Guidance on the new "Permit Extension Act"

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

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:

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

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

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

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

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

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

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):

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:

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.