Gloucester Project Highlights Risks to Buyer

What do you get when you com­bine a 100-year-old former oceanside inn, an inexperienced luxury home developer and a wealthy out-of-state buyer? You get a lawsuit in a Massachu­setts federal court.

In 2018, 171 Atlantic Road LLC, a Massa­chusetts limited liability company con­trolled by Bryan Melanson, bought the for­mer Ocean View Inn on Eastern Point in Gloucester. Melanson planned to redevelop the inn into a luxury home, though he lacked experience in restoring abandoned buildings and developing oceanside proper­ties. He rehabilitated the main building as a 7,800-square-foot home, and sold it in 2020 for $4.7 million to a Delaware limited liabil­ity company based in Illinois controlled by Ronald Berman, who intended to use the home as his primary residence.

The purchase-and-sale agreement be­tween the parties included detailed punchlists of items for the seller to address, such as water seepage at the bulkhead and radon gas. The agreement also contained a one-year limited warranty for 171 Atlantic’s work. After purchasing the property, Berman had numerous complaints about defects with the property, including water ponding that damaged floors and drywall, defective gutters, a leaky roof and windows, building code violations and high radon gas levels.

When 171 Atlantic failed to cure defects and complete punchlist items, Berman filed suit in federal court in Massachusetts. The federal court had jurisdiction over the dis­pute because Berman and 171 Atlantic are considered citizens of different states, and Berman’s claim exceeded $75,000. Berman’s lawsuit alleged that water intrusion ren­dered the luxury home uninhabitable. The complaint included counts for breach of contract, breach of warranty and breach of the implied warranty of habitability.

Both parties filed cross-motions for sum­mary judgment, which the court ruled on last April. In its decision, the court first con­sidered whether 171 Atlantic breached the purchase-and-sale agreement. The court noted that 171 Atlantic failed to repair punchlist items, including radon gas mitiga­tion. 171 Atlantic did not convincingly re­fute Berman’s claim that the property had building code violations. The court ruled in favor of Berman on his breach of contract claim.

Leaky Plumbing Breached Warranty

The court then turned to Berman’s breach of warranty claim, which was based on the limited warranty attached to the purchase and sale agreement. The court observed that the limited warranty covered leaks resulting from plumbing problems and floor defects caused by water damage. However, the court was unwilling to rule in favor of Ber­man on the claim that the limited warranty covered a leaky roof, because it was unclear whether those leaks occurred within the one-year warranty period. Therefore, the court only ruled for Berman on his breach of warranty claim for the leaky plumbing and defective flooring.

The court next discussed Berman’s breach of the implied warranty of habitability claim. Under Massachusetts law, this claim re­quired Berman to show that (i) he purchased a new home from a builder, (ii) the home contained a latent defect, (iii) the defect re­vealed itself only after the purchase, (iv) the defect was caused by the builder’s improper design, material or workmanship, and (v) the defect caused safety problems or rendered the home uninhabitable.

The court first determined that Berman’s property was, in effect, a new home, be­cause of the high degree of demolition and reconstruction performed on the refur­bished inn. The court also ruled that the per­vasive water infiltration was a latent defect that was not discoverable until after Berman occupied the home and experienced weather conditions leading to the infiltra­tion.

The court next concluded that the water problems arose from 171 Atlantic’s defective design, materials or workmanship, because 171 Atlantic undertook a total build-out of the home, installing new flooring, plumbing, electrical systems, bathrooms, exterior roof­ing, siding and windows. If those compo­nents had been properly designed and in­stalled, there would have been no water infiltration. The court found that the amount of water infiltration, especially during the winter, rendered the home uninhabitable, and granted Berman’s motion for summary judgment on his breach of implied warranty of habitability claim. The court denied 171 Atlantic’s cross-motions for summary judg­ment.

After this setback, 171 Atlantic filed a Chapter 7 bankruptcy petition. The bank­ruptcy will likely result in a discharge of all of 171 Atlantic’s debts, including whatever it owes Berman as a result of the lawsuit.

Berman misplaced his faith in 171 Atlan­tic’s competence to rehabilitate a former oceanside inn to modern standards. Given that the North Atlantic is a ruthless neigh­bor, those desiring to live near it must care­fully choose the right builders and design professionals, to avoid disastrous results.

Download the article as seen in Banker & Tradesman on June 29, 2026. Learn more about Christopher R. Vaccaro.