Summer 2012

3 MINUTES ON MASSACHUSETTS REAL ESTATE

SUMMER 2012

Attorney Kevin J. Joyce

617-542-8905 kjj@dohertylawoffices.net

www.permitlawyer.com

Lodging House Statute Decision Will Have Significant Changes For September Rental 'Turn Over' Season

As property owners, managers and tenants prepare for the annual September ‘turn over’ season, the rental housing market will be operating under a new set of rules for leasing an apartment, home or condo to a group of  local college students. In City of Worcester v. College Hill Properties, LLC, Appeals Court upheld the application of the Massachusetts Lodging House Statute, G.L. c. 140 s. 22, to dwellings occupied by four or more unrelated college students. The decision now allows the treatment of such dwellings as Lodging Houses. The decision leaves property owners and managers with two options: 1) do not lease a dwelling unit to four or more unrelated college students, or 2) comply with all the requirements for running a Lodging House if you do.

September 2012 will mark the first 'turn-over' season for college rentals under this Appeals Court decision. The Appeals Court held that the City's enforcement of the statute against dwellings occupied by four or more unrelated college students followed the statute's legislative intent to ensure the safety, health and welfare of residential dwellings, their occupants and abutters. The Court also held that four college students did not represent a "family unit" and that a group of college students living together while attending school is not an arrangement that "lends itself to a stable and durable household." The Appeals Court decision provides municipalities with a major tool to address 'town and gown' off campus overcrowding in rental units. While many cities like Boston, have attempted to regulate this issue though zoning definitions, the Appeals Court has somewhat sidelined this strategy by refusing to recognize the defendant's argument that the occupancy of four students in one dwelling unit was permissible under applicable Worcester zoning definitions because the students were living as a "family unit" and not ‘lodgers.’   The Court recognized that the Lodging House Statute, and zoning regulations, are two completely different regulatory schemes and complying with one does not equate to complying with the other. In City of Worcester, the student occupied dwellings were held to  be  within the statutory definition of a Lodging House the dwelling(s) were:  (1) a building or structure; (2) where housing accommodations are leased or let; (3) to four or more adults; (4) unrelated to the operator.   The Court considered only the above statutory criteria from the Lodging House Statute, G.L. c. 140 s. 22, in holding the college student dwelling(s) were within the definition of a lodging house.

The decision does not proscribe renting to four or more unrelated college students; it only mandates that an owner or manager comply with the legal requirements for running a lodging house if leasing practices meet the statutory criteria for a lodging house set out above. Generally, compliance requirements include, but are not limited to, complying with zoning use requirements, upgrading life safety systems (sprinklers, hard wired smokes, egress signage, etc.), getting a lodging house license, obtaining an annual certificate of inspection and even changing the use and occupancy of the property. Even without this decision, it is also important to remember that property owners must not run afoul of the per occupant minimum square footage provisions under the State Sanitary Code, which college students, in the interest of saving money may be willing to forgo at the risk of legal exposure to the Landlord.  If you own property that is rented to college students, there are several steps you should take to mitigate your exposure, especially under this new Appeals Court Decision.

STRICTLY LIABILITY IMPOSED ON MIXED USE LANDLORDS

The potential exposure to strictly liability for State Building Code violations at mixed use commercial properties has been expanded in a recent Massachusetts Housing Court decision.  Under this decision, commercial property owners, managers, and their insurers, now need to reassess the impact of State Building Code violations on their risk management planning. In Sheenan v. Weaver , the Housing Court applied the ‘strictly liability’ provision in the State Building Code Law,  G.L. c. 143 § 51, to a defendant landlord for injuries arising from violations of the Massachusetts State Building Code in the residential portion of a commercial building.  In the decision, the Court found the defendant landlord strictly liable after interpreting the term  "building", as used in Section 51, as including property that is part commercial and part residential rental.

Strict liability is a troubling term because it means liability attaches to a party without the need for a finding of fault.  The occurrence of an event or condition causes liability to attach to a party merely by the occurrence of the event or condition. Strict liability usually applies to areas that, as a matter of public policy, the Legislature is seeking to deter harm to the public. Here, the State Building Code Law in Section 51 provides such a strict liability provision to deter building violations by providing that a party in control of a "building" used for a commercial purpose and open to the public "...shall be liable to any person injured for all damages caused by a violation of any of said provisions."

In Sheenan v. Weaver, the Court  denied a post trial motion to set aside  the application of Section 51’s strict liability provision to a defendant-property owner for the injuries incurred by an intoxicated occupant who fell from a porch with a railing maintained in violation of the State Building Code. The building in which the residential unit containing the defective porch railing was located had only a ground floor commercial space, and four non-owner occupied apartments above it. The unit containing the offending porch railing, and from which the plaintiff fell, was used exclusively for residential purposes. The Court, in its very detailed and thorough decision, noted that the historical interpretation of Section 51 lacked clarity from the trial and appellate courts applying this statutory provision.  After reviewing the legislative history and this historical interpretation of Section 51, the Court here held that the defendant’s entire building, even the residential part, was commercial and public enough to make it a "building" for the purposes applying of Section 51. The Court reasoned that while the ground floor may have been the only actual commercial use, but the four residential units above it were non-owner occupied and maintained as an investment further supporting the commercial nature of the property.  The Court also reviewed other provisions governing commercial property, such as the Massachusetts Consumer Protection Act, to see how those provisions defined the ‘commercial’ use of property.  Based upon the legislative intent of Section 51, the actual nature and use of the building in question and how the term "commercial" property is treated under other statutory schemes, the Court denied the defendant’s post-trial motion to set aside the jury’s verdict awarding approximately $242,000 to the plaintiff for injuries arising from the failure of a porch railing maintained in violation of the State Building Code.

While this decision is troubling, members of the real estate community should take some comfort in the Court highlighting the need for clarity from the appellate courts.  In fact,  a footnote at the end of the decision stated the lack of clarity in the Commonwealth regarding the proper application of Sec. 51 could have been grounds for certifying this question to the Appeals Bench, however, the Court reserved appellate review for the appeals process should one be taken by the parties. The Court noted that the "Court’s curiosity is not grounds for certifying the question." The S heenan decision is especially troubling in the wake of Superior Court decision in a separate matter discussed in a previous edition of this newsletter.  In our previous edition, we highlighted the Superior Court decision in Klairmont, et al v. Gainsboro Restaurant, Inc. that  assessed treble damages against a venue operator for injuries arising from Code violations in a place of public assembly – namely a bar room.  In Klairmont, the plaintiff died after he fell down a flight of stairs in the bar room while allegedly intoxicated. There, the stairs were also maintained in violation of the State Building Code.  Although the jury found that the defendants were not negligent, Court held that the defendant engaged in "unfair and deceptive "acts by operating the bar room with code violations that led to the plaintiff’s injuries. The Court applied a ‘catch all ‘provision in the regulations promulgated by the Attorney General for implementing the Commonwealth’s Consumer Protection Act.  The Sheenan, and Klairmont decisions, when read together, should highlight the climate of significant exposure a commercial property owner or manager may face by not maintain the property in accordance with state regulations.  These decisions should be evaluated with risk management in mind.

ZONING STANDING ALIVE AND WELL IN A POST-KENNER 2012.

This year many people have been asking where Massachusetts law actually stands with regard a party’s standing to file a zoning appeal.  This question finds it genesis primarily in the Supreme Judicial Court decision Kenner v. Zoning Board for the Town of Chatham. It has been about a year since Kenner raised the bar for an abutter or other party to claim standing as a "person aggrieved," but a recent 2012 SJC decision, 81 Spooner Road, LLC v. Zoning Board of Appeals of Brookline, clearly shows that reports of standing’s demise are untrue.  Standing is alive and well, but now subject to better defined standards from the Court.

"Standing" receives so much attention because it is an important threshold requirement that every zoning protestant must meet to continue pursuing their rights in court as a "person aggrieved".  Every abutter to a project that is subject to a determination by the building or zoning official enjoys a presumption of standing as a "person aggrieved."  However, if the harm claimed by the "person aggrieved" is not an interest protected by the relevant municipal zoning code provisions, or if the quality and/or quantity of the facts cannot support a claim of injury a party cannot claim "person aggrieved" status.  If facts "warrant finding a contrary" to a presumption of standing, then the party claiming standing also must come forward with facts sufficient to show a particularized injury to the party’s property or legal rights or interests.

After years of enjoying a broad interpretation of "person aggrieved" standing, many practitioners saw Kenner as limiting the ability to claim aggrieved status in future cases.  This conclusion also has some foundation in the pre-Kenner Supreme Judicial Court’s S tanderwick decision that, although decided under G.L. c. 40B (not G.L. c. 40A- the Massachusetts Zoning Act), also moved toward a higher standard for claiming  "person aggrieved" status.   In Kenner, the plaintiff was an abutter to a home being constructed in Chatham under a special permit granted by the local zoning board.  The height of the new home was also seven feet taller than the previous home.  Kenner claimed construction of the home would impair views of the Atlantic Ocean and therefore his home’s value.  The plaintiff also claimed the new home being built would impact traffic on the street.  Based upon these facts, the Kenner Court held that the Plaintiff’s claims of diminished views, value and increased traffic, which were typical and tradition claims used for achieving "person aggrieved" status, did not give rise to an injury sufficient enough to grant the plaintiff Kenner standing here as a "person aggrieved."  The importance of Kenner was not so much the about  eroding diminished views as an interest protected by local zoning,   it was more about Kenner’s failure to put forth the credible evidence to show the particularized injury to a legal and/or property right(s) created by granting the special permit.  In Kenner, the Plaintiff offered little factual support other the plaintiff’s own speculation and lay opinions as to injury caused its interest or rights.   The Court also had, as part of the record, the testimony from the new home’s architect about  design features used to minimize impacts on views and that the fact that the home’s height variance was only seven feet greater than the previous structure. Further, the trial judge himself had the opportunity to perform a site visit and observe the impacts.  In the totality of facts, Kenner could not prevail in showing actual injury to his rights or interests.  The Court reasoned that to truly be aggrieved, a party must be able to support and substantiate its claim of injury because "…[t]o conclude otherwise would choke the courts with litigation over myriad zoning board decisions where individual plaintiffs have not been, objectively speaking, truly and measurably harmed."  The Court further emphasized the "person aggrieved" standard must be more than just impacts to a person claiming injury, the party must be able to show the actual threat of injury based upon facts.  The Kenner Court held that the injury claimed must be enough that the party should be afforded the opportunity to seek a remedy.

While the language in K enner does set the stage for limiting a party’s rights to oppose a zoning decision, fast forward a year later to March 2012, and 81 Spooner Road, LLC v. Zoning Board of Appeal of Brookline.  In 81 Spooner,  the SJC upheld the trial court’s decision that the abutters,  Mr. and Mrs. Fogg, had standing as  "persons aggrieved" to oppose a project at 81 Spooner Street in Brookline based upon their lay testimony that translated into injury in the form of increased density caused by the project.  While the Spooner Court relied upon the authority established in both Standerwick and Kenner, the SJC held that the trial court correctly found that density was an interest protected by Brookline’s zoning provisions and the Foggs articulated unrebutted facts to show the injury needed to be deemed a "person aggrieved."  However, the Court noted that the developer’s failure to provide any expert testimony or other evidence to contradict the Fogg’s  lay testimony left the Court with only the testimony provided by the Foggs as evidence of particularized  injury to them arising from the zoning relief provided to 81 Spooner. In the face of no countervailing evidence to the facts offered by the Foggs, the Court upheld the trial court ruling that the Foggs were "persons aggrieved. "The take home message from Kenner and   81 Spooner is that standing is alive and well, but to preserve or undermine standing requires more work than pre- Kenner days.

MASSACHUSETTS UPDATES:

New Foreclosure Law Enacted To Remedy Issues Created By Application Of Massachusetts Foreclosure Statute

This summer saw some long awaited relief for the real estate community from series of troubling judicial decisions applying the Massachusetts foreclosure statute to foreclosures commenced prior to the foreclosing party possessing both the mortgage and the companion promissory note to the mortgage.  On August 3, 2012, Governor Deval Patrick signed into law the "Foreclosure Prevention Law. "The new law will take effect Nov. 1, 2012.  The new law primarily amends Massachusetts Foreclosure Statute, G.L. c. 244,  by  mandating that each assignment of a mortgage be recorded prior to commencing with foreclosure.  The law also establishes a new ‘affidavit process’ by which a foreclosing party can state, under oath, that it is either in possession of, or acting on behalf of  person in possession of, the promissory note that is a companion to the mortgage.  Purchasers out of foreclosure are also now afforded some protection from the issues raised in the Supreme Judicial Court’s Bevilacqua v. Rodriguez decision issued last year.  In Bevilacqua, the Court, in essence, held that a person cannot claim title to a property that was sold with an Ibanez defect (in the seminal Ibanez case a foreclosure commenced prior to foreclosing party being vested with both the note and mortgage at time of  the foreclosure notice was held to be invalid). The new law now provides protection from the foreclosed owner/borrower seeking relief against the new owner of the foreclosed property purchased out of foreclosure with an Ibanez defect.   While the new law has created some immunity for subsequent purchasers, the law does not address how to remedy the title problems created for a property foreclosed upon with an Ibanez defect .  The new law’s lack of a remedy for this issue is compounded by another SJC decision issued earlier this summer in Eaton v. Federal National Mortgage Association.The Eaton decision upheld the previous Ibanez interpretations that a foreclosing party must possess both the note and the mortgage at the time of foreclosure to be properly vested with the right to foreclose. Therefore, Eaton, issued this summer , somewhat erodes the possible title remedy suggested in the previously issued Bevilacqua decision that an "equitable assignment" argument for the note may be used to help piece title back together for purchaser of  property foreclosed with an Ibanez defect . There is good news though under Eaton because the Court also held that its holding would only apply to foreclosures commenced after its decision, and not retroactively to foreclosures prior to the decision.   Eaton also laid the foundation for the use of an affidavit process in the new law with regard to possession of both the note and mortgage.   Eaton and the "Foreclosure Prevention Law" provide some progress in the right direction, however, work is still needed on how Ibanez title defects will be corrected in foreclosed properties.