then being paid by tenants of comparable space with a comparable term. Fixed rental rates for longer term leases are ordinarily lower than fixed rents for shorter term leases, as landlords are often willing to exchange lower rent for a longer lease commitment by the tenant, which creates occupancy stability and rental income predictability for the landlord. Accordingly, in determining fair market rent for a hypothetical five-year extension term, the tenant should be attentive to ensure that the extension rent will not be based on higher rents then being paid by comparison tenants under three-year leases.

(iii) Comparable Buildings. Fair market rent clauses typically provide that the comparison space not only be comparable in size (and, if well drafted, also comparable in fit and finish, and location within the building, etc.), but also within comparable buildings. Tenants should be attentive to the details as to what may constitute a comparable building. For instance, many landlord forms provide that fair market rent will be based on comparable space in “other first class” buildings; if the subject building is not a first-class building (or if the issue is arguable), then obviously the tenant will not want its rent to be based on higher rents then commanded in first class buildings.
Also, if the subject premises are office space within an office building, the tenant should ensure that the lease defines fair market rent with reference to comparable space within comparable “office” buildings in the relevant market area. Rents for retail space are typically significantly higher than rents commanded for office space; accordingly, office tenants will want to ensure that their extension rents cannot be determined by reference to retail rents being paid by tenants of otherwise comparable spaces within retail buildings.

(iv) Relevant Market Area. The market area from which the comparable rents may be drawn is also very significant to the determination of fair market rent, and should always be carefully considered, narrowly tailored, and specifically identified. For instance, a lease that provides that fair market rent will be determined by reference to rents charged for comparable space “in the South Shore” leaves a lot of ambiguity and potential for abuse (or conflict). Rents commanded for space in North Quincy are likely to be significantly different than rents for comparable space in Rockland, and will give license to the landlord to draw upon data from the higher rent towns on the South Shore to establish the extension rent for space in lower rent towns. Indeed, major cities like Boston have many different sub markets within the city’s jurisdictional boundaries; a tenant of space in Brighton, for instance, would certainly not want its extension rent determined by reference to rents being paid in the Back Bay or on the Downtown waterfront. Accordingly, it is important to carefully identify the relevant market area at the time of lease execution, and to be sure that the lease language limits the relevant market area to that specifically defined area.

In summary, it is easy to simply gloss over the seemingly boilerplate extension rent provisions of the landlord’s lease form and assume that the broad references to “comparable” rent will be sufficient, years later, when it comes time to determine the rent payable during the extension term. But, attention to some of the finer details of the “fair market rent” definition in the lease can help remove ambiguities (and potential abuses), create a more clear and objective set of standards to guide the parties in determining the extension rent, and help the parties avoid (or reduce the likelihood of) disputes years in the future when the extension option is exercised.

Originally posted July 26, 2017 on tlawmtm.com:
http://lawmtm.com/commercial-lease-extension-option-provisions.html

Tom is a principal of Moriarty Troyer & Malloy LLC and chair of its Commercial Real Estate Department and a former REBA president. Tom has over 20 years of experience in representing Fortune 500 companies, national and local banks, retailers, shopping center owners, and investors in all facets of acquisition, development, operation and leasing of commercial real estate throughout the country.

Thursday, November 30, 2017

The Housing Report Card 2017: The Dickens, You Say

By Bob Ruzzo

“It was the best of times; it was the worst of times...”
Charles Dickens, A Tale of Two Cities

The Greater Boston Housing Report Card is an annual “must-see” housing event providing, as it does, an annual scheduled opportunity to step back from the project centric trees and observe the overall state of the larger housing forest.  The most recent Report Card marks the 15th time that the Boston Foundation and Northeastern University have collaborated on this effort, with valuable sales and ownership information being provided by the Warren Group. Even if one on occasion quarrels with or has a quibble about some of the conclusions reached in the Report Card, this report is a true civic gem and these organizations are to be congratulated and thanked for their continuing diligence (and stamina) on this issue.


As the Dickensian reference suggests, we in the Massachusetts housing sector have much to be thankful for amidst the abundant challenges that confront us.  First, the Massachusetts economy continues to chug along.  As noted in the Report Card, “real inflation-adjusted gross domestic product has increased so fast in the Commonwealth that in 2016, Massachusetts ranked first in the nation in per capita output – up from sixth place in 2015.” Non-farm seasonally adjusted unemployment has reached an all-time high.

The benefits of this economic strength continued to be skewed in their distribution, and the extremely high cost of housing in the heart of the Greater Boston economic engine complicates the ability to house badly needed workers and becomes a factor in corporate decision-making about expansion and re-location; high-class problems, to be sure, but vexing hurdles nonetheless.
Obtaining and reading the Report Card itself is highly recommended, and here are some initial tidbits to add to your own reflections:

1. Higher Priced Housing Is On The Move and coming soon to a working-class community near you.  Continued price increases in the urban core (Boston, Cambridge and Somerville) are not surprising, but the uptick in housing costs in a number of locations further out from the core is in some cases, startling.  Over the last two years, the median home price in Lawrence is up 14.2%, higher, in percentage terms, than either Brookline or Newton.  Granted, we are dealing with significantly different starting points, but this trend carries with it long-term implications for our multi-modal transportation network.

2. Boston Continues To Lead The Way.  In terms of Housing Permits issued in the five-county Greater Boston Region, the city proper, which “makes up 0.62% of the total land mass of the region and… 9.4% of the region’s population”, was responsible for 29% of the building permits issued in the region in 2016.  Other communities in the region have not kept up, on a proportionate basis, with Boston’s increased housing production.

Thus, we come upon the annual quibble: while the Report Card was subtitled “Ideas from the Urban Core,” it reads somewhat more like a “Plan for the Urban Future,” recommending a 10 step plan to develop a substantial number of “21st Century Villages,” a laudable goal that does carry with it a number of statewide policy points.

One suggestion: a straightforward “idea from the urban core” may be expressed in two simple words: Boylston Street.

Fifteen years ago, the Fenway stretch of Boylston Street was an unloved asphalt mix of muffler shops, fast food options, and deteriorating commercial space.  A committed group of residents realized that with this as the base condition, and given the inherent advantages of the area-a number of large, fixed institutional resources (including, but by no means limited to Longwood Medical Area), it was possible to do much better.  While the high-rise (and high cost) approach of Fenway’s Boylston Street is not replicable (nor desirable) everywhere, it demonstrates the tremendous “recycling” opportunities that exist in “fully built out” communities throughout the Commonwealth.  Customizing the approach (and not necessarily the result) to individual communities is a path we should continue to follow.

3. The Power of Inclusionary Zoning.  Folks who were unable to attend the rollout session at the Boston Foundation missed this one, which was presented by Sheila Dillon, the Chief of Housing & Director of the Department of Neighborhood Development in the post-presentation discussion.  She provided statistics indicating that over the last year, the number of affordable units produced through inclusionary zoning actually outstripped the number of affordable housing units added through more traditional financing techniques such as tax credits, tax-exempt debt and “soft loans.”  That’s a true testament to the power of increased density in a highly desirable market and a topic well worth further discussion.  (And it wins the nomination for this year’s “most underplayed issue” to emerge from the Report Card process).

4. Speed Helps.  A discussion of increased production within the city of Boston would not be complete without noting the dramatic reduction in the time it takes to obtain a building permit.  Average wait times for a single family home permit were shaved from 472 days in 2014 to 74 days in 2016.  The average wait time from application to permit for a Multi-family (5 or more units) development permit was also trimmed from 425 days in 2014 to 119 days in 2016.

5. Homeownership Rates Continue to Fall.  Last year’s nominee for the most underplayed issue.  As indicated in this space last year (“Don’t Look Now, But the Homeownership Rate Keeps Falling”), the drop in homeownership among the upper reaches of “prime age households” (aged 25 to 44) is particularly noteworthy.  To its credit, MassHousing has taken the first steps in a pilot program to try to identify potential new homeowners from the ranks of renters in its affordable housing portfolio.

That’s all that time allows. Pick up a copy of the Greater Boston Housing Report Card and peruse it yourself. It is well worth the effort.

“The Housing Watch” is a regular column from Bob Ruzzo,  senior counsel in the Boston office of Holland & Knight LLP.  He possesses a wealth of public, quasi-public and private sector experience in affordable housing, transportation, real estate, transit-oriented development, public private partnerships, land use planning and environmental impact analysis. Bob is also a former general counsel of both the Massachusetts Turnpike Authority and the Massachusetts Housing Finance Agency; he also served as chief real estate officer for the turnpike and as deputy director of MassHousing.”  Bob can be contacted by email at robert.ruzzo@hklaw.com.


Wednesday, November 29, 2017

Mitigating Risk to Minimize Loss in the Event of a Catastrophe (Video)



Dealing with a Natural Disaster  Flood Preparedness Checklist


Given the recent weather-related catastrophes, how can property owners mitigate or reduce risk to minimize loss and protect their balance sheets? According to the Environmental Defense Fund, this year the Atlantic basin alone had 8 consecutive storms develop - the first time in 124 years - with catastrophic effects. The increased intensity of these storms means increased costs of recovery with Hurricanes Harvey, Irma and Maria estimated to cost $150-$200 billion - an enormous blow to the economy and taxpayers. 

Our guest speakers are Christine Carr, Area Senior Vice President of Arthur J. Gallagher's Boston office, and Sam Milton, Principal of Climate Resources Group in Arlington.

Christine has more than 30 years of experience in the insurance industry, the last 20 years in broking Global Property and Casualty insurance placements for public and private organizations in a variety of industries.

Sam is a certified climate vulnerability preparedness practitioner, advising municipalities on climate action plans and developing strategies for municipal and commercial climate change mitigation and adaptation.

Tuesday, November 21, 2017

Landlord/Tenant Law: Traps for New Lawyers and their Clients (Video)



REBA's Residential Landlord/Tenant and New Lawyers Sections discuss various landlord/tenant topics which cause problems for new lawyers and their clients.  Some of the topics to be covered are leases vs. tenancies at will, tenant screening, security deposits and other up-front charges, issues with notices to quit, rent escrow, agreements for judgment and injunctions.

Ken Krems and Emil Ward, co-chairs of the Residential Landlord/Tenant Section, lead the discussion.