Section Review

Arrested developments: Lobisser v. Sutherland and special permit lapse analysis in phased condominiums

On June 22, 2009, the Massachusetts Supreme Judicial Court ("SJC") issued a decision analyzing the lapse provision of G.L. c. 40A, §9 in the context of a special permit for a phased condominium project.  In Lobisser v. Sutherland, 454 Mass. 123 (2009), the SJC confirmed, in connection with a special permit authorizing the construction of a phased condominium, it is sufficient that substantial use or construction of the condominium project as a whole commence or begin within the applicable lapse period.  More specifically, the SJC rejected the notion that each phase of a condominium project is subject to a separate lapse analysis.  In addition, the SJC found that while a special permit may be subject to a condition imposing an outside time limit for construction, such limitation must be contained in express language in the special permit.

Facts

Crystal Springs Condominium (the "condominium") is presently a 41-unit residential condominium located in Bellingham created by the recording of a master deed on March 31, 1987.

The condominium's original declarant sought and obtained a special permit in December of 1985 authorizing the phased construction of 84 townhouse condominiums subject to certain conditions.  The conditions of the special permit which were most relevant to the SJC's decision are as follows:

3.    Plans shall be submitted under Section 1420 Site Plan Review, in annual phases, at a scale of 1" = 40'.  Drawings for the primary access drive and its drainage and utilities shall meet the Street Plan and Profile drawing requirements of the Bellingham Subdivision Regulations.  Drawings shall be consistent with recommendations of the Water department and Police Department, as specified in their letters attached to this decision, except that the looping of water to Debra Lane will be required only if easements can be obtained without cost to the applicant.

. . .

5.    Building permits shall not authorize construction of more than the following cumulative totals of dwelling units:
Prior to January 1, 1987:  21 units; to begin at South Main Street;
Prior to January 1, 1988:  42 units;
Prior to January 1, 1989:  63 units;
Prior to January 1, 1990:  84 units.

The special permit does not, by its own terms, place a time limit on the construction either in totality, or for each phase.

In connection with the construction of Phase I in 1986, the original developer built and/or installed several common elements designed to serve the entire development.  The elements constructed and or installed in connection with the construction of Phase I in 1986 included, without limitation, the entranceway and site drive.

The building inspector for the Town of Bellingham issued the first occupancy permit in connection with a building at the condominium on March 20, 1987.

The condominium was created on March 31, 1987, when the condominium's original developer caused the master deed to be recorded with the Norfolk County Registry of Deeds, thereby submitting the subject premises to the provisions of G.L. c. 183A.  The condominium as so established included 21 townhouse condominium units in five buildings.  The original developer reserved in the master deed the right, but not the obligation, to add three additional phases, to include 63 additional units (the "development rights").

On or about Jan. 20, 1987, the original developer submitted Phase II plans under Town of Bellingham Zoning By-law Section 1420 for approval, pursuant to the requirements of the special permit decision at section 3.  Substantial steps toward the construction of infrastructure directly related to Phase II obviously did not commence until after Jan. 20, 1987.  On Sept. 29, 1987, the declarant amended the master deed to include Phase II as part of the condominium, which phase consisted of an additional 20 units.  After the submission of Phase II, the condominium contained 41 units in 10 buildings.

Phases III and IV have not been submitted to the condominium.  The original developer's reserved development rights expired on March 30, 1994.

After an extended delay, on or about Oct. 4, 2005, the association, with the consent of at least 75 percent of the unit owners, revived the rights to develop additional units at the condominium.

On Sept. 7, 2005, the association entered into a written agreement with Lobisser agreeing to transfer the development rights to Lobisser, contingent upon the planning board's grant of the special permit modification and the development plan approval.

Lapse under G.L. c. 40A, §9

The central issue considered by the SJC was whether the lapse provision in G.L. c. 40A, §9 subjected each phase in a phased condominium project to a separate lapse analysis.  The Trial Court had held the special permit lapsed with regard to the final phases of the project because, inter alia, neither substantial use commenced nor was construction begun with regard to those final phases.  The Trial Court held that with regard to a phased condominium, in order to avoid lapse with regard to any particular phase, use or construction must be undertaken with regard to each specific phase or presumably within the lapse period.  G.L. c. 40A, §9 provides, in relevant part, as follows:

Zoning ordinances or by-laws shall provide that a special permit granted under this section shall lapse within a specified period of time, not more than two years … from the grant thereof, if a substantial use thereof has not sooner commenced except for good cause or, in the case of permit for construction, if construction has not begun by such date except for good cause.

Section 1550 of the Bellingham Zoning By-law established a one-year lapse period.  The SJC, relying on the clear language of G.L. c. 40A, §9, held that the statute did not require substantial use or construction of each phase of the project to commence or begin within one year.  The SJC noted that not only was there nothing in the statute which imposed such requirement, but that reading the statute in such manner "would make no sense."  The SJC expressed its ultimate holding in clear and concise terms, as follows:

Here, where construction of the project began within one year of special permit approval and where the special permit contains no time limit, there is no basis to conclude that the special permit has lapsed.  
454 Mass. at 132.

The SJC's rejection of a multiple and separate lapse analysis under G.L. c. 40A, §9 was critical to preserve the viability and utility of condominium phasing in the commonwealth.  The Land Court's decision would have forced a condominium declarant to engage in unnecessary and potentially costly construction just to prevent lapse.  The utility of phased construction would have been wholly undermined if a declarant were required to unnecessarily construct elements exclusively serving each subsequent phase no more than the two years from the special permit's grant.  Such obligation would have imposed artificial costs which would have directly increased the price of the units initially constructed and ultimately borne by consumers.  In addition, the Land Court decision would have limited flexibility by eliminating any phasing scheme in which it would be infeasible to construct an exclusive element for each separate phase within two years or less of the special permit's grant.  In cases where such construction might be feasible, the risks associated with the capital investment in infrastructure on phases which might never be constructed might have been too great to justify.  Finally, financing the costs of construction of elements in subsequent phases, which would add nothing to the present value of the project, would have been difficult if not impossible, particularly when financing options were limited by market conditions.

"Or" really means "or"

The SJC also took the opportunity to clarify that either the commencement of substantial use or beginning construction is sufficient to avoid lapse.  The SJC appears to have addressed the use of the disjunctive in G.L. c. 40A, §9 to clarify the holding in Bernstein v. Chief Bldg. Inspector and Bldg. Comm'r of Falmouth, 52 Mass.App.Ct. 422 (2001), a case with strikingly similar facts. In Bernstein, the Appeals Court held:

Where a developer anticipates completing work in stages, has begun construction within two years, and a "substantial use" has commenced, authority to complete the project continues absent express language to the contrary in the permit.  (emphasis added.)

52 Mass.App.Ct. at 427.  The SJC observed that while both substantial use and construction had occurred in Bernstein, it was not a statutory prerequisite given that, at least in the context of G.L. c. 40A, §9, "or" really means "or."

Outside time limits

The SJC also addressed the question of whether outside time limits for completion of construction could be imposed in a special permit.  The SJC considered the issue because the planning board argued that the condition of the special permit which limited the number of units which could be constructed each year constituted an outside time limitation on construction.  The Trial Court also noted the purported five-year deadline in support of its conclusion that "the time period within which to fully exercise development rights under the special permit has long since passed."  The SJC rejected the planning board's contention, and the Trial Court's reliance on same, but nevertheless concluded that G.L. c. 40A, §9 empowered a special permit granting authority to impose construction deadlines.  The SJC relied on language in G.L. c. 40A, §9 which provides, in relevant part, that a special permit granting authority "may . . . impose conditions, safeguards and limitations on time or use."  While arguably dicta in the decision, it is a clear and unequivocal interpretation of G.L. 40A, §9 on this point and eliminates any doubt as to whether construction deadlines can be properly imposed as a condition in a special permit.

Practical implications

There are practical implications to the SJC's decision which go beyond avoiding the disastrous consequences of the Trial Court's order, as follows:

  1. Where a special permit granting authority wishes to impose an outside time limit on completion of construction, the limitation should be included by express language and a special permit granting authority should not rely on a condition limiting the number of units, which may be added over time;
  2. An applicant should ensure the conditions of a special permit which purport to limit the number of units that can be added over a specified time period cannot be read to impose an outside deadline on construction.  While the SJC found the language of the special permit in Lobisser did not set a construction deadline, the lack of clarity opened the door for such argument.
  3. An applicant should preserve evidence as to the date upon which substantial use commenced or construction began.  Municipal records are generally helpful in demonstrating that construction did not begin before "x" date or that construction was completed by "y" date, but that information might not be sufficient to demonstrate commencement of use or construction within the lapse period.
  4. An applicant should always distinguish between a reserved phasing right under the condominium master deed and a special permit condition which requires phased submission of condominium units.  It is not clear that the original developer ensured the planning board understood the distinction and the conflation of the concepts appears to have fueled certain of the planning board's arguments in this case.
  5. A special permit condition which limits the number of dwelling units which can be submitted over time could give rise to these issues in contexts not involving phased condominium development.  An applicant would be wise to ensure that no such condition could be viewed as imposing a construction deadline regardless of the form of ownership of the contemplated project.

Conclusion

The SJC's decision in Lobisser confirmed that to avoid the lapse of a special permit for a phased condominium, the declarant need only commence use or begin construction within the applicable lapse period.  The decision also clarifies that a special permit can contain a deadline for construction.  While the decision answers those questions with clarify, it nevertheless reminds the practioner that the importance of precision in a special permit, and the conditions contained therein, cannot be overstated.

The Author

Thomas O. Moriarty is a partner with Marcus, Errico, Emmer & Brooks PC and is the head of the litigation department. Moriarty is the chair of the Community Associations Institute's Massachusetts Legislative Action Committee, the present-elect of the Real Estate Bar Association and a member of the Joint Bar Committee on Judicial Nominations.

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