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.

Wetlands and Waterways Permitting Pose Challenges
By Christopher R. Vaccaro
Special to Banker & Tradesman

Massachusetts is blessed with abundant navi­gable harbors and inlets that can accommodate watercraft of all sizes. It is unsurprising that the commonwealth’s coast­line hosts numerous marinas. Marina properties are currently in high demand by investors, but they present special due diligence issues.

In many ways, marinas operate like ho­tels and other hospitality properties. Reve­nues are generated by selling slips and pro­viding maintenance, storage services and retail sales to boat owners. Potential inves­tors must familiarize themselves with the usual business issues related to hospitality properties, such as occupancy rates, labor, major contracts and the physical condition of the properties. But unlike most hotels, marinas present interesting challenges in­volving wetlands and waterways permitting.

Two Massachusetts statutes are of partic­ular concern for marina operations, namely the Wetlands Protection Act and the Water­ways Act (also known as Chapter 91). The first of these statutes is an environmental law that protects wetlands, and the plants and animals that inhabit them, from devel­opment. The second ensures that properties now or formerly in tidal zones are devel­oped for water-dependent uses, while pre­serving public rights to tidelands. Both stat­utes are administered by the Massachusetts Department of Environmental Protection (DEP), which has adopted extensive wet­lands and waterways regulations.

SJC Clarifies Enforcement Timeline

One cannot assume that DEP or local conservation commissions will ignore latent or longstanding violations of wetlands or waterways statutes when brought to their attention. The Supreme Judicial Court’s 2021 decision in Conservation Commission of Norton v. Pesa exemplifies the risk of ig­noring unresolved wetlands violations. Al­though that case did not involve a marina, it is nevertheless instructive.

In 1979, a developer obtained a wetlands order of conditions from the Norton Con­servation Commission to build a store. The order limited fill near adjacent wetlands. The Conservation Commission later ex­pressed concerns that the project exceeded permitted fill limits, but otherwise refrained from acting.

The developer’s widow sold the property in 2014. Before closing, the buyers asked the conservation commission to issue a cer­tificate of compliance for the 1979 order of conditions. The commission refused, claim­ing that the land had 11,000 more square feet of fill than permitted. The buyers pro­ceeded with the closing anyway, whereupon the commission demanded that they restore the affected areas to their original condi­tion, and sued them in Superior Court for the violation, seeking injunctive relief and civil penalties.

The buyers hoped that a three-year statute of repose under the statute would exonerate them. However, the Supreme Judicial Court ruled against them, holding that the statute of repose allows enforcement actions against buyers who acquire land that violates the Wetlands Protection Act within three years after the buyers acquire the land. According to the SJC, the statute does not bar enforce­ment actions against subsequent buyers of the land, even if no enforcement action was brought against any prior owners within the three-year period. Instead, the three-year pe­riod starts to run anew upon each sale.

A Missing License in the North End

The Massachusetts Appeals Court’s 2021 decision in Commercial Wharf East Condo­minium Association v. DEP shows the perils of noncompliance with Chapter 91.

Boston’s Commercial Wharf was built 150 years ago on filled tidelands under an 1832 statute. After the wharf fell into disrepair, the city and the state legislature produced an urban renewal plan and legislation to re­habilitate the wharf. A developer signed a rehabilitation agreement with the Boston Redevelopment Authority (BRA) in 1974 to renovate the wharf for residential, marina and other uses.

The rehabilitation agreement included plans for parking near the main building. The resulting condominium project in­cluded 12,000 square feet of filled tidelands designated for private parking and vehicular access. However, the developer neglected to obtain a license under Chapter 91 for those ancillary uses.

For nearly 40 years nobody seemed to mind the missing Chapter 91 license for pri­vate parking and vehicular access. This blissful ignorance ended in 2011, when the owner of an abutting marina and inn alerted DEP to the issue. The condominium associa­tion argued, unsuccessfully, that prior legis­lation and the BRA rehabilitation agreement authorized private parking and vehicular ac­cess, but DEP ruled that those uses were un­authorized without a Chapter 91 license.

Both the Superior Court and the appeals court upheld DEP’s decision, confirming that the rehabilitation agreement and re­lated legislation did not substitute for the required Chapter 91 license.

These court decisions show that inves­tors in projects that impact wetlands and waterways cannot afford to “play ostrich” when it comes to permitting. Vigilance is es­pecially important for marinas, which usu­ally require multiple wetlands orders of conditions and Chapter 91 licenses for their operations.

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

Supreme Court Compares Some Payments to ‘Extortion’
By Christopher R. Vaccaro
Special to Banker & Tradesman

This month’s unanimous U.S. Supreme Court decision in favor of a California homeowner may have implications for inclusionary development and linkage regulations here in Massachusetts.

California’s El Dorado County is nestled between Sacramento and Lake Tahoe. Much of its area is within a national forest. The county has recently seen significant population growth, with increased burdens on its roads. To address this problem, El Dorado’s board of supervisors adopted a development plan, imposing scheduled traffic impact fees on real estate developments.

When George Sheetz sought to build a modest home there, the county made him pay a $23,000 traffic impact fee to obtain his building permit. He paid the fee under protest, then sued the county in California state court, claiming that the fee violated the Takings Clause in the Fifth Amendment of the U.S. Constitution.

The Takings Clause states that private property shall not be “taken for public use, without just compensation.” Sheetz argued that the impact fee was an unlawful exaction that violated the Takings Clause, because the fee was assessed without a specific determination of the traffic impact of his new home. The California courts rejected Sheetz’s claim, ruling that he could not prevail because the fee was imposed by a schedule developed through legislative action, instead of being assessed on an individual discretionary basis.

The U.S. Supreme Court agreed to hear Sheetz’s case, and issued a unanimous decision, authored by Justice Amy Coney Barrett, vacating the California judgment and remanding the case to the state’s appellate court. The county now must justify the imposition of the $23,000 traffic impact fee on Sheetz’s new home.

Various statements appearing in the Sheetz decision are noteworthy. The Supreme Court began its analysis by declaring that the Takings Clause protects “individual property owners from bearing public burdens which . . . should be borne by the public as a whole.”

 Payments Must Roughly Match Effects

The court recognized that states have substantial authority to regulate land use, and governments can place conditions on land-use permits that serve legitimate police-power purposes. For example, a municipality’s requirement that a developer transfer property to the municipality for road improvements is acceptable, if designed to mitigate anticipated traffic congestion.

However, according to the court, if such conditions are unconnected to legitimate land-use interests, they “amount to an out-and-out plan of extortion.”

The Supreme Court justices cited a two part test to measure the constitutionality of such permit conditions. First, the conditions must have an “essential nexus” to the government’s land-use interest. Second, the conditions must have “rough proportionality” to the development’s impact on that interest.

The court suggested that permit conditions that require landowners to pay monetary exactions that are more than necessary to mitigate harms caused by a development, can violate the Takings Clause.

Given this analysis, it may be worthwhile to examine local land-use regulations that require developers to make linkage payments or create affordable housing to obtain permits.

These policies are common in Massachusetts, particularly in Boston, which adopted a linkage policy for commercial developments during the 1980s.

 Will Boston’s Fees Be Challenged?

Boston’s program currently applies to projects having more than 50,000 square feet of space. Developers are required to pay $30.78 per square foot for lab space and $23.09 for other commercial uses, in increases approved in 2023 that are being phased in during 2024 and 2025. This program has raised nearly $300 million since its inception.

Boston’s inclusionary development policy (IDP), established in 2000, is also of interest.  Until recently, Boston’s IDP generally required residential developers of projects having 10 or more units to set aside 13 percent of the units as affordable housing. Boston amended its IDP last year to increase this obligation. The number of residential units that trigger the IDP was reduced from 10 to seven, and the required percentage of affordable units can be as high as 20 percent, depending on the project.

The IDP allows for the possibility of developers making cash payments to Boston’s Inclusionary Development Fund, instead of building affordable units, subject to approval by the Mayor’s Office of Housing.

The timing of these changes in Boston is peculiar, given the challenges that developers already face because of higher interest rates and construction costs. In any event, it is debatable whether Boston’s IDP and linkage programs are properly tailored to mitigate harms caused by specific projects.  Considering the Supreme Court’s Sheetz decision, a developer may decide to challenge those programs, or similar programs in other communities.

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