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.

Milton Vote Forces Legal Test of State’s Authority
By Christopher R. Vaccaro
Special to Banker & Tradesman

Massachusetts Attorney Gen­eral Andrea Campbell’s recent law­suit against the town of Milton shows that some of the state’s most pow­erful politicians will not tolerate cities and towns that fail to estab­lish multi-family zoning districts required under the MBTA Communities law.

The MBTA Communities law, which be­came law in 2021, is intended to facilitate multifamily housing development in com­munities served by public transportation. The statute added a new Section 3A to the Zoning Act, applicable to “MBTA communi­ties” – generally defined as municipalities with access to commuter rail, subway or ferry service, and those nearby.

There are 177 MBTA communities in eastern Massachusetts. The statute requires those communities to create at least one zoning district where multi-family housing is allowed as of right, without the need for variances or special permits. The districts must be near public transportation and allow at least 15 dwelling units per acre.

The Executive Office of Housing and Liv­able Communities (EOHLC) published guide­lines governing compliance with the statute. The guidelines recognize four classes of MBTA communities – rapid transit communi­ties, commuter rail communities, adjacent communities (cities and larger towns with­out nearby transit stations) and adjacent small towns. Different requirements apply to each class. EOHLC expects all MBTA com­munities to adopt compliant zoning amend­ments over the next several months.

MBTA communities that fail to comply are ineligible to receive funding from 13 state programs; Those include the MassDe­velopment Brownfields Redevelopment Fund; the MassWorks infrastructure pro­gram, which provides financial assistance for local infrastructure; and the Housing­Works infrastructure program, which provides grants and loans for rental housing projects. The effectiveness of these sanc­tions remains untested.

EOHLC classifies Milton as a rapid transit community because it hosts several stations along the Mattapan trolley line. EOHLC guidelines required that Milton establish by Dec. 31, 2023, a zoning district accommo­dating at least 2,461 multifamily housing units and having at least 50 acres.

Opposition Organized to Overturn Zoning Vote

Milton’s town government initially sought to comply with the statute. It obtained a $50,000 grant from EOHLC for consultants and community outreach. The Milton Select Board directed the Planning Department to develop an action plan. EOHLC later ap­proved an additional $30,000 grant for the town to engage a consultant to draft a com­pliant zoning amendment.

Local opposition arose and organized it­self. Many residents questioned EOHLC’s classification of Milton as a rapid transit community, the enforceability of EOHLC guidelines and whether Milton was legally required to comply with the statute. Never­theless, Milton’s select board submitted a proposed zoning amendment to the plan­ning board for review last September.

After several weeks and a public hearing, the Milton Planning Board recommended that the proposed amendment be returned to the Select Board for further study. Mil­ton’s warrant committee made a similar rec­ommendation. However, last December Mil­ton’s town meeting overwhelmingly voted in favor of the proposed amendment. The op­position persisted, and successfully called for a referendum. Milton’s voters decisively voted against the amendment in February. EOHLC promptly notified Milton that it was not in compliance with the MBTA Commu­nities law.

Lawsuit Follows Warnings

Attorney General Campbell has been clear that her office would insist that MBTA communities create multifamily housing districts. Last year she warned that non­compliant communities risked civil enforce­ment actions, and even possible liability under federal and state fair housing laws. Within two weeks after Milton’s referen­dum, she filed a lawsuit with the Supreme Judicial Court, alleging that Milton violated the statute. Her suit seeks a declaratory judgment that Milton failed to meet its obli­gations under the statute and EOHLC guide­lines, and an injunction requiring Milton to adopt a compliant zoning amendment.

The attorney general’s lawsuit suggests that she will not wait to find out whether the loss of access to specific state funding pro­grams will eventually persuade Milton to adopt compliant zoning. Her suit invokes Section 7 of the Zoning Act, which gives the Superior Court and Land Court jurisdiction to restrain zoning violations by injunction. Courts often use this power against property owners to enjoin zoning violations caused by non-compliant buildings and uses. The attor­ney general’s suit seeking an injunction forc­ing a municipality to adopt a specific zoning bylaw is unusual, but also unsurprising.

Milton residents have a choice. They can support expensive litigation with an attor­ney general determined to enforce the MBTA Communities Act, or they can dust off the zoning amendment approved by town meeting – take a deep breath – and support adoption of the amendment. Resi­dents of other MBTA communities will be watching.

Download the article as seen in  Banker & Tradesman on March 25, 2024. Learn more about Christopher R. Vaccaro.