Friday, September 17, 2021

Gap Closings: A Commercial Real Estate Necessity, Especially Now

 Jennifer L. Ioli

Although gap closings have been utilized in commercial real estate transactions for quite some time, the mechanism is now more


applicable than ever. Gap closings allow real estate to be easily conveyed by parties without the necessity of leaving their desks – and in a COVID-19 world, their own homes. In light of this shift to remote work, it is vital that commercial real estate attorneys, and their clients, understand the gap closing — its virtues as well as the issues it may entail.

Gap closings are transactions where, after documents and funds are delivered, there remains an interval of time before recording of the documents. As with traditional closings, a title policy is issued insuring title typically from the date of the most recent title commitment. The title insurance company insures the “gap” between the closing table and the recording of documents.

This “gap” may occur for any number of reasons. For instance, several states have a recording lag – meaning that even if documents are presented for recording on the day of closing, they may not be processed for several weeks. The impacts of the COVID-19 pandemic and governmental orders restricting operations of registries of deeds and other service vendors have increased recording lags since early 2020.

Typically, these gaps occur when the buyer is located in one state, the seller in another, and the property in yet another and closings are generally run through the buyer’s designated title company in the state where the buyer is located. In these scenarios, the title company is responsible for shepherding all documents, receiving and disbursing funds, and putting closing documents to record.

What’s the Risk?

The risk in any gap scenario is an intervening matter of record, or title, such as a tax lien or a judgment against the seller, may be recorded between the time of closing and when closing documents are recorded – the result being that buyer may not receive the quality of title that was negotiated. The parties will then look to their title insurer for coverage.

Depending on the jurisdiction, electronic recording may be an option. Many jurisdictions permit the e-filing of recordable documents and many will likely follow suit in the future. However, as nationwide transactions become more common, as portfolio transactions (buyers acquiring multiple properties, perhaps in multiple states, from the same seller) increase, the likelihood of getting to record on “closing day” becomes increasingly unlikely. In the current climate of commercial real estate transactions, gap closing is not just an option — it is a frequent necessity.

Who Bears the Risk?

So, who bears the risk? In certain states, it is merely customary for title companies to assume the risk. This risk may be mitigated, in part, by updating title immediately prior to closing – thereby shortening the gap, and by the title company overnighting documents to a local agent who records upon receipt. In addition, title companies typically seek to spread the risk by requiring a gap indemnity, whereby seller indemnifies the title company for matters of record appearing between the date of the Commitment and recording.

With respect to gap indemnities, it is essential that the indemnitor be financially capable. Often, the holder of commercial real estate is a single asset entity whose only asset is the underlying property. Once that property has passed to the hands of the buyer anyone looking for recourse against the (now asset-less) seller may only find empty pockets. The better practice is to ask a seller’s parent company, or other financially viable party, to give the gap indemnity.

It is also important that buyer’s counsel carefully prepare their closing instruction letter to the title company. Among other elements, the closing instruction letter in a gap closing should bind the title company to issue the policy in the form of the marked commitment or pro forma “with no additional exceptions.” Doing so will ensure that the title company is obligated to issue the same policy for which the buyer negotiated, regardless of intervening matters of record.

Taking these steps, understanding the process, and using quality title insurance companies combine to ensure that the gap closing runs smoothly and the parties receive the benefits of their bargain.

A partner at Sherin and Lodgen, LLP, Jennifer L. Ioli is a commercial real estate and environmental attorney with experience in acquisitions, development, leasing, and financing. In particular, Jen represents retailers, developers, and institutions on all aspects of commercial real estate transactions, including advising on environmental regulation and due diligence. A partner in the firm’s Renewable Energy Practice Group, Jen advises industrial companies on the roll-out of solar leasing to accomplish their business goals.  Her email address isjlioli@sherin.com. 

 

Wednesday, September 15, 2021

Requiring Employees to be Vaccinated Against Covid-19?

Dawn D. McDonald

As the Delta variant of Covid-19 spreads, and now with new concerns surrounding the Mu variant, booster shots, and questions


concerning the safety and effectiveness of the Covid-19 vaccine, more and more employers continue to weigh the pros and cons of requiring their employees to be vaccinated.  Of primary importance to employers, is the ability to remain open for business and to function as profitably as possible.  In the face of resistance from many Americans to the vaccine, the White House has begun asking companies to mandate the vaccine for employees.  Mandates are in effect for many first responders, health workers and large manufacturers.  Many of the Property Managers and Condominium Associations that we represent are also asking the question as to whether they can require employees to be vaccinated.   The short answer is: YES.  However, as with most things related to employment law, the answer is actually more complicated than a simple yes or no, and requires a deeper analysis by employers.

Employers can require employees to get the vaccine if they want to continue to be employed.  Most states, including Massachusetts and the surrounding New England states are “employment at will” states.  This means that employers have a right to set working conditions.  The U.S. Occupations Safety and Health Administration (OSHA) actually requires employers to provide their employees with safe and healthy working conditions.  However, there are significant exceptions to making this type of job condition that employers must be aware of.  

Employees have a right to seek an exemption from an employer’s vaccine mandate if they have medical grounds for doing so, or if they have sincerely held religious beliefs.  Workers can ask for alternative accommodations, such as use of personal protective equipment, working separately, or working from home.  These restrictions flow from the Americans with Disabilities Act (ADA) and Title VII of the Civil Rights Act of 1964.  If an employee seeks an exemption for medical reasons, employers must engage in “the interactive process” with the employee to determine what if any reasonable accommodations can be made to keep the employee working productively, while keeping the workplace and the employees safe.  This means thinking about personal protective equipment, social distancing, changing work hours, remote working, etc.

These are just two of the factors that employers must consider when determining whether they should institute a vaccine mandate.  There is the potential for significant liability concerns in mandating the vaccine, other than those related to the ADA and Title VII.  What if an employee who did not request an exemption, has a severe allergic reaction to the vaccine, causing significant illness, and only got the vaccine because it was mandated by the employer?  This scenario raises the specter of protracted litigation, where early reports from the medical field are noting that while rare, adverse reactions in people who have a history of allergies are occurring.  

Employers should weigh carefully the risks versus the rewards.  There are certain industries that have made the vaccine a requirement due to the high risk or essential nature of the business, such as health care workers and first responders, or grocery store workers and manufacturing employees.  In the condominium context, in many cases you have numerous residents sharing common areas including lobbies, elevators, etc. It is a good idea to discuss the issues with your employees and provide them with information about the vaccine.  Many employees will already be vaccinated, in which case, the question becomes a moot issue.  Other employees will not strongly object to the idea of vaccines.  For those that do have strong objections, and do not have a legitimate religious or medical reason for requesting an exclusion, it is possible that other reasonable steps can be taken to address both parties’ concerns.  If however, there is no middle ground, the vaccine can be mandated as a condition of employment.

An alternative to mandating the vaccine, is “strongly recommending” the vaccine and/or offering incentives to employees who agree to get vaccinated.  Provide your employees with available information from the medical field to help address their concerns regarding the safety of the vaccine.  Remind employees that getting the vaccine is not an attempt to limit their rights, or autonomy, but rather provides them with more freedom of movement and a safer workplace from the virus.

A partner at Marcus Errico Emmer & Brooks, P.C., Dawn concentrates her practice on civil litigation and employment law.  She can be contacted by email at dmcdonald@meeb.com  

 

Tuesday, September 14, 2021

Beyond Maui: Groundwater Guidance Still Needed

 Kenneth Reich and Stephen Reich 

In Hawaii Wildlife Fund v. County of Maui, the U.S. District Court for the District of Hawaii held on July 15 that the county of Maui's


daily discharges of millions of gallons of wastewater into groundwater wells half a mile from the Pacific Ocean were the functional equivalent of direct discharges to the ocean, thus requiring a Clean Water Act permit.[1] This is the first reported decision applying the U.S. Supreme Court's 2020 decision in County of Maui v. Hawaii Wildlife Fund.[2]

 

The Maui decision closed a loophole in the Clean Water Act, and provided useful guidance on the issue of whether to require permits for discharges to waters of the United States from groundwater. However, the standard remains muddy, and the U.S. Environmental Protection Agency or Congress needs to act to provide more clarity — through guidance, a general permit, regulation or amendment of the CWA.

 

Beyond the Maui decision, due to the significant political and economic impacts riding on the overall definition of "waters of the United States," this issue has spawned and will continue to spawn significant litigation and regulatory ping-pong, unless the opposing interests can arrive at a consensus on a congressional or regulatory fix — which is not likely to happen any time soon.

 

In Maui, the Supreme Court held that certain discharges of pollutants to groundwater that are the functional equivalent of a direct discharge to waters of the United States must obtain a CWA permit. The court ruled that this was a question of fact, based on such factors as the proximity of the discharge to the surface waters, and the time it took for the discharge to reach the surface waters.


Justice Stephen Breyer, who authored the 6-3 opinion, acknowledged that this was not a bright-line test, but rather a middle ground reflective of the vagueness of the act and the need to balance the dual interests of protecting waters of the Unied States and recognizing the states' traditional jurisdiction over their lands and waters.

 

Prior to the Supreme Court's decision, the U.S. Court of Appeals for the Fourth Circuit, in Upstate Forever v. Kinder Morgan Energy Partners LP,[3] also held that a discharge of pollutants from a point source through groundwater into a water of the United States is covered by the Clean Water Act. In that case, the discharge was a leak from an underground gasoline pipeline that traveled 400-1,000 feet via the groundwater into two tributaries of the Savannah River.

 

The Maui decision was the most recent of a number of Supreme Court opinions and federal regulations attempting to define the line between waters of the United States that are subject to federal jurisdiction, and other waters that are not.

 

For example, in Rapanos v. U.S.,[4] a plurality opinion by former Justice Antonin Scalia, former Justice Anthony Kennedy's concurring opinion defined "waters of the United States" as waters that have a "significant nexus" to navigable waters, that "alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and Kenneth Reich Stephen Reich biological integrity of other covered waters understood as navigable in the traditional sense."[5]

 

In U.S. v. Riverside Bayview,[6] the high court upheld the U.S. Army Corps of Engineers regulation of wetlands adjacent to a navigable waterbody. In SWANCC v. Army Corps of Engineers,[7] however, the court held that the fact that migratory birds inhabited an isolated wetland did not, for that reason alone, qualify the wetland as a water of the United States.


In 2015, the Obama administration EPA and Army Corps of Engineers amended the CWA regulations defining waters of the United States to arguably broaden federal jurisdiction over wetlands and similar nonnavigable water bodies — although notably, the amended regulation did not include groundwater in the new definition.[8] It used Justice Kennedy's significant nexus test with respect to defining nonadjacent wetlands.

 

In 2019, the Trump administration EPA rescinded the Obama-era rule, and, in 2020, promulgated the Navigable Waters Protection Rule,[9] which, not surprisingly, limited federal jurisdiction over certain waters and applied Justice Scalia's more restrictive Rapanos test rather than Justice Kennedy's test for nonadjacent wetlands.[10] That rule is now in limbo, as the Biden administration seeks to revoke the Trump rule and restore the Obama rule.

 

Since many of the issues in defining waters of the United States are ultimately political as well as scientific, there will always be litigation over attempts by different administrations to broaden or narrow federal jurisdiction over such waters. Is a pothole in the Midwest a regulated wetland? What about intermittently flowing ditches? Each of these regulatory definitions have tremendous economic impact.

 

However, the issue of whether a discharge via groundwater to a navigable water is covered by the CWA permitting requirements should be simpler to define, at least in theory. We start with the CWA itself, which Justice Breyer observed was not intended to regulate discharges to groundwater, an arena left primarily to the states.[11]

 

The thrust of the Supreme Court's Maui decision, and the district court's application of that decision, is rather straightforward: In the case of discharges to groundwater that are proximate to and flow directly to a water of the United States, these should be viewed as an attempt to bypass (literally) the federal CWA point source discharge permitting system and should be covered.

 

In Maui, the county apparently made a choice not to apply for a CWA discharge permit — in order to avoid the expense and complexity of building a pipe from its wastewater treatment plant to the ocean, and instituting the pretreatment that would have been required under the permit.

 

The problem is in applying the Maui standard in practice. For example, in discussing the factor of the travel distance from the initial discharge to groundwater to the ultimate discharge point to a water of the United States, Justice Breyer posited a range from clearly jurisdictional to likely non-jurisdictional discharges, spanning a few feet of travel to 50 miles.[12] These examples are not terribly helpful to the regulated community — or the regulators.

 

In the recent district court decision, the judge developed a complete and arguably bulletproof record, showing:

 

• The volume of wastewater discharged into groundwater wells — millions of gallons;

 

• The amount detected directly discharging to the ocean through dye testing and other means — thousands of gallons;

 

• The distance the contaminants traveled in groundwater — half a mile;

 

• The time of travel — 84 days to greater than a year; and

 

• The fact that the contaminants had not changed substantially in their travel through groundwater.

 

In cases where such a record must be developed, and the initial discharge point is between half a mile and 50 miles, this will require significant effort, although it is certainly doable through testing and expert opinions. This is not much different than practices with regard to other environmental permitting issues, e.g., determining whether a wet area is a wetland as defined in the regulations, or whether a proposed air emission is likely to exceed certain limits beyond the fence line of a factory.

 

However, to avoid complex and expensive permitting proceedings in most cases, and to mitigate the muddiness of Justice Breyer's opinion in Maui for the benefit of the regulated community, the regulators and the public, the EPA should provide immediate guidance on this issue, or issue a general permit, rather than proceeding through individual permitting in all cases or awaiting slow development through caselaw.[13]

 

Alternatively, the EPA could amend the waters of the United States regulations to provide a clearer definition of when discharges to groundwater require a CWA permit. But given the litigious history of the waters of the United States program, a final regulation may be a long way off. The same goes for an amendment to the CWA, which is not realistic at this date, given the current makeup of the Congress.

 

Note that under the Safe Drinking Water Act and its underground injection control program, the EPA or delegated states are authorized to issue permits for underground injections of wastewater, so long as they do not threaten a drinking water aquifer. Whether such programs are applicable to the type of discharges addressed in Maui is beyond the scope of this article.[14]

 

Conclusion

 

Maui closed a loophole in the CWA, and provided useful guidance on the issue of whether to require permits for discharges to waters of the United States from groundwater. But the devil will always be in the details, unless the EPA or Congress act to provide more clarity.

 

As to defining waters of the United States in general, due to the significant political and economic impacts riding on such a definition, affecting such diverse stakeholders as farmers, ranchers, real estate developers, industry, environmentalists, and states and municipalities, this definitional issue has spawned — and will continue to spawn — significant litigation and regulatory ping-pong, unless the different interested parties are able to agree on some sensible and clear regulatory standards, or Congress amends the CWA to provide clear definitions.

 

Realistically, that may be too much to expect at this time. So, we may have to continue to muddle through the muddied waters of a post-Maui regulatory environment.

 

Kenneth A. Reich is the principal and Stephen Reich is of counsel at Kenneth Reich Law LLC.

 

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

 

This article originally post at:

https://www.law360.com/articles/1408279/beyond-maui-groundwater-guidance-still-needed on August 11, 2021.

 

[1] Hawaii Wildlife Fund v. County of Maui, CIVIL NO. 12-00198 SOM/KJM (D. Haw. July 15, 2021).

 

[2] County of Maui v. Hawaii Wildlife Fund, 140 S.Ct. 1462 (2020) (affirming the Ninth Circuit's decision that the county of Maui required a CWA permit for its discharges).

 

[3] Upstate Forever et al. v. Kinder Morgan Energy Partners LP, 887 F. 3rd 637 (4th Cir. 2018).

 

[4] Rapanos v. U.S., 547 U. S. 715 (2006).

 

[5] Rapanos, 547 U.S. 715, 759.

 

[6] 474 U.S. 121 (1985).

 

[7] SWANCC v. Army Corps, 531 U.S. 159 (2001).

 

[8] 80 Fed.Reg. 37,053 (June 29, 2015).

 

[9] 85 Fed. Reg. 22,250 (April 21, 2020).

 

[10] Justice Scalia required proof of a direct surface connection between the subject water and a navigable water. Rapanos, 574 U.S. 715, 742. Further, "[T]he phrase ['waters of the United States'] does not include channels through which water flows intermittently or ephemerally, or channels that periodically provide drainage for rainfall." Id. at 739.

 

[11] County of Maui, 140 S. Ct. 1462, 1472.

 

[12] Id. at 1476.

 

[13] See the discussion of EPA guidance in a recent article by Juan Carlos Rodriquez in Law360. https://www.epa.gov/uic/primary-enforcement-authority-underground-injection- control-program.

 

[14] 42 U.S.C. 300f et seq. According to EPA's website as of July 28, 2021, 33 states and three territories have received approval from the EPA to run this program. https://www.epa.gov/uic/primary-enforcement-authority-underground-injection-control-program.

Monday, September 13, 2021

Residents High-Rise Condominiums Seek Industry Guidance following Tragic Surfside Collapse

David M. Rogers

A call to action is often spurred by tragedy. The collapse of a South Florida residential building has caused many Boston condominium boards to question whether their particular high-rise buildings are at risk, and what they can do to prevent a similar disaster. Many board members have been surprised to learn that the burden of ensuring the structural integrity lies with them – as there are few states or city regulations in place to address these concerns. As the condominium industry reacts to the Surfside collapse, it is becoming apparent to most high-rise condominium boards that they must take proactive measures to protect the life safety of their unit owners.

Boards at Massachusetts high-rises would be well advised to begin devising long-term strategies for prioritizing the structural integrity of their buildings.

As we all know, the twelve-story Champlain Towers South condominium in Surfside, Florida collapsed last June– killing 98 people and injuring 11. Degradation of concrete structural support in the building, due to long-term water penetration and corrosion of the steel, is the main factor suspected for causing the collapse.

In response to the Surfside tragedy, the Community Associations Institute (“CAI”) has assembled task forces comprising more than 200 highly qualified and experienced people. More specifically, CAI’s Government Affairs Committee appointed three task forces focused on (i) building inspections and maintenance, (ii) reserve study and funding plans, and (iii) insurance and risk management. The CAI task forces are expected to produce their draft public policy statements and best practices guidelines shortly after the 2021 CAI Annual Conference & Exposition, which just concluded in Las Vegas. CAI is working to move the drafts to approval by the CAI Board of Trustees quickly – hopefully by October. Many state and federal legislative bodies and public agencies are eager to include the CAI public policy statements when drafting related legislation.

H. Alan Mooney, P.E., a licensed professional engineer with over four decades of experience in engineering-related services, is one of the professionals serving on CAI’s task force for building inspections and maintenance. Mooney is the Founding President of Criterium Engineers – a national consulting engineering firm with more than 40 offices throughout North America.

“The structural health and future of any building depends on many variables including age, climate, maintenance, structural materials used, renovations that have occurred, quality of construction, original design and much more,” said Mooney. “No building will last forever,” he said.

According to Mooney, mid- and high-rise buildings in Massachusetts should be subject to regular inspections.

“In my opinion, all buildings of more than five stories should be thoroughly inspected by well qualified individuals for structural soundness regularly – every ten years for buildings less than fifty years old and every five years for buildings more than fifty years old,” he added.

There are more than 300 buildings in Boston that are at least five floors tall that are zoned, at least in part, for residential use. Boston also has some of the oldest residential structures in the nation. Furthermore, Boston’s high-rise buildings – just like the Surfside condominium – sit in close proximity to the Atlantic Ocean. As such, saltwater corrosion of both concrete and rebar are legitimate concerns. Unfortunately, there are no real regulations – from either the state or the city – requiring regular structural inspections of Boston’s taller residential buildings. This is something that the industry would like to see change.

CAI’s task force for building inspections and maintenance is expected to recommend regular structural evaluations of mid- and high-rise buildings by licensed structural engineers. These evaluations are to be separate from any transition or reserve study. The results of the inspections will be shared with the board and, if safety issues are identified, with municipal authorities.

CAI’s task force for reserve study and funding plans is expected to recommend mandatory studies, the results of which must be shared with unit owners. Many participants on the task force believe that boards were not taking action when given important information about the condition of their facility.

Unfortunately, that may have been the case at the Surfside condominium. Morabito Consultants – a consultant hired by the Champlain Towers South association in 2018 – warned of “major structural damage” below the pool deck of the Miami Beach-area building. Its report provided that “[f]ailure to replace the waterproofing in the near future will cause the extent of the concrete deterioration to expand exponentially.” Less than three months before the collapse, the association’s president warned that the damage in the building had gotten “significantly worse.”

The Champlain Towers South condominium association has come under scrutiny for the apparent failure to take timely action in response to the 2018 report. As the Surfside condominium collapse has drawn national attention, many local condominium boards have been wondering what their obligations would be if they were similarly presented with an alarming report concerning potential catastrophic life-safety issues plaguing their high-rise building. Would a board need to immediately notify the building’s residents? Would a board need to issue a multi-million-dollar assessment to repair deficiencies?

Trustees must perform their duties in good faith and in a manner, they reasonably believe to be in the best interest of unit owners, and with such care as would be used by an ordinarily prudent person in like circumstances. Harris v. McIntyre, (2000). The exercise of discretion by a condominium board, under the Condominium Act and the constituent documents of the condominium, must be “reasonable.” Garland v. Wolf, (1995). Generally speaking, a condominium association owes a duty of reasonable care to all persons lawfully on the condominium property. Soederberg v. Concord Greene Condominium Ass’n., (2010). This duty includes an obligation to maintain the condominium property in a reasonably safe condition for residents and other lawful visitors. Accordingly, a condominium board would be expected to act reasonably when presented with a report warning of potentially disastrous issues. Such reasonable actions would likely include warning the condominium’s residents and exploring the feasibility of repairs.

The Champlain Towers South condominium association had approved a $15 million assessment in April to complete repairs required under the county’s recertification process for buildings over 40 years old. Unit owners were scheduled to begin making payments a week after the building collapsed. Assessments ranged from $80,190 for one-bedroom units to $336,135 for the owner of the building’s four-bedroom penthouse. In light of such lofty assessments, one wonders whether high-rise condominiums will need to begin better budgeting for major structural repairs in their reserves.

While hindsight is always twenty-twenty, it is apparent that more urgent action should have been taken in response to the 2018 engineering report issued to the Champlain Towers South board. Indeed, where a report explicitly warns of “major structural damage”, it seems unfathomable that ninety-eight people should lose their lives two years later – after little, if any, action had been taken to address structural issues within the building.

CAI’s task forces will hopefully provide meaningful guidance to the many Boston condominium boards looking to avoid a devastating tragedy like the Surfside collapse. Regular inspections performed by qualified structural engineers will undoubtedly be part of the solution going forward. Boards at Boston high-rises would be well advised to begin devising long-term strategies for prioritizing the structural integrity of their buildings.

An associate at the Boston and Quincy-based firm of Moriarty, Troyer & Malloy LLC, Dave Rogers specializes in complex civil litigation at both the trial and appellate levels. He has extensive experience in the area of construction litigation. Dave’s practice is focused on construction, real estate, and condominium matters.  He can be contacted at drogers@lawmtm.com


Wednesday, September 8, 2021

Land Court Decision Acknowledges the Vagaries of Municipal Permitting

 Paul F. Alphen

In a 2009 Appeals Court decision, Paul Cornell lost his rights under a dimensional variance because he failed to “exercise” his variance

within one year, although during that time period he had his land surveyed, obtained ANR endorsement, recorded the plan, engaged an engineer to prepare a septic plan and map wetlands, obtained a permit from the Board of Health and obtained an Order of Conditions. Unfortunately, for Mr. Cornell to run that gauntlet, it took 15 months, and the Dracut Building Commissioner denied his permit.  See Cornell v. Bd. of Appeals of Dracut, 72 Mass. App. Ct. 390, 391, 892 N.E.2d 746, 748 (2008), aff'd, 453 Mass. 888, 906 N.E.2d 334 (2009).

Land Court Associate Justice Kevin T. Smith reached a far less draconian conclusion in a Plymouth case involving Zoning Bylaw provisions containing time limits. In Rawinski, Tr. of Rawinski Fam. Realty Tr. v. Conner, No. 20 MISC 000333 (KTS), 2021 WL 3355484, (Mass. Land Ct. Aug. 3, 2021), an abutter tried to prevent her neighbor from rebuilding a pre-existing non-conforming waterfront cottage on Saquish Beach rendered inhabitable by a nor’easter in March of 2018.

One of the relevant provisions of the Zoning Bylaw states that: “[a] Pre-existing Nonconforming Use or Structure which has not been used for a period of two years shall lose its protected status and be subject to all provisions of this Bylaw.” The Plaintiff/abutter appealed the issuance of the building permit to reconstruct the dwelling which was issued two years and two months after the storm.

The Court described the many uses that the property owners had made of their land “in ways that are consistent with a residential use even though the cottage was rendered uninhabitable by the March 2018 storm”, including the cottage remained on the lot; the property owner promptly pursued the many necessary permits required for the demolition and replacement of the cottage and the septic system; the owners secured the damaged cottage by erecting a fence around it; they constructed a shed and a make-shift deck on which they placed a grill and folding chairs which the Plaintiff acknowledged in deposition that she observed in 2018, 2019, and 2020; and they undertook regular seasonal clean up of the property.

Judge Smith concluded that the uses of the property were consistent with residential uses, notwithstanding that the dwelling was uninhabitable.  The Judge refused to require that the cottage be “habitable” to maintain it zoning protection whereas the zoning bylaw did not use the word “habitable”.  And unlike the decision in Cornell, Judge Smith stated: “Moreover, the extended period of time between the March 2018 storm and the issuance of the building permit in question was due, at least in part, to the vagaries of the local permitting process which required multiple permits from multiple local boards before reconstruction of the cottage could commence.” Ibid at 8.

Inasmuch as two years is a relatively short time period accomplish everything that has to be done these days to draw plans, obtain permits, and contract for the reconstruction of a building, it was nice to see the Court take a practical approach to the situation.

A former REBA president, Paul Alphen currently serves on the association’s executive committee and co-chairs the long-range planning committee.  He is also a member of the Executive Committee of the Abstract Club. 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.

Tuesday, September 7, 2021

Can I Deposit This Check?

 Laura White Brandow

“Can I deposit this check?” is a question we receive several times a month.

A delinquent owner has written a message on the memo line of the check that is questionable. For example, the owner is in arrears and has written “August condo fees” in the memo line. The question is whether this check must be applied only to the August


condominium assessment. The memo the unit owner has written is insufficient to serve as a directive and the payment should be applied as a partial payment to the oldest outstanding balance on the account. However, writing “payment in full” on the check raises more serious questions as the owner may be trying to affect an accord and satisfaction.

Whether an accord and satisfaction has taken place is a question of fact that must be asserted by the debtor.

An “accord” is a mutual agreement between a debtor and creditor where the creditor agrees to accept a lesser amount of the debt owed. The debt is then satisfied when the debtor actually performs. Cox Engineering Co v. R.F. Cox Associates, Inc., (1971).

Whether an accord and satisfaction has taken place is a question of fact that must be asserted by the debtor.

Under G.L. c. 106, § 3-311, the individual asserting an accord and satisfaction must prove:

(a)(i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim;

(ii) the amount of the claim was unliquidated or subject to a bona fide dispute; and

(iii) the claimant obtained payment of the instrument.

The claim is discharged if the check or an accompanying letter contained a “conspicuous statement” claiming the payment constitutes full satisfaction of the claim and the creditor accepts and cashes the check. Conspicuous, as defined in § 1-201(10), is if “it is so written that a reasonable person against whom it is to operate ought to have noticed it” upon examination of the check. Subsection (c)(1) acts as a limitation on discharge of a claim if the claimant is an organization, such as a property management company that has monthly payments sent to a designated office or bank where employees or machines process payments and provides notice of where all disputed debts, including claims of satisfaction in full are to be sent. Subsection (c)(2) also prevents inadvertent accord and satisfaction by providing the claimant 90 days to reject the payment or tender repayment.

Despite the adoption of § 3-311, numerous Massachusetts courts have held that the common law principles originally set forth in the 1913 case of Whitaker Chain Tread Co. v. Standard Auto Supply Co.,(1913), still apply. Under these cases, they cite three elements of accord and satisfaction:

 

(i) that there has arisen between the parties a bona fide dispute as to the existence or extent of the liability;

(ii) that subsequent to the arising of that dispute the parties entered into an agreement under the terms of which the dispute is compromised by the payment by one party of a sum in excess of that which he admits he owes and the receipt by the other party of a sum less in amount than he claims is due him, all for the purpose of settling the dispute; and

(iii) a performance by the parties of that agreement.” Rust Engineering Co. v. Lawrence Pumps, Inc., 401 F.Supp. 328 (1975).

The main difference between § 3-311 and the common law is that good faith is replaced by the requirement of a mutual agreement between the parties. Applying this to the condominium realm, we have the additional issue that a condominium lien is a statutory lien and is a covenant that runs with the property. As held in Blood v. Edgars, 36 Mass.App.Ct. 402 (1994), owners have an absolute statutory obligation to pay assessed condominium common expenses: “absent a prior judicial determination of illegality, a unit owner must pay its share of the assessed common expenses.” A unit owner must pay the common expenses due and owing in full under protest and bring a separate legal action to determine the legality of the assessment. Further, under. G.L. c. 183A, § 7, “no owner shall be entitled to an offset, deduction or waiver of common expenses or other charges levied or lawfully assessed by the organization of unit owners.” Consequently, absent the presence of a mutual agreement between a unit owner and a condominium trust, accord and satisfaction should not be available to the unit owner.

While the defense of accord and satisfaction may not be available to a unit owner, remember that whether it exists is a question of fact, and therefore, condominium trusts still need to exercise due caution and have procedures in place when checks are received that contain questionable language. As mentioned, stating “August condo fees” on the memo line of a check does not require a condominium trust to specifically apply the payment to the August condominium assessment – the condominium trust still needs to apply the check to the oldest outstanding balance as done in the normal course of business. Unit owners are not allowed to make Swiss cheese out of their ledgers. More concerning are cover letters or checks that contain language in the memo line or endorsement side of the check, or are accompanied by correspondence stating that the condominium trust shall only apply the payment as instructed or that the payment constitutes payment in full of all amounts due and owing. Absent a prior agreement between the parties, such checks should be immediately returned to the owner with a request for resubmission in an acceptable form. Should the account be in collection, collection counsel can send correspondence to the owner advising that the payment is being applied as a partial payment only, and to contact collection counsel for a refund of the payment should the owner object to its treatment as a partial payment and not payment in full.

An accord and satisfaction may legitimately arise should the condominium trust issue a clean 6(d) Certificate. By the statutory language of G.L. c. 183A, § 6(d), the statement is acting as a discharge of any amounts due and owing. Should a condominium trust accept payment in exchange for a clean 6(d) Certificate it will be unable to collect later on any fees or other amounts it failed to include in the payoff.

 

The following are recommended in order to prevent possible disputes or legal actions with unit owners, both under § 3-311 and common law:

1. Do not specify on owner ledgers how a payment is being applied. Owners should see a ledger that simply lists charges, payments and the balance due and owing;

2. Whether the condominium trust issues monthly statements/invoices or makes account information available to owners online, include conspicuous language (bolded and/or larger font will constitute conspicuous) on the account that all payments are applied to the oldest outstanding balance on the owner’s account and that any payments submitted for less than the total shown as due and owing on the statement shall be accepted as partial payments only. Should the account be in collections with trust counsel, a final payoff of the amounts due and owing must be obtained from said trust counsel in order to effectuate payment in full. Such conspicuous language should defeat any argument of mutual agreement. However, the trust should still have the policy in place that any checks stating “payment in full” be returned to the owner;

3. With assistance of condominium counsel, record changes to the Rules and Regulations of the condominium trust which fully, clearly and transparently set forth in writing to all unit owners and all future unit owners exactly what the trust’s policies are as to the trust’s collection policies specifying when payments are due, where to send payments, how payments shall be applied, late fees and other charges and when an account shall be referred to legal counsel.

A special thank you to Madeleine Laffitte for her legal research for this article.

Laura, who practices with the firm of Moriarty Troyer & Malloy LLC, has over twenty-five years of experience as a practicing attorney in Massachusetts and New Hampshire. Laura specializes in the area of time share condominiums and vacation clubs and provides representation to national clients in connection with resort and time share developments, as well as to traditional condominium associations in Massachusetts and New Hampshire. She can be contacted by email at lbrandow@lawmtm.com.