Great News for Real Estate Owners: Your Permits are Extended!

Property owners and real estate developers will be pleased to know that their land use and environmental permits may be extended for four years under the “Jobs Bill” signed by the Governor on August 7, 2012. Thus, permitted projects that have been stalled due to the recession may remain viable.

The Massachusetts Legislature recently passed the “Economic Development Bill”, or “Jobs Bill”, which the Governor signed on August 7. Two sections of that Bill amended the original 2010 “Permit Extension Act,” to extend it by two years. The Permit Extension Act itself had granted an automatic 2-year extension to qualifying State and local permits that had been in effect between August 15, 2008 and August 15, 2010. Pursuant to the new Jobs Bill, a permit that was in existence between August 15, 2008 and August 15, 2012, would be extended for a total of four years.

Here is how the 2010 Permit Extension Act works in conjunction with the 2012 Jobs Bill:

The Act as amended states that, “Notwithstanding any general or special law to the contrary, an approval in effect or existence during the tolling period shall be extended for a period of 4 years, in addition to the lawful term of the approval.” The “tolling period” in which the permit needs to have been in effect is defined as “the period beginning August 15, 2008, and continuing through August 15, 2012.”

For instance, if a qualifying permit was in effect on January 1, 2009, the permit would be extended for four years beyond the original term of the permit. Similarly, if a permit existed as of the date of this post (August 9th, which is before the August 15, 2012 cut-off date), the permit would be extended for four years beyond its original expiration date.

Of course, there are limitations and conditions in the 2010 Permit Extension Act, and the Commonwealth issued a “Frequently Asked Questions” guidance document on the Act in 2010, both of which should be consulted to evaluate the specific workings of the statute.  It will also be important to see if the Commonwealth issues new guidance in the future pertaining to the 2012 amendments.

I previously wrote about the original Permit Extension Act in August and November 2010. I have included that 2010 information below in case you are interested.  Keep in mind that information from 2010 has been superseded by the 2012 Jobs Bill and amendments discussed above.

TEXT FROM AUGUST 2010

On August 5, 2010, the governor signed the "Permit Extension Act". 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.

TEXT FROM NOVEMBER 2010

Back in August 2010, 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. Last week, the Executive Office of Housing and Economic Development (EOHED) issued helpful guidance in the form of “Frequently Asked Questions” to assist regulatory agencies, property owners and consultants in implementing the Act.

The 2010 FAQ clarifies and confirms many aspects of the Act, such as:

a. 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.

b. 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.

c. 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.

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

e. 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.

f. 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.

g. 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.”

h. 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.

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

j. 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.

k. 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.

10 Terms for Your Term Sheet

Clients often ask what steps they need to take to buy or sell (or invest in) a business. Commonly, they need to finish hammering out the business terms with the other side and then prepare a Term Sheet (or a Letter of Intent (LOI), or Memorandum of Understanding (MOU)) to outline the principal business points.

The purpose of the Term Sheet is to create a road map for the transaction, so the parties know where they are headed as they enter into the deal. Although the “typical” Term Sheet is non-binding (more on that, below), it nonetheless is important to identify the key terms the parties have “agreed to agree” on if they ultimately go forward. The terms in the Term Sheet can be replaced with the final deal documents.

Here are “10 Terms for Your Term Sheet” for discussion with the other side along with other items unique to your deal:

1. Price and Consideration: This should identify what the parties are exchanging, for instance, a certain dollar amount in exchange for all or part of the company or a certain parcel of land or interest in a building. In addition, discuss whether the price will be paid in cash or some other property (e.g., stock in a company, real estate, services, etc.) and if financing is involved.

2. Structure of the Deal: If it is a business sale, confirm whether it is an asset purchase or a stock purchase. With an asset purchase, the buyer acquires certain assets while leaving other assets (and liabilities) with the seller. However, if it is a stock purchase, the buyer acquires the stock of the company (its assets as well as its liabilities). Naturally, when taking on broader liabilities, due diligence may become more important (see below). If it is a real estate deal, confirm the type of interest involved (e.g., fee simple, a phase of a condominium development, a lease, certain rights in a project, etc.).

3. Payment Terms: Discuss whether the buyer will pay a lump sum at closing or make payments in installments. If there are installment payments, discuss if they are conditioned on the company’s future performance, such as the company reaching certain financial milestones. (In May 2011, I circulated a Memo on business succession and exit planning. Please contact me if you would like a copy.)

4. Is Financing Involved?: If the buyer requires outside financing, discuss a financing contingency, obtaining appropriate commitment letters, complying with the lender’s closing conditions, and providing some amount of down payment or deposit. If the seller is providing the financing, discuss the interest rate, term, and collateral to protect the seller. For instance, collateral may be a pledge of the company stock or business property or some individual assets of the buyer.

5. Due Diligence: The buyer may want a reasonable time to evaluate the assets, liabilities, operations and financial condition of the business. (See Confidentiality, below.) This may necessitate access to the seller’s management and other representatives as well as financial data and other business information. If land or buildings are included in the deal, due diligence may include environmental, zoning, structural and other inquiry into the property.

6. Confidentiality: The buyer and its agents should anticipate that the seller may want them to sign a confidentiality and nondisclosure agreement related to the confidential business information that is provided during due diligence. Although the Term Sheet may be nonbinding, the Confidentiality provision may be identified as binding and surviving the expiration or earlier termination of the Term Sheet.

7. Assignment and Transfer Issues: The parties should attempt to identify the assets that need consent from a third-party to be transferred to the buyer. For instance, the transfer of real estate leases, customer or vendor contracts, and financing agreements may trigger third-party consent. In addition, consent may be required if there is a transfer of the company’s stock or controlling interest even if the company’s name on the underlying contract does not change.

8. Covenant Not to Compete: If the buyer wants the seller and its key employees to help run the business after the closing, the parties should reference employment agreements and consulting agreements that will need to be executed. If the buyer is prepared to run the business on its own, it may want to prevent the seller from competing for a certain period of time. In Massachusetts, noncompete agreements that are reasonable as to time, scope and geography are enforceable. (Please contact me if you would like a copy of the Memo I circulated in April 2012 on noncompete agreements.)

9. Exclusivity and “No Shop” Provision: Buyers often want to prevent the seller from using the offer to shop for a better deal. Thus, consider a provision preventing the seller from soliciting or negotiating alternative proposals during the due diligence and up to the binding agreement. Unlike other terms, this provision should be binding.

10. Post-Closing Obligations: The parties should specify the items they may need to complete after the closing, such as completing tax filings, obtaining approvals from third parties, consulting or employment agreements, and noncompete agreements

Although the terms of the Term Sheet limit the binding nature of the proposal, a buyer and seller can nonetheless agree to make all reasonable efforts to consummate the transaction in accordance with the terms they have outlined. If buyer’s due diligence is successful, the parties can proceed to drafting the final documents, such as the purchase agreement, assignments, and consents, and proceed to closing the transaction and performing any post-closing obligations.

The buyer and seller should give the Term Sheet serious consideration even though it might seem informal due to its nonbinding nature. The key terms that have been negotiated will likely be difficult to re-negotiate once the parties get to drafting the binding purchase agreement and final deal documents.

Please contact me if you or a colleague have any questions regarding the purchase or sale of a business or real estate.

Why is it so difficult to rebuild a home?

Property owners are often struck by how difficult it is to build or rebuild a home in Massachusetts, especially if the lot or building is “nonconforming” (e.g., the lot is too small or does not have enough frontage, the house is too close to the property line, there is too much lot coverage, etc.). Even if a home has existed for decades without any “problems”, it can be very difficult (and expensive) to obtain approvals for additions or rebuilding to create present day amenities like energy efficiency, larger space and improved views.


If a city or town has tightened its zoning code over the years, the home falls into the category of “preexisting nonconforming structure” with challenging permit requirements regulating alterations. All of a sudden, a “team” of professionals may be needed to help obtain the necessary approvals. (However, to paraphrase Seinfeld, not that hiring professionals is a bad thing!) Although “mansionization” grabs the media attention, even modest reconstructions can face this challenge.

The Legal Standards

The challenge originates primarily in the State Zoning Act, General Laws Chapter 40A, Section 6, which provides that a preexisting nonconforming single family structure may be altered or reconstructed provided that it “does not increase the nonconforming nature” of the structure. To determine if a home’s nonconforming nature would be increased, one needs to identify the existing nonconformity (e.g., area, setback, frontage, coverage, etc.) and then determine if the new home would intensify the nonconformity or create new ones.

If the municipality determines that the home’s nonconforming nature would be increased, the rebuilding is allowed only if it is not “substantially more detrimental” than the existing home to the neighborhood. This is often called the “Section 6 Finding”, after its location in Section 6 of the Zoning Act.

As you likely sense, these are vague, subjective standards. Ultimately, the determination is typically made by the volunteer members of the local zoning board of appeals, who are often subject (and receptive) to neighbors’ claims that they are “aggrieved” by the proposal. (One maxim applies here: very few neighbors like change.)

Adding to this challenge is the authority granted to each municipality to adopt its own local zoning code to customize provisions of the Zoning Act. For instance, each municipality is allowed to implement different procedures, standards, prohibitions, and voting requirements for the Section 6 Finding and determining whether an alteration is substantially more detrimental to the neighborhood.

What Is “Substantially More Detrimental” to the Neighborhood?

Prior court decisions may not be too helpful in clarifying these issues because the other decisions are often tailored to a municipality’s specific code and project. The Supreme Judicial Court (SJC) attempted to facilitate approval of certain “small scale” alterations in its 2008 decision titled “Bjorklund vs. Zoning Board of Appeals of Norwell”. However, the SJC’s list of small scale projects was so limited as to have little practical effect for owners proposing even modest additions or reconstructions. For example, the SJC’s list of small projects included adding one dormer, enclosing a porch or sunroom, constructing a 2-car garage, and installing a storage shed for gardening or pool equipment.

Some municipalities handle the Section 6 Finding as an “administrative finding”, usually by the zoning board of appeals (ZBA) based upon a simple majority vote. However, some municipalities have made the Finding subject to a discretionary “Special Permit”, with all the strict requirements imposed by Section 9 of the Zoning Act, such as written notice to all “interested parties”, legal advertisements in the newspaper, long time frames for opening the public hearing and issuing a decision, and, very importantly, a “supermajority” vote (e.g., four affirmative votes of a five member board).

In addition, a municipality may seek to impose a detailed list of “Special Permit criteria” to the statutory test of whether the proposal is substantially more detrimental to the neighborhood. Of course, because “substantial detriment” is not susceptible of a fixed measure, the public hearing often delves into amorphous issues like, is it too big, is it in harmony with the neighborhood, does it impact views, etc.

This complex process begs a simple question: If other homes in the neighborhood are roughly similar to the proposed house, is it possible for the new home to be “substantially more detrimental” to the neighborhood?

As if the discretionary Section 6 Finding was not challenging enough, some municipalities have also adopted a discretionary “site plan review” requirement (or, even more onerous, a “site plan special permit” requirement), or wetland regulations with strict “no build” zones, or sewage disposal restrictions more stringent than the State standards. These all have their own complexities, often necessitating a team to navigate them. However, apropos of Seinfeld, not that hiring a team of experts is a bad thing!

Please contact me if you or a colleague has a question on permit requirements for building a home or other real estate issues.