by Thomas Bhisitkul
The lapse of a variance is a troubling issue for a real estate
developer. Variances are subject to stringent legal standards that
are difficult to meet, and obtaining a variance can involve
protracted, expensive (in both monetary and political capital) and
sometimes venomous proceedings before local zoning boards of appeal
(or, worse, litigation). The risk of lapse of variances (and other
development permits) is an increasingly urgent problem for real
estate developers who have stalled projects due to lack of
financing and/or adverse market conditions.
Now there is a significant recent case in Massachusetts that may
give some developers protection against (or, perhaps, even a
temporary safe harbor from) the risk of losing their variances to
lapse while they continue to wait for this grim market cycle to run
its course.
In the case decided this past year, Cornell v. Board of Appeals
of Dracut, 453 Mass. 888 (2009), the Massachusetts Supreme Judicial
Court provided some long-overdue guidance on the actions a
developer must take to "exercise" a variance to prevent it from
lapsing. Under the Massachusetts Zoning Act (G.L. c. 40A, §10), a
variance will lapse one year from the date of grant unless "the
rights authorized" thereunder are "exercised." One vexing problem
is that the statute does not define the term "exercised," which has
created ambiguity as to what types and levels of activity will be
sufficient to meet the "exercise" threshold.
Imagine a hypothetical developer who holds a variance to
construct an office building on its site in violation of minimum
zoning setback requirements. If the developer actually constructs
the building in the otherwise prohibited location, there is little
question that the variance has been "exercised." But, what if the
developer cannot proceed with construction of the building, due to
financing or other constraints? Can some set of activities short of
actual construction be sufficient to constitute "exercise" of the
variance? What if the developer had completed the building
foundation - is that enough? What if the site had only been
excavated, but no construction has taken place? What if no actual
site work at all has been done, but the developer has obtained
other permits and approvals that were necessary for construction
(e.g., a building permit, site plan approval, order of conditions,
subdivision approval, etc.)? These types of questions have plagued
developers with projects in imperfect states of completion on the
one-year anniversary of their variance grant. Until the Cornell
case, there was very little case law on this issue to help develop
the meaning of "exercise" through judicially created
standards.
While not answering all of these questions, the Court in Cornell
has now established at least a few concrete standards to guide
developers on this issue:
Actual Construction is Not a Prerequisite
The significance of this principal is highlighted by comparison
with lapse standards applicable to other development permits, such
as building permits and special permits, which require that
construction be (at least) "commenced" within the lapse period.
Given the significantly higher degree of difficulty and cost to
obtain a variance in the first place, and given the paucity of
available construction financing in the current market, the Court's
application of this more liberal standard to prevent the lapse of a
variance is a major benefit to developers.
The Issuance of a Building Permit for Dimensional
Variances Is Sufficient
In Cornell, the Court established that obtaining a building
permit is the watershed moment when a variance holder "realize[s]
the benefits of the variance" (the court reasoned that a building
permit is "the culmination of the permitting process" which allows
the variance holder to "utilize" its property "in a way that does
not otherwise conform with the applicable zoning provisions"). In
fact, the Court's ultimate holding in the case what that the
variance in that case had lapsed because the variance holder had
not "at the very least" obtained a building permit.
Conveyance of a Nonconforming Lot is
Sufficient
Cornell also affirmed that when a variance has been granted to
build on a nonconforming lot, the conveyance of that lot in
reliance on the variance is sufficient to exercise the variance.
This would apply where, for instance, a developer wanted to
subdivide a tract of land into two or more building lots, but (due
to site constraints) is unable to create those lots in conformity
with applicable zoning requirements. If the developer obtains a
variance to building on those otherwise nonconforming (unbuildable)
lots, the developer's sale or conveyance of one or more of those
non-conforming lots would be sufficient to "exercise" the
variance.
Other Preliminary Permits/Approvals Are Not
Sufficient
The Cornell case also established that the developer's
expenditures of time, effort and money to obtain other types of
permits and approvals within a typical permitting process are not
sufficient to "exercise" a dimensional variance. In Cornell, the
variance holder had hired consultants to perform wetlands
delineation, to prepare a septic system plan, and to prepare an ANR
plan (a type of subdivision plan), had submitted applications for
an order of conditions and a septic system approval, and had obtain
approval of the ANR plan during the one-year lapse period (but,
notably, did not obtain a building permit). The Court held that all
of the permits and approvals sought by the variance holder were not
sufficient to exercise the variance, but, rather were "essentially
preliminary to the issuance of a building permit."
Thus, developers who have obtained variances, but have not
completed the full permitting process as necessary for the issuance
of a building permit, are at risk of having their permit lapse (if,
however, the developer can clearly demonstrate that one or more of
the permits could not have been obtained "but for" the variance, a
valid argument could be made that obtaining the interim permit was
sufficient to exercise the variance).
Variance Periods Can be "Equitably Tolled"
Although discussed in dicta, the Court in Cornell further
indicated that the one-year lapse period may be tolled where, due
to circumstances beyond the developer's control, delays are
encountered that prevent the holder from obtaining a building
permit within the one-year lapse period. Thus, for instance, if the
variance is appealed and the developer is tied up in litigation for
several months or years, the variance may be tolled due to the
practical impediments created.
Notably, the Court established clearly that, in order to assert
that a variance has been equitably tolled, the developer must have
sought a statutory extension of the variance (under the Zoning Act,
a variance holder can apply for an extension of the exercise period
for up to six months). Accordingly, if a developer holds a variance
but cannot (despite the developer's diligence) obtain a building
permit due to legitimate delays in obtaining all other permits and
approvals that are prerequisites to the building permit, then the
variance may protected by tolling of the lapse period. n
Thomas Bhisitkul is a partner at Hinckley, Allen & Snyder in
Boston.