Mass Legal Alerts

Is your property contaminated? How about your indoor air? (MassDEP's Guidance on Vapor Intrusion and Indoor Air)

2012-01-12T13:47:00.000-05:00

Just in time for the recent Holiday season, the Massachusetts Department of Environmental Protection provided the real estate and environmental communities with a dubious present, the 102-page (plus five appendices) “Interim Final Vapor Intrusion Guidance” document on the scintillating (to some) topic of indoor air contamination caused by groundwater and soil contamination. The Guidance document will be important for building and landowners, developers, lenders, tenants and environmental consultants, particularly Licensed Site Professionals (LSP’s), with the misfortune of encountering (potential) indoor air contamination.

The DEP estimates that approximately 50 new sites are identified each year with the potential for vapor intrusion (i.e., the way contamination in soil and groundwater can enter a building and contaminate the indoor air). In addition, vapor intrusion concerns have been raised at former contaminated sites that were previously cleaned up and believed to be “closed” under the hazardous waste cleanup regulations. Additional expensive and time-consuming hazardous waste response actions have been required at some former sites based upon assertions that the prior cleanup did not properly evaluate the potential for vapor intrusion or for new building construction. As imagined, this uncertainty has been a serious concern for lenders, owners, developers and LSPs.

A title combining the words “Interim”, “Final”, and “Guidance” raises some questions as to the document’s legal and practical effect. According to DEP, the document is “final” insofar as it can be quoted and cited after a prior draft had previously been circulated. It is “interim” insofar as DEP says that it will issue formal revisions to its regulations by July 2012, which may supersede parts of the document and lead to additional revisions. Finally, according to DEP, the “Guidance” is not a regulation, rule or requirement, and should not be construed as mandatory. However, because the Guidance presents the technical recommendations and preferences of DEP, an owner, developer or LSP could be forgiven if they treated the document as a requirement subject to enforcement by DEP.

The Guidance outlines DEP’s recommendations for best practices that will meet the current regulatory requirements. The stated purposes are to clarify when to evaluate the pathway for vapor intrusion; provide guidance on conducting assessments to determine if the vapor intrusion pathway (i.e., migration route from the containment source to the sensitive receptor) is complete and conducting risk assessments if the pathway is complete; and, recommend mitigation strategies to address vapor intrusion.

In terms of evaluating the potential for vapor intrusion at sites where there is soil or groundwater contamination, the Guidance contains a multi-step flow chart including documentation of indoor air contamination or odors, the concentrations of contaminants within certain distances of an occupied building, specific building criteria (e.g., an earthen floor, significant cracks in the foundation, a groundwater sump, etc.), and the potential for contaminants moving along preferential migration pathways such as utility trenches.

The DEP recommends a multiple “Lines of Evidence” approach to determine if the vapor intrusion pathway from source to receptor is complete and likely to be of concern. The Lines of Evidence may include the concentration of contaminants in the soil, groundwater, soil gas below the building (sub-slab soil gas), and indoor air; the presence of preferential migration pathways for vapors; and, the presence of other outdoor and indoor sources for the contaminants (e.g., outdoor sources of pollution, household products, etc.).

In an effort to “simplify” the evaluation of the vapor intrusion pathway, DEP has developed Residential and Commercial/Industrial Threshold Values (TVs). These Threshold Values are used to determine whether measured indoor air concentrations are within the range of typical residential indoor air concentrations and typical exposure scenarios for commercial and industrial settings.

The Guidance addresses the common question of whether, and when, to conduct direct sampling of indoor air. The Guidance indicates that it is not common to sample indoor air for volatile organic compounds (VOCs) without first collecting other data on groundwater, soil, or soil gas that indicates that there might be an indoor air problem due to environmental contamination, at least for the purpose of satisfying hazardous waste cleanup regulations (i.e., there may be other reasons to sample the indoor air unrelated to the Massachusetts Contingency Plan, or MCP, at 310 CMR 40.0000). The Guidance recognizes that direct sampling of indoor air without gathering other site data can result in erroneous conclusions and unnecessary response actions to address conditions that are not related to the MCP. In addition, when sampling indoor air (if it is appropriate), efforts should be made to eliminate sources of contamination within or near the building that can affect the results, such as cigarette smoke, the use of sprays, solvents, paints, and other household products, and operations of nearby businesses, such as a dry cleaner.

The Guidance discusses the contentious issue of potential future building construction when there is a potential risk of vapor intrusion (if a building were to be constructed). Achieving closure of a vacant contaminated site that does not have a building can be difficult because actual building conditions cannot be directly measured and existing methodology may not explicitly address potential indoor air problems at a future building. The Guidance indicates that, if some amount of residual contamination will remain in the soil or groundwater, the potential for vapor intrusion should be considered in planning the future placement of a new building and preparing the building site.

The Guidance states DEP’s preference of using an Activity and Use Limitation (AUL), which is a deed rider recorded at the Registry of Deeds, to provide notice to interested parties of the contamination that remains and how to address it in the future. For instance, an AUL might specify the measures to be taken at the time of future building construction (e.g., installation of sub-slab depressurization (SSD) system and a vapor barrier) or might restrict construction activity to locations outside of areas with contamination, or specify that an LSP must evaluate the potential for vapor intrusion before a building is constructed.

The Guidance provides that engineering measures may be incorporated into the future construction plans to protect against vapor intrusion if a building will be constructed in an area where contamination remains that could lead to vapor intrusion. Depending on the concentration of the contaminants, a vapor barrier and an active SSD system either is not required (Category A site), or “should” be installed (Category B site), or presumably “would” be installed (Category C site). The Guidance provides criteria on whether post-construction confirmatory indoor air sampling is necessary and the procedure to determine if the SSD system can be terminated.

Among the various takeaways for owners, developers, and lenders is that LSPs and environmental professionals will have good reason to be cautious in addressing contaminated sites with the potential for vapor intrusion and indoor air contamination. This includes sites with existing buildings as well as vacant properties on which building and construction activities may occur in the future. The Guidance will likely lead to additional site investigations and sampling, which would likely be reflected in the cost and schedule of the work.

Please contact me if you or a colleague has a question on DEP’s Guidance or on other real estate or environmental issues.

Subcontractor's Mechanic's Lien Fails Due to Late Filing and Breach by General Contractor

2011-09-12T10:35:00.000-04:00

I recently posted on recent changes to the Mechanic’s Lien Law that allow “design professionals” to create and enforce liens. Following up on the mechanic’s lien topic, on August 29, 2011, the Appeals Court ruled that a lien filed by a subcontractor was not allowed because prior nonperformance by the general contractor had released the project owner from any duty to make further payments under the original contract. The important point under the Mechanic’s Lien Law, G.L. c.254, §4, is that a payment “due or to become due” from the owner to the general contractor must exist at the time the subcontractor files its notice of contract.

The particular case (Maverick Construction Management Services, Inc. v. Fidelity & Deposit Company of Maryland, Inc.) concerned the reconstruction of an athletic field complex at Nichols College by the general contractor, Evergrass, Inc. Evergrass had subcontracted with Maverick Construction Services, Inc., to excavate the site, place subsurface materials and install a drainage system. Evergrass delivered the facility to the College in September 2005, just in time for the football season. However, serious drainage problems quickly developed that Fall. The cost of the repairs were later determined to far exceed the outstanding balance due under the general contract. Although the College never formally issued a notice of termination to Evergrass, the College broke off negotiations with Evergrass and subsequently hired a new general contractor to remove the deficient field and install a new one.

During the course of the unsuccessful negotiations between the College and Evergrass, Maverick filed its “notice of contract” under the Mechanic’s Lien Law to assert its unpaid subcontract balance. Maverick subsequently sued Evergrass for the unpaid subcontract balance and sued the College for enforcement of its lien.

The Superior Court’s rejected Maverick’s lien because no payment was “due or to become due” to Evergrass under the original contract at the time Maverick filed its notice of contract, which the Appeals Court affirmed. No amounts were due to Evergrass at the time the project was delivered to the College because, at that time, Evergrass’ breach of contract required remedial expenditures that far exceeded the general contract’s retainage balance. Because Maverick’s subcontractor lien was asserted after the project was delivered, when no amounts were “due or to become due” under the contract, Maverick’s subcontractor lien failed.

This case is another reminder to owners, contractors and subcontractors that the Mechanic’s Lien Law, G.L. c.254, contains numerous, detailed requirements that must be followed strictly in order to create and enforce a lien. Additionally, for subcontractors, it is important to understand the status of the general contractor’s contract with the owner in order to evaluate the viability of a possible lien.

Please contact me if you or a colleague has a question regarding creation or enforcement of a mechanic’s lien.

ARE YOU COVERED BY THE NEW DESIGN PROFESSIONAL'S LIEN LAW?

2011-08-11T14:56:00.000-04:00

Property owners, contractors, lenders, architects, engineers, LSPs and surveyors should be aware of important new legislation allowing "design professionals" to place a lien against a property to secure payments due under a contract for professional services. The list of design professionals includes architects, professional engineers, licensed site professionals (LSPs), land surveyors and landscape architects who are licensed or registered in Massachusetts. (The list does not include professional wetland scientists, registered sanitarians or other environmental professionals.) This new law took effect on July 1, 2011.

The Mechanic's Lien Law, General Laws Chapter 254, has long provided a mechanism for building contractors, subcontractors and material suppliers to recover money due under a construction contract. Chapter 254 describes how the lien is created (file a notice of contract), perfected (file a lawsuit to enforce the lien), and enforced (sell the property and collect amounts due relative to other recorded security interests), along with many other critical details. However, prior to the July 1st amendments, architects, engineers, LSPs, and other design professionals typically did not have rights under the Mechanic's Lien Law.

Here are some considerations for design professionals (and building owners, developers, landlords and lenders) under the new law. Of course, the statute must be read in full to appreciate all of its considerations.

1.   There must be a written contract. If the written contract is not directly with the owner (e.g., a subcontract with the prime, or first tier, design professional), the owner must approve of the contract in writing.

2.   It must be a private project due to the continued exception for public property.

3.   The design professional must be licensed or registered in Massachusetts. The lien can be claimed by an individual professional or a corporate entity that is authorized to practice one of the professions.

4.   The design professional's lien can be created and enforced whether or not the building or improvement is commenced or completed and whether or not the professional services have been completed.

5.   The design professional may record its Notice of Contract at the Registry of Deeds (or Land Court district) at any time as long as it is before the end of the statutory deadlines (i.e., the earlier of 60 days after Notice of Substantial Completion or 90 days after last performing services), and provide notice of the recording to the owner.

6.   The design professional must record its Statement of Account within 30 days after the deadlines to record the Notice of Contract (see above).

7.   The design professional must file its lawsuit (a Verified Complaint) in court to enforce its lien within 90 days after filing its Statement of Account, and record the Complaint at the Registry within 30 days after it is filed.

8.   The design professional must prevail in its lawsuit and then move to enforce the judgment (e.g., force a sale and recover proceeds) if the matter has not been resolved.

9.   Owners, developers and lenders should consider requiring lien waivers from design professionals as well as design professional subcontractors, just as they require them from contractors, subcontractors and material suppliers.

10.   Owners and developers should consider modifying their construction contracts to require contractors to address liens created by design professionals and to provide indemnification and defense of such liens, just as those provisions may be required for liens created by contractors, subcontractors, and material suppliers.

Please contact me if you or a colleague has a questions on this e-mail or construction projects involving mechanic's liens for contractors or design professionals.

Are You Ready for Your Business Succession and Exit?

2011-05-11T16:04:00.000-04:00

We are often asked to help a business through a transition involving a sale, acquisition or a succession within a family, with co-owners or with key employees. Given that these transitions may evolve over a long period of time, it is important for owners to plan “exit strategies” to maximize their business value and achieve their exit goals. Although the terms of each deal are unique, the following issues often come up and require negotiation among the parties:

1. Buy/Sell Agreement (aka Business Continuity Agreement): These provisions are important for business continuation because they specify the conditions for transferring the partners’ interests in a business, with the goal of identifying who can (and who can not) acquire the interests; the triggering events for the transfer (e.g., resignation, death, disability, bankruptcy, divorce, business disputes, etc.); and, the method to value the interests at the time of transfer.

In essence, the remaining owner(s) agree to purchase the interest of the departing owner pursuant to the terms of the agreement. Without such an agreement, a business could falter if there were problems with the withdrawing owner, an ex-spouse or heirs. An important component of a buy/sell agreement is the funding mechanism to buy out the interest and pay any estate taxes, to accomplish the transfer, such as “key person” life and disability insurance.

2. Earn Out Provision: The acquirer may want to pay part of the acquisition price over time, through an earn-out provision. Thus, some amount is paid when the deal closes and the balance is contingent on the company’s future performance. Certain target goals are set for several years in the future for such metrics as gross revenue, earnings, net income, new customers, etc. Of course, care must be taken to ensure that the targets are not made difficult to achieve or manipulated (e.g., reducing the marketing budget, increasing or inflating overhead expenses, making unexpected capital expenditures, poorly operating the business, customers preferring to deal with the prior owner, change to the company’s operations, etc.)

The seller can monitor the company’s future business if it negotiates a new role as an employee or consultant, with limitations on the buyer’s ability to replace the seller. Monitoring may also be achieved by retaining rights to audit the company’s books. A dispute resolution provision can be helpful so the parties know in advance how disputes will be settled.

3. Non-compete provision: A covenant not to compete may prevent the seller from competing with or diverting business away from the company. A non-compete provision may not trouble a retiring owner but it may concern a younger seller who is prepared for the next business venture. Non-compete agreements are enforceable in Massachusetts, especially those contained in an agreement to purchase a business. (However, new legislation has been discussed in Massachusetts in recent years to regulate non-compete agreements in the employment context.)

Although non-compete agreements are judged on a case-by-case basis, enforceability often turns on whether the agreement is supported by “consideration” at the time it was signed (such consideration is typically found in the purchase of a business); is tailored to protect a legitimate business interest, such as prohibiting the individual from soliciting the company’s customers, protecting trade secrets, and protecting good will; and, is reasonably limited in terms of its duration, geography, and scope.

Business succession raises additional issues concerning future management, business valuation, tax liabilities, legal structures, and the like. A proactive owner should consider these issues with trusted advisors (e.g., accountant, financial planner, insurance agent, attorney, etc.) in order to plan a rewarding exit.

Please contact me if you or a colleague has a question on business succession issues or this post..

Liability of Commercial Landlords and owners for Unsafe Conditions

2011-05-06T14:30:00.001-04:00

In a recent decision, the Massachusetts Supreme Judicial Court held that a commercial landlord has a statutory duty to correct an unsafe condition as long as the tenant provided written notice of the condition and the tenant did not cause the condition. A commercial landlord has that duty even if the lease provides that the tenant is responsible for repairs and replacement.

The statutory duty arises from General Laws Chapter 186, Section 19. The duty may not be waived in any lease or rental agreement; any such waiver “shall be void and unenforceable.”

Based on this new case, it is important that owners, landlords and property managers respond to written notices provided under the statute even if the tenant is responsible for repairs under the lease. It is also important that the lease provides that the landlord can recoup costs if it is called upon to make repairs.

The new case is Bishop v. TES Realty Trust, wherein the tenant provided the landlord with written notice (by certified mail, return receipt requested, per the statute) complaining about a leaking roof and skylights. The landlord repaired the roof but not the skylights. The tenant claimed that plaster fell from the roof by the skylight into her eye, causing her to fall and suffer injuries. In its defense, the landlord claimed that the statute did not apply to commercial landlords and that the lease obligated the tenant to make repairs. Unfortunately for commercial owners and landlords, the SJC disagreed.

In addition to the “statutory duty” at issue in Bishop, the SJC identified two instances under “common law” where a commercial landlord is liable for injuries arising from unsafe conditions on the landlord’s property: (1) the landlord contracted to make repairs and made them negligently, and (2) the defect that caused the injury was in a common area or other area appurtenant to the leased area over which the landlord had some control.

The Court had an interesting comment on lease provisions that impose a duty to repair on the tenant: “The statutory duty imposed by §19 applies only where the required notice of an unsafe condition has been provided to the landlord. Where the lease imposes on the tenant a duty to repair, the tenant is unlikely to provide such notice, and is more likely to repair the condition herself. Where a tenant with such a duty under the lease gives the required notice and the landlord remedies the unsafe condition, the landlord may bill the tenant for the cost of repair or, as expressly provided under the lease in the instant case, charge the cost of repair as additional rent. And if the application of §19 to commercial landlords does, in practice, devour the common-law rule or allow commercial tenants to shirk their responsibilities under a lease, commercial landlords may petition the Legislature to limit §19 to residential landlords, as the Legislature has done in many other statutes.”

Accordingly, owners, landlords and property managers should consider reviewing their leases to confirm that the provisions concerning tenant’s duty to repair, waiver of landlord obligations, and landlord’s ability to bill a tenant for the cost of repair or charge a repair cost as additional rent, comply with the holding in the Bishop case. Landlords and managers should also be prepared to evaluate written notices sent by tenants pursuant to G.L. c. 186, §19, to determine if an unsafe condition should be corrected by the landlord, and make those corrections if they are required by statute, even if the lease requires the tenant to make repairs.

Please contact me if you or a colleague has a question on the Bishop case or this e-mail.

Guidance on the new "Permit Extension Act"

2010-11-29T10:12:00.001-05:00

Back in August, I alerted clients and colleagues to the new “Permit Extension Act”, which provides a very valuable two-year extension to qualifying real estate development permits that were in effect or existence between August 15, 2008 and August 15, 2010. Three weeks ago, the Executive Office of Housing and Economic Development (EOHED) issued helpful guidance in the form of “Frequently Asked Questions” to assist local Conservation Commissions, the Department of Environmental Protection (DEP), property owners, wetlands scientists and engineering consultants in implementing the Act.

The FAQ clarifies and confirms many aspects of the Act, such as:

 The Act automatically extends the permit by operation of law, so that a permit holder and issuing agency are not required to take action to activate the extension. However, an issuing agency may issue an extension form to a permit holder who requests such a document.

 The Act is not limited to state-issued permits; the two-year extension applies to all qualifying permits issued by any town, city, regional or state entity.

 Permits related to pre-development activities, such as the clean-up of oil or hazardous materials, are not affected by the Act. Such pre-development activities are considered to be independent undertakings outside the context of a larger development project and, therefore, are not covered by the Act.

 The Act extends building permits that were issued or in effect between August 15, 2008 and August 15, 2010.

 MEPA certificates, decisions, and waivers are covered, so that qualifying certificates will have two additional years before a “lapse of time” will have occurred that would otherwise have triggered a Notice of Project Change or a new Environmental Notification Form.

 Importantly, the Act revives and extends any permit or approval that may have expired during the qualifying period of August 15, 2008 through August 15, 2010. Thus, for instance, “a permit that expired on July 1, 2009, is now revived and set to expire on July 1, 2011.” Also, a permit is revived even if an extension had been previously denied by the agency.

 The Act provides an additional two years to the original term of the permit even if it was not due to expire until after the qualifying period of August 15, 2008 through August 15, 2010. Thus, “if a permit or approval was due to expire on September 1, 2011, it will now automatically expire on September 1, 2013.”

 However, a permit that had been revoked during the qualifying period is not extended, because the Act specifically preserves the issuing agency’s authority to suspend or revoke a permit. However, the agency must have an independent reason authorized by the terms of the permit in order to revoke or suspend the permit. The agency cannot attempt to avoid the two year extension by revoking or suspending the permit.

 The Act does not protect a permit holder from enforcement actions to address noncompliance. The issuing agency’s enforcement authority is retained.

 The Act does not extend mitigation that was required as a condition of the original permit. All conditions that applied to the permit continue to apply, so that the permit is subject to the same substantive terms as when it was originally issued. However, any interim deadlines established by the permit are extended for two years, according to the FAQ.

 The FAQ indicates that a permit that was pending “adjudicatory appeal” during the qualifying period is not extended. In contrast, a permit pending “judicial appeal” would qualify for an extension if the court were to ultimately uphold the permit.

Of course, the complete text of the FAQ and the Act should be reviewed to evaluate the specific workings of the statute.
Please contact me if you or a colleague has a question on the Permit Extension Act or any real estate development permits affected by the Act.

Property Owners, Consultants and Municipalities Should Follow Changing Stormwater Management Regulations

2010-10-26T12:10:00.001-04:00

There has been a lot of activity on the federal, state and local levels concerning stormwater runoff and management, which property owners, municipalities and engineers should follow closely. Back in 2008, the Department of Environmental Protection (DEP) amended its wetland regulations to incorporate ten stormwater management standards for projects subject to wetlands jurisdiction. Among other things, those standards introduced “environmentally sensitive site design” and “low impact development (LID)” techniques to Notice of Intent applications and Order of Conditions permits, with which owners and consultants should become familiar.

In 2008 and 2009, the DEP also proposed a statewide stormwater permit which would have created stormwater regulations for upland areas that were not governed by wetland regulations. DEP’s proposal would have regulated private impervious surfaces greater than five acres throughout the state and greater than two acres within the Charles River Watershed. After receiving significant public comment on the proposed regulations, the DEP has not issued final regulations.

On the federal level, the Environmental Protection Agency (EPA) has taken several steps to regulate stormwater runoff and municipal storm sewer systems. In the Spring, EPA issued a draft general permit for stormwater discharges in the Charles River watershed towns of Bellingham, Franklin and Milford, with regulation of impervious areas larger than two acres and a particular focus on excessive phosphorous loadings that are believed to be contributing to water quality violations (e.g., algae blooms, degraded fish habitat, etc.). The public comment period on the draft permit ended on September 30, 2010. EPA is expected to issue a final permit decision after addressing the public comment. Presumably, EPA will look to apply the permit conditions to other towns and watersheds once it sees how the program works in the three towns.

Earlier this year, the EPA also issued a new draft “MS4 permit” (Municipal Separate Storm Sewer System) for 84 cities and towns in the North Coastal Region (north to Newbury, west to Wilmington, and south to Weymouth). Building on the prior permit from 2003, the municipalities are required to continue implementing minimum control measures and best management practices for stormwater runoff, including adopting by-laws and ordinances to control construction site runoff and post-construction runoff. The draft permit is designed to reduce the levels of phosphorous in the Charles River and pathogens in the Charles, Neponset and Shawsheen Rivers. Thus, owners and engineers should expect increased stormwater regulation at the local level, including emphasis on LID techniques. The public comment period on the North Coastal MS4 permit has closed and EPA’s website indicates that it anticipates issuing the final permit in 2010.

Two other stormwater programs should be followed: EPA’s Construction General Permit, which applies to construction activities greater than one acre, which expires in June of 2011. EPA is expected to issue a new general permit for construction in June 2011, to include new effluent limitations guideline (ELG) to control the discharge of pollutants from construction sites. It will be important to monitor and prepare for new changes to that permit.

Finally, the re-issued Remediation General Permit, concerning the discharge of treated groundwater to surface water, is in effect as of September 10, 2010. Operators that received coverage under the 2005 permit are required to take certain actions by December 9, 2010. Owners, operators and consultants need to pay attention to the new requirements in the new permit.

Affordable Housing under Chapter 40B Is Upheld By the Supreme Judicial Court:

2010-10-21T14:52:00.000-04:00

In September, the Court issued an important decision limiting the conditions a local zoning board of appeals is allowed to impose on affordable housing under Chapter 40B. At the same time, the Court confirmed the ability of the State’s Housing Appeals Committee (HAC) to strike local conditions that do not comply with the affordable housing law. (The case is Zoning Board of Appeals of Amesbury vs. Housing Appeals Committee).

In the Amesbury case, the local board had imposed 94 conditions (some containing additional subconditions) on its “approval” of a 40-unit condominium development. The board’s conditions concerned project funding, regulatory documents, financial documents, and the timing of sale of affordable units in relation to market rate units. However, the Court ruled that a local board was not authorized to impose those types of conditions. A local board is limited to imposing conditions with respect to height, site plan, size or shape, or building materials as are consistent with the terms of Chapter 40B. The Court also ruled that the Housing Appeals Committee was allowed to strike improper local conditions even if the conditions did not render the project “uneconomic” as that term is used in Chapter 40B. These are important points for developers and contractors.

The New “Prompt Pay” Construction Law Goes Into Effect on November 8, 2010, Expediting Payment and Limiting “Pay if Paid” Clauses

2010-10-18T10:30:00.001-04:00

Many construction contracts include “pay if paid” or “pay when paid” provisions, which condition payments to a subcontractor or supplier on payments first being made by the owner. A new “prompt pay” law in Massachusetts limits the use of such provisions on private construction contracts that exceed $3 million dollars (except for residential projects under five units). The new law goes into effect on november 8, 2010.

The new “prompt pay” law, G.L. c. 149, §29E, also provides time deadlines for processing payment requests: applications for periodic progress payments must be accepted at least every 30 days; approval or rejection must occur within 15 days (otherwise the application shall be deemed approved); and, payment must be made within 45 days of approval. Any rejection of an application must be in writing, explain the basis for the rejection, and be certified as made in good faith. Deadlines are also established for processing change orders. Of course, the specific details of the various provisions are set forth in the statute.

“Pay if paid” or “pay when paid” clauses shall be void and unenforceable unless money is not paid because a subcontractor failed to perform or if the owner becomes insolvent and the contractor is pursuing “all reasonable legal remedies” to obtain payment from the person (e.g. pursing a lien under the Mechanics Lien law). The limitations on conditional payment provisions must be expressly stated in the contract. As a result, owners, contractors, subcontractors and designers should review their standard form contracts to comply with this and other aspects of the new law’s requirements.

Green Design, Green Construction and Sustainable Business Practices

2010-08-09T15:38:00.001-04:00

Despite the challenging economy, “green” design and construction has expanded along with other sustainable business practices. In the construction area, LEED® (Leadership in Energy and Environmental Design) design standards remain common reference points in both the residential and commercial sectors (e.g., education, public, health care, non-profit, office). Experts predict that tens of billions of dollars will be spent on green construction in the next few years. (As for prime examples of sustainable business practices, see the significant investments being made by Wal-Mart and General Electric.)

Green design and green construction create several unique legal issues for owners and investors, architects, designers, and engineers, and contractors and subcontractors. Challenges include the lack of a regulatory body and definitive, universal standards for what constitutes “green”; owner, designer and contractor expectations that may not be in line with common contractual risk management provisions; innovative green products and methods that may not be durable, reliable or readily available; and, the key role of proper operation and maintenance (O&M) of a building’s systems beyond their initial installation. In view of these challenges, it is important for owners, designers and contractors to understand their respective rights and responsibilities on green projects, and to develop clear project scopes, risk management approaches, and contract provisions to address green issues.

Published reports have described claims and lawsuits concerning green design and construction, including claims alleging: failure to construct an environmentally sound building not meeting LEED® ratings or in breach of project plans, causing lost tax credits, loan defaults and other damages; poor quality and lack of availability (causing project delays) of specified green products; and, indoor air quality and energy and resource use not meeting promised levels. Hence, it is important to adopt specific contract provisions in an effort to manage green risk.

1. Owners, Operators and Investors: Owners should clearly identify their green expectations for the project beyond traditional design parameters. This could include provisions specific to indoor air quality, lighting, energy and water usage, or particular levels of LEED® certification (e.g., certified, silver, gold, platinum). Specific green materials or process methods should be identified if they are important to the owner’s goals.

The parties should agree on clear, enforceable standards, including defining certain terms, as a way to measure the designer’s and contractor’s performance on specified items. The individual responsible for each LEED® rating criteria and building element should be identified to avoid “finger pointing” later on. The owner should know the scope and cost of future O&M responsibilities for green elements so they can be budgeted and performed. Otherwise, the owner could risk losing LEED® certification, upsetting building systems, violating warranties or other problems.

The owner should check with its insurance carrier to ensure there is coverage for green materials and green systems if there is a partial or total loss. For instance, if there is a casualty and rebuilding is necessary, the owner may need insurance proceeds to incorporate sustainable products and systems on the restoration, which could be more expensive than traditional items. Also, the owner would want to meet at least the same level of environmental certification as the original installation, and perhaps a new level applicable at the time of loss. In considering the contractor’s insurance, the owner should ensure that the builder’s risk policy addresses green reconstruction and rebuilding if there is a covered loss.

2. Architects, Designers, and Engineers: The American Institute of Architects (AIA) advocates sustainable design in its ethical and contract provisions, where the architect is to consider and discuss with the owner environmentally responsible design alternatives. These types of provisions, as well as the qualifications of a LEED® Accredited Professional (LEED AP), may impose a higher standard of care on architects, designers and engineers working on green projects, with implications for possible claims of alleged negligent services.

Designers need to be mindful of design risk liability in the green area and measures to manage that risk. Such measures could include precautions to avoid inadvertent guaranty of a specific material or building performance, the effectiveness of certain energy or water consumption systems, indoor air quality, or obtaining LEED® certification, because such a guaranty could implicate the professional liability insurance policy (see below). For instance, it is important to not guaranty that a product will perform a certain way, or that a method will achieve a certain performance, or that a building will achieve a specific LEED® standard.

It is also important for designers to not assume liability for a contractor’s means and methods to achieve green goals or for the results of an owner’s failure to perform O&M on the building’s green systems. Designers should consider reviewing technical manufacturer’s data before specifying a sustainable product, and inform the owner of the various post-construction O&M requirements as well as the ramifications of not performing O&M. The designer should clearly identify the individual LEED® criteria for which it assumes design and reporting responsibility. Similarly, if another professional is handling certain green elements, the designer should consider specifically disclaiming that responsibility.

Of particular concern is not triggering an exclusion in the errors and omission (E&O) or professional liability insurance policy by signing LEED® credit templates and declarations. The designer should consider contract language providing that signing such forms is solely for the certification process and does not constitute a guaranty or warranty.

3. Contractors, Subcontractors and Builders: Many contractors have trained their staff in green techniques, with a large number of individuals obtaining the LEED AP qualification. This experience should help minimize claims pertaining to workmanship and defects on green projects.

Contract provisions should attempt to limit contractually assumed damages, including not assuming new, expanded liability pertaining to green construction. Contract provisions should address potential delay claims arising out of the difficulty in procuring specialized materials or equipment that may be unfamiliar to the contractor. Protection is needed in case a specified innovative material is not accessible, reliable or durable. The contractor should obtain specific instructions on the individual LEED® criteria for which the contractor is responsible, such as construction waste management or building or materials reuse. The contractor should provide that it will comply with those instructions and specifications, but be careful to not guaranty that it will provide specific LEED® points or certifications.

The contractor should consider due diligence on the qualifications of each subcontractor who will be charged with performing green elements. The contractor should also carefully document the O& M requirements for the owner and operator so they are aware of their responsibilities after construction. On the insurance side, endorsements to the builders risk policy should be considered to ensure replacement and rebuilding to specified green standards and using sustainable products if there is a covered loss.

Please contact me if you or a colleague has a question on green design or construction or the LEED® certification process.

Legislature Passes the "Permit Extension Act" for Economic Development

2010-08-04T12:30:00.000-04:00

The Massachusetts House and Senate passed the "Permit Extension Act" over the weekend, which now goes to the Governor for his expected signature. This law is important for economic development because it will prevent (at least for two years) the expiration of real estate development permits that had already been granted for commercial, industrial and residential projects. This will provide relief for projects that have not been able to move forward due to poor financing and market conditions during the recession and therefore faced the expiration of hard earned permits.

In essence, any State or local permit “concerning the use or development of real property” in existence between August 15, 2008 and continuing through August 15, 2010 (the so-called “tolling period”) shall be extended for two years in addition to the lawful term of the approval. Approvals that are extended include those issued under the Zoning Act, Subdivision Control Law, Wetlands Protection Act, MEPA, and Chapter 91. Also included are approvals issued under “any local bylaw or ordinance”.

Permits that are not extended by the Act include “comprehensive permits” issued by a local zoning board of appeals under Chapter 40B, Federal permits and certain other approvals. There are certain other limitations in the Act.

Please contact me if you or a colleague have a question concerning the Permit Extension Act.

General contractor liable if its subcontractor fails to obtain workers' compensation insurance

2010-07-27T12:12:00.000-04:00

Earlier this year the Appeals Court ruled that a general contractor is liable to a subcontractor’s employee if the subcontractor failed to carry the required workers’ compensation insurance. Even though the general contractor paid workers’ compensation benefits to the injured employee of the uninsured subcontractor, the general contractor was not released from its independent wrongful death or common law liability to the employee. General contractors do not have immunity from third-party lawsuits brought by injured employees of uninsured subcontractors. See, Wentworth vs. Henry C. Becker Custom Building Ltd.

In the Wentworth case, the general contractor had taken no steps to confirm that the subcontractor it had hired carried workers’ compensation insurance. In finding for the injured employee against the general contractor, Judge Berry stated that “the lesson to be drawn is that general contractors must be scrupulous in demanding proof of workers’ compensation insurance from any subcontractor they engage.”

A general contractor (or an owner hiring a contractor or subcontractor) can require a certificate of insurance from the subcontractor to confirm the types and amounts of insurance that are carried. The certificate should be reviewed to confirm that the company’s insurance does not expire during the course of the project (and that it is renewed if it does expire). If the general contractor (or an owner) wants to be named as an “additional insured” under the subcontractor’s insurance policy, an endorsement to the policy, or a blanket additional insured endorsement, may be needed and not simply the issuance of a certificate mentioning the additional insured status. Because insurance issues can be very complex, companies should consult with their agents or attorneys for advice on insurance questions.

Constructive Approval and Rescission of Real Estate Development and Environmental Permits

2010-07-14T14:27:00.000-04:00

The Appeals Court recently ruled in favor of a landowner whose subdivision approval for real estate development had been wrongfully revoked by a town. This is an important victory for property owners in real estate and environmental permitting and litigation.

In the particular case (Czyoski vs. Planning Board of Truro), the owner’s subdivision plan had been “constructively” approved by the local planning board because the board failed to act on the application in a timely manner, in violation of Section 81U of the Subdivision Control Law, General Laws Chapter 41. The board sought to undo its error by rescinding its constructive approval under Section 81W of the Subdivision Control Law.

After the owner sued the board, the Land Court ruled that the board failed to justify the rescission based on any substantive concerns about the proposed subdivision development. On appeal, the Appeals Court affirmed the Land Court, holding that a planning board may not rescind its approval of a subdivision plan (whether constructively or otherwise approved) unless there was “good reason” to do so. The Court ruled that the local board made no effort to substantiate its stated concerns regarding traffic safety. Because the board had no basis for its alleged concerns, the board was prevented from rescinding its approval of the plan. Without a defensible substantive reason for denying the application in the first place, the board did not supply “good reason” to rescind its constructive approval, and the rescission decision could not stand.

This Truro case is important because it stands for the proposition that a permit granting board cannot revoke or rescind real estate or environmental permits or approvals without an underlying substantive basis for doing so. Although the case concerns constructive approval under the Subdivision Control Law, the holding seems applicable to other municipal real estate and land use litigation, including special permits and variances under the Zoning Act, wetlands permits under local wetland bylaws and ordinances, and septic system permits under Title 5, as well as other environmental and land use permits and approvals under other laws, ordinances, bylaws and regulations.

Businesses Handling Personal Information of Massachusetts Residents Must Have a Written Data Security Program

2010-06-04T14:34:00.000-04:00

All businesses handling the “personal information” of Massachusetts residents (employees or customers) are required to implement a written information security program (“WISP”) to safeguard physical and electronic records, according to Massachusetts business regulations (201 CMR 17.00). This requirement took effect March 1, 2010.
The new regulations affect all such businesses, including those that are not located in Massachusetts, as well as the self-employed. The “personal information” includes a Massachusetts resident’s name in combination with a Social Security number, a driver’s license number, or some account, credit or debit card number.

The rule adopts a risk-based approach so that each business’ WISP should take into account the size of the business, the amount of resources, and its need for security (e.g., employee data, customer data).

Among other concerns, businesses should consider updating their employment contracts to require employees to comply with the WISP and their contracts with third-party service providers to ensure that the providers are implementing appropriate security measures for personal information.

The regulations may be enforced by the Attorney General. In addition to possible civil fines, violators could be exposed to private lawsuits and possible actions under Chapter 93A for unfair and deceptive trade practices.

Increased Federal and Massachusetts Scrutiny of Worker Misclassification (Independent Contractor vs. Employee):

2010-05-24T12:19:00.000-04:00

As I previously discussed in an Alert in February 2009, the possible misclassification of employees as independent contractors is a significant concern for Massachusetts businesses due to significant liability under wage and independent contractor laws, and ramped up enforcement by the Attorney General.

For instance, see the AG’s recent settlement involving restaurant meal delivery companies’ misclassifying their drivers as independent contractors, and the August 2009 SJC case favoring an employee who had been misclassified, even though the worker received more money as an independent contractor than he would have as a correctly classified employee.

In 2008, the Massachusetts Attorney General issued an “Advisory” alerting businesses to the importance of properly classifying “employees” and “independent contractors”. The Commonwealth is concerned that misclassification of workers affects tax revenues and may deprive a worker of unemployment insurance, workers’ compensation benefits or other protections.

Businesses are subject to civil and criminal penalties for misclassification; the company’s president, treasurer and CEO could have personal liability (with claims possibly excluded from coverage under a Director’s and Officer’s insurance policy); and, the worker could potentially recover triple damages and attorneys’ fees.

The Attorney General’s Advisory concerned the Massachusetts Independent Contractor Law or Misclassification Law, General Laws Chapter 149, section 148B (“Law”). The Law provides that an individual shall be considered an employee unless the business can prove otherwise. The business has the burden of proving compliance with a 3-part test:

1. the individual must be “free from control and direction” both in the contract and in fact;

2. the individual must perform work outside the usual course of the business of the employer; and,

3. the individual must be engaged in an independently established trade or business.

The Attorney General provided the following classification examples:

- A worker completes the job using her own approach with little direction from the business and dictates the hours that she will work on the job – independent contractor.

- A worker’s services form a regular and continuing part of the company’s business and the worker does not operate as an independent business – employee.

- A worker performs services that are part of an independent, separate and distinct business from that of the company – independent contractor (possibly).

- A painting company hires an individual as an independent contractor to finish a painting job – employee.

- A painting company hires a second company as a subcontractor to finish a painting job, and all of the second company’s workers are employees – independent contractor.

- An appraisal company hires an individual to appraise property – employee.

- An accounting firm hires an individual to move office furniture – independent contractor.

- A company in the business of selling a product hires an individual to make sales calls as a sales representative – employee.

In addition to the State liability concerns, the federal Labor and Treasury Departments are stepping up enforcement, including the IRS’s random audit of 6,000 businesses to see if they are properly classifying employees and complying with laws on paying employment taxes and protecting workers (e.g., Social Security, Medicare, health benefits, overtime, unemployment, anti-discrimination, etc.).

Commercial Tenant Not Required to Indemnify Landlord Despite Clear Lease Terms:

2010-05-13T12:51:00.003-04:00

The Supreme Judicial Court recently voided a commercial lease provision that required a tenant to indemnify a landlord for the landlord's own negligence. The Court held that the statute (G.L. c.186, §15) prevented a landlord from shifting responsibility for its own negligence to its tenant, even if the tenant had signed a lease agreeing to such indemnification. In that same case, the SJC upheld a lease provision requiring the tenant to acquire general liability insurance for the benefit of the landlord. (Norfolk & Dedham Mutual Fire Insurance Company v. Morrison)

Based on the Norfolk & Dedham case, commercial landlords and tenants (and their legal counsel) need to carefully review their lease terms to ensure that the indemnification and insurance provisions appropriately apportion the risk of injury and damage.