Category Archives: Real Estate

UPDATE: Airbnb Hosts Beware: Boston Proposes Regulations on Short Term Rentals

By on April 16, 2018

Airbnb Hosts Beware, as the Massachusetts Legislature is now considering a bill to tax Airbnb and the short term rental industry.

Recently, the Massachusetts House of Representatives passed a bill (H 4327) that places a tax on short-term rental units as well as establishes a state registry of short-term rentals. The short-term rental tax established by the bill is imposed via a tired system depending on the amount of units any one host rents/owns. More specifically, and based on the short-term rental rent:
• Hosts that rent two or fewer units (“Residential Hosts”) are subject to a 4% tax;
• Hosts that rent three to five units (“Investor Hosts”) are subject to a 5.7% tax on the short-term rental rent; and,
• Hosts that rent more than six units (“Professionally Managed Hosts”) are subject to an 8% tax on the short-term rental rent.
The bill also allows city and towns to impose an additional tax on the same short-term rentals, however, such tax is limited to:
• 5% on Residential Hosts;
• 6% on Investor Hosts; and,
• 10% on Professionally Managed Hosts.

While the House bill still has a ways to go before becoming law, Massachusetts Governor Charlie Baker has indicated that he would like to sign a short-term rental bill this legislative session.
Boston residents who participate in the short-term-rental economy are well advised to understand, and keep an eye on, proposed changes in housing law as regulations begin to promulgate in response to a growing industry.

Commercial Leasing Series: Decoding SNDAs

By on March 12, 2018

Subordination Non Disturbance and Attornment Agreements (SNDAs) often seem like afterthoughts in commercial leasing as they govern the potential future relationship between a tenant and the landlord’s lender rather than the current relationship between the tenant and landlord. SNDA’s, however, should not be overlooked, as they are crucial to protecting a tenant’s interests in the event that a landlord is foreclosed upon and its lender takes over in its place. In the absence of an SNDA, a tenant may find itself at the mercy of a new landlord that has little obligation to honor the terms of tenant’s original lease. Thus, commercial tenants should be aware that SNDA’s exist to protect their rights and should have a basic understanding of how they operate.

As a quick overview, SNDA’s are comprised of three (3) main components, the:

Subordination: Where the Tenant agrees that Lender’s interest in the leased property takes precedence over Tenant’s lease interest in the event of a foreclosure;

Non-Disturbance: Where the Lender agrees to honor Tenant’s lease in the event Lender takes over for Landlord; and

Attornment: Where the Tenant agrees to recognize Lender as its new Landlord.

While most SNDA’s contain largely standard language, there is almost always room for some negotiation. This could be as simple as negotiating for clear tenant protections relative to potential lease defaults, or as complicated as negotiating for protections with regard to promised funding per the lease between a tenant and original landlord. Regardless, it is important that tenants take the time to understand SNDAs in their entirety in order to ensure that their rights are sufficiently protected. Thus, commercial tenants, particularly those seeking long term leases, would be well advised to consult with a knowledgeable real estate attorney both when deciding whether to seek an SNDA and when negotiating the same.

Airbnb Hosts Beware: City of Boston Proposes Regulations on Short Term Rental Industry

By on February 5, 2018

Boston Mayor, Marty Walsh, recently proposed a citywide ordinance that will, if adopted by City Council, subject short-term rentals – such as those advertised through the popular home-sharing website, Airbnb – to regulations and reporting requirements.

The proposed ordinance requires that all short-term-rentals register with the city and pay an annual fee based on a tiered rental classification system. The classification system additionally dictates how many days per year various properties may be rented and the maximum number of guests per night. The ordinance also imposes a room occupancy excise tax on all short-term rentals. Short-term-rentals that are noncompliant with city codes will be ineligible for registration. Further, beyond requiring individual owner/host compliance, the ordinance also places reporting requirements on the booking companies themselves. 

Specifically, the ordinance classifies three types of short-term rental units:

  1. Limited Share Units
  2. Home Share Units; and
  3. Investor Units

Limited Share Units are rentals that are the host’s primary residence such that the host is present through the duration of the short-term rental. Limited Share Units may be offered for short-term rent 365 days of the year and will be subject to an annual $25.00 registration fee.

Home Share Units are also rentals that are the host’s primary residence that may be offered for short-term rent 365 days of the year. The host, however, need not be present through the duration of the short-term rentals, so long as the number of days booked for rental when the host is not present does not exceed 90 (consecutive or nonconsecutive) per year. Home Share Units will be subject to an annual $100.00 registration fee.

Investor Units are rentals that are not the host’s primary residence. Investor Units may be offered for short-term rental for up to 90 days (consecutive or nonconsecutive) per year and will be subject to an annual $500.00 registration fee.

Boston residents who participate in the short-term-rental economy are well advised to understand, and keep an eye on, proposed changes in housing law as regulations begin to promulgate in response to a growing industry.

Understanding the Limitations of Chapter 93A: Pre-Litigation Attorneys’ Fees Not Recoverable

By on January 30, 2018

The Regulation of Business Practices for Consumer Protection Act, commonly referred to by its statutory chapter number, “Chapter 93A,” is a frequently utilized statute that provides individual consumers and businesses with a right to bring legal action and recover damages if they are harmed by an unfair business practice.  Under the statute, “unfair or deceptive acts or practices” or “unfair methods of competition” committed while conducting business in Massachusetts permit the harmed party to recover their actual damages, or a statutory minimum of $25 per offense (whichever is greater), and up to three times such damages for knowing and willful violations of the statute, plus an award for reasonable attorneys’ fees and the costs of the lawsuit.  Chapter 93A creates harsh penalties, with a wide-reaching scope, to deter unfair business acts, however, it does have limitations.

Previously, we explained the prohibition on Chapter 93A recovery with regard to a party’s decision to litigate a dispute, rather than settle with the opposing party.

A second limitation on recovery under Chapter 93A relates to the timing of when a party’s legal fees are incurred. Recently, the Suffolk County Superior Court considered the issue of whether pre-litigation attorneys’ fees are recoverable under Chapter 93A in Beninati, et al. v. Borghi, et al. The court awarded double damages to one of the plaintiffs under Chapter 93A. The defendants who were found liable under Chapter 93A then moved the court to reduce the attorneys’ fees award by $170,000 for fees incurred prior to the filing of the lawsuit, relating to “extensive settlement discussions.” The court agreed that pre-litigation fees are not recoverable under Chapter 93A, stating that it “is aware of no authority that permits the award of fees incurred before the litigation began and that do not bear directly on its preparation.”  Accordingly, the court excluded the pre-litigation attorneys’ fees from the award.

This case is just one example of the importance of understanding the process of litigating claims and the implications of dealing with an adverse party.  Depending on the circumstances of a dispute, it can be wise to initiate litigation sooner to ensure large portions of incurred attorneys’ fees are ultimately recoverable from the party causing the harm. To learn more about scope and application of Chapter 93A, contact an experienced Massachusetts litigation attorney.

Landlord’s Security Deposit Violation Does Not Warrant Triple Damages

By on October 26, 2017

The Massachusetts Supreme Judicial Court (“SJC”) recently addressed the scope and interpretation of the Massachusetts Security Deposit Act, MGL c. 186, § 15B, in Phillips v. Equity Residential Management, LLCStrang Scott previously discussed the implications of landlords’ failure to comply with MGL c. 186 (“the Act”).  

The dispute centered around four different provisions of the Act.

  • First, Section 15B(4)(iii) requires landlords seeking to retain all or a portion of a security deposit to submit a written itemized list of damages to the rental unit, including precise detail of the nature of the damage and the necessary repairs and copies of estimates, bills, invoices, receipts, or other evidence to validate the amount deducted, sworn to by the landlord under the pains and penalties of perjury.  Failure to comply with the requirements of Section 15B(4)(iii) forfeits the landlord’s right to deduct any amount from the security deposit for damage or repairs.
  • Second, Section 15B(6)(b) states that a landlord loses its right to retain any portion of the deposit for any reason, if the landlord fails to furnish the itemized list of damages in compliance with the requirements of the Act. 
  • Third, Section 15B(6)(e) states that a landlord cannot retain any portion of the deposit for any reason if the landlord fails to return the deposit, or any balance after deductions, within 30 days after termination of the tenancy. 
  • Finally, Section 15B(7) provides triple damages, interest, court costs, and attorneys’ fees to successful tenants where their landlord violated Section 15B(6)(a), (d), or (e).

The Federal District Court of Massachusetts awarded the tenant damages in the amount of his security deposit under Sections 15B(4)(iii) and 15B(6)(b), but denied an award of triple damages. On appeal, the First Circuit Court of Appeals submitted a certified question to the SJC, requesting clarification on the treble damages provision under Section 15B and whether a landlord’s violation of the itemized list requirement, which forfeits the landlord’s right to retain any portion of the deposit for any reason, also constitutes a violation of the Act.

The SJC answered “no” to the Circuit Court’s question. In its decision, the SJC ruled that the triple damages provision under Section 15B(7) does not apply to claims for violation of the itemized list requirement of Section 15B(4)(iii) or to forfeiture of the deposit under Section 15B(6)(b). The SJC did find, however, that improper deductions under the first sentence of Section 15B(4), or the failure to return a deposit or account for any portion within 30 days, would constitute violations entitling a tenant to an award of triple damages and attorneys’ fees.

If you have questions regarding whether your security deposit practices comply with Massachusetts law, contact experienced landlord counsel to evaluate your practices and to limit your exposure.

Do More:  Prevent Your Neighbor from Taking Your Land Through Adverse Possession

By on September 26, 2017

            Does your neighbor’s fence fall on your side of the property line?  Did that garage get built on your land?  If your neighbor encroaches on your land, you may be subject to losing that portion of your property by adverse possession. 

            Adverse possession is a common law doctrine through which ownership to property can be acquired by an unlawful possessor exercising possession for twenty years of adverse, continuous, exclusive and uninterrupted use of land such that the lawful landowner has notice that the possessor claims title to the property.

            This little-known legal doctrine frequently affects densely populated residential areas where neighbors come and go and property surveys are the exception to the rule.  Recently, the New Hampshire Supreme Court had occasion to review its adverse possession jurisprudence in the case of O’Malley v. Little.

            In that action, an adverse possessor permanently acquired title to a strip of real estate in Hampton Beach, in a densely packed area of valuable homes near the beach.  In 1993, the plaintiff installed a chain link fence between her lot and her neighbor’s lot.  As it turned out, the fence was installed across the property line on to the neighbor-defendant’s land.  After installing the fence, the adverse possessor-plaintiff frequently used the encroaching area for parking cars, gardening, and other ordinary uses incidental to ownership of land. 

            In 2010, new neighbors learned that the fence encroached on their land.  In response, they called the plaintiff and informed her that her fence encroached and needed to be removed.  The plaintiff refused to move the fence.  The defendant asserted that he took other action to demonstrate to the plaintiff where the property boundary existed and that the plaintiff’s fence encroached on his land.  Nothing else occurred until 2013, when the defendant emailed the plaintiff again and requested the fence be removed.  In correspondence, the defendant offered the plaintiff a license to use the encroaching area.  Again, the plaintiff refused.  Accordingly, the defendant threatened to take action to relocate fence if the plaintiff did not do so herself.  The defendant never took such action.

            In December of 2013, the plaintiff filed suit to “quiet title,” or officially take legal possession of the encroaching area inside the fence line.  In that suit, the defendant asserted that it “ousted” the plaintiff from possession of the disputed land, and thus terminated the adverse possession, through the repeated assertions of ownership from 2010 to 2013.  The court disagreed.

            Instead, the New Hampshire Supreme Court quieted title in the encroaching plaintiff, finding that “ousting” an encroaching adverse possessor effectively requires more than mere assertions of title.  Rather than asserting title, the original owner must take affirmative steps to put the adverse possessor on notice that the lawful owner intends to reassert control or dominion over the disputed area.  Having failed to take any such actions, the original owner lost legal title to the disputed area.

            While little-known and infrequently asserted, losing title by adverse possession is risk property owners should be aware of, particularly in densely settled areas where unlawful encroachment by neighbors presents a significant risk to property.  If you’re concerned that your neighbor encroached upon your land, do your homework.  Review your plot plan and deed.  Engage a surveyor if you’re unclear whether an encroachment occurred.  Then take steps to reassert control over the land encroached upon by your neighbor.  If you’ve found that your neighbor encroached on your land, do not let time pass you by.  Instead, contact an attorney to help preserve your rights in your land.        

 

 

Foreclosures, Commercial Leases and the “First in Time, First in Right Rule”

By on September 18, 2017

Imagine that your company rents space in a commercial building and just found out that your landlord stopped paying the mortgage.  The building is in foreclosure, your lease isn’t ending soon, and it doesn’t address a foreclosure.  What happens to your commercial lease if the building is sold in a foreclosure auction?

When a commercial property owner defaults on its mortgage and the lender forecloses, a tenant should determine whether its lease was entered into before the foreclosed mortgage was recorded, as tenants retain interests in leased property if a lease predates a foreclosed mortgage.  Generally, the “First in Time, First in Right Rule” recognizes agreements respecting real estate with effect given to the “first in time” agreement.  In other words, a prior recorded mortgage that predates a lease, will permit the mortgagee to foreclose on the property and terminate the tenant’s lease, irrespective of the otherwise enforceable agreement between the defaulting landlord and the tenant.  On the other hand, a lease that predates a recorded mortgage will remain in effect after foreclosure, so long as the lease itself contains no contrary provision.

While the “general rule in Massachusetts is that entry by a mortgagee in possession under a mortgage granted prior to execution of a lease ousts the tenant and terminates the lease,” the inquiry doesn’t end there.  Tenants subject to a mortgagee’s title should consider whether the mortgagee exercised rights as a landlord over the tenant subsequent to the original landlord’s default on the mortgage.  Foreclosing mortgagees may acquire and exercise the landlord’s interest under a lease through an assignment of leases and rents from the debtor and demanding rent from the lessee as the landlord.  Similarly, the mortgagee may exercise rights as landlord through an attornment provision contained in the lease or through a separate attornment agreement with the tenant.  Attornment provisions can be found commonly in commercial leases, and express the tenant’s agreement to recognize mortgagees and/or subsequent purchasers as successor landlords to the tenant.  In the event that a tenant attorns to the mortgagee or a subsequent purchaser as its new landlord, or the mortgagee exercises rights under an assignment of the lease, the tenant will remain in possession of the leased space.

Absent such an assignment or attornment, the foreclosing mortgagee may terminate subordinate leases under the doctrine of paramount title.  Once asserted, paramount title requires entry, the demand rent be paid and actual or constructive eviction.  In to terminate a lease effectively, mortgagees acting in a dual capacity as both a mortgagee and landlord, must be cautious to articulate specifically its intended role so as not to afford subordinate tenants unintended rights permitting such tenants the right to carry on in prior existing leases.

In the rare instance that a commercial mortgage is subordinated to a lease, a lease would not be extinguished upon foreclosure of such a mortgage.  Instead, the purchaser of the commercial property would take possession subject to the tenant’s tenancy, and require the tenant to attorn to the purchaser as its new landlord, develop a new lease or vacate the premises.  

If your commercial space is sold at foreclosure, all is not lost.  The terms of your lease, along with timing of its execution in relation to the foreclosed mortgage will govern your rights and remedies as a tenant.   While it’s always a better course of action to address this issue when negotiating your lease it’s likely that you’ll retain some rights as a tenant despite a foreclosure.   In order to determine and preserve your rights under a commercial lease conclusively upon notice of a foreclosure, it’s important to consult with an experienced real estate attorney promptly.

Recent Ruling Emphasizes the “Sacred” Procedure of a Jury Demand

By on September 11, 2017

     Parties to a summary process (eviction) proceeding in Massachusetts are afforded the right to a trial by jury. Article 15 of the Constitution for the Commonwealth of Massachusetts declares that “parties have a right to a trial by jury; and this method of procedure shall be held sacred,” which applies to court rules and procedures for summary process governed by Massachusetts Rules of Civil Procedure, Rule 8 of the Uniform Summary Process Rules, and Section 21 of Massachusetts General Laws Chapter 185C.

     Recently, the Massachusetts Appeals Court overturned a ruling from the Housing Court and reemphasized the “sacred” right to a jury trial.  In Tchad Cort v. Alver Majors, a residential tenant appealed from judgment awarding possession and money damages to the landlord. The landlord filed a summary process action, to which the tenant responded with an answer, counterclaims, and a jury trial demand. At trial, the judge asked both parties if they were prepared for trial and the tenant acknowledged that he was prepared to proceed. After the landlord presented her case, the tenant provided testimony and stated that he would “like a jury.” The judge determined that trial was already underway and thus the tenant waived his right to trial. The tenant and the judge debated the tenant’s misunderstanding regarding waiver and the tenant presented his case. Thereafter, judgment entered against the tenant.

     On appeal, the Appeals Court reversed the judgment, holding that a passive waiver of a jury demand, by proceeding with trial without a jury after demanding a jury, is not sufficient to waive a prior plead jury demand. Instead, an effective waiver of a jury demand requires at least an oral stipulation waiving the demand. The Appeals Court emphasized the responsibility assigned to trial court judges to affirmatively investigate, prior to commencement of trial, whether to proceed with or without a jury, rather than starting trial and waiting for a party to object to the absence of a jury.

     Self-represented litigants in all courts are held to the same standards as attorneys. As a result, it’s crucial to understand and apply the rules of court and constitutional protections relevant to each action. More often than not, self-represented litigants are ill prepared to do so. In order to navigate litigation efficiently and effectively, engaging an experienced attorney to guide litigation prevents costly errors resulting from the failure to understand available rights and remedies. If you are involved in, or are considering filing a summary process claim, you’re well-advised to contact an experienced landlord-tenant attorney to achieve the best outcome.

Renting Apartments to Multiple College Students? Lodging House Requirements No Longer Apply

By on August 23, 2017

Massachusetts law distinguishes rented dwellings from lodging houses with regard to the requirements, rights, and remedies for the landlord or owner of the property and the tenants or lodgers. By statute, when a dwelling unit is occupied by “four or more persons not within second degree of kindred” to each other, that unit is considered “lodging,” and not a rental unit. In order to legally operate a lodging house, the owner of such units must obtain the necessary licenses, subject to fines or imprisonment for failure to comply.

The lodging house act was enacted during World War I as a reaction to concerns over immoral conduct and the spread of sexually transmitted infections. The Act divided persons who reside with their nuclear families, or are related within a second degree to the person owning the premises, from other, unrelated individuals who reside with each other. The Act applies to fraternity houses and dormitories for educational institutions, with the exception of dormitories for philanthropic institutions or nursing homes. Lodging houses have separate standards for complying with Massachusetts law, which are separate from standards set against apartment buildings and units. In addition to the licensing requirement, lodging houses must comply with the applicable building codes, they must provide kitchen facilities equal to or greater than 150 square feet in area and include a gas or electric plate or stove, a refrigerator, and hot and cold water, unless the city or town where the building is located has contrary regulations or bylaws. Lodging homes are also subject to the requirement that they not be used for any “immoral purpose” and the owner of the lodge must keep a register of all persons occupying units in the premises.

More recently, the Massachusetts Supreme Judicial Court (“SJC”) addressed the implications of the act in City of Worcester v. College Hill Properties, LLC, relative to private rentals to college students. In that case, the defendant property owners owned several two- and three-family properties and leased each unit to four unrelated college students under annual lease agreements. After investigating the units, the City of Worcester cited the defendants and ordered them to cease and desist from operating unlicensed lodging houses. The defendants refused to comply with the order and the City filed suit in the Housing Court. The Housing Court held that the units, as occupied, constituted “lodgings” under the law and ordered injunctions against the defendants. This ruling was upheld by the Massachusetts Appeals Court and the defendants ultimately appealed to the SJC. The SJC reviewed the historical differences between “lodgings” and apartments and analyzed the plain dictionary definitions to determine whether the defendants’ buildings were apartments or lodging. The SJC overturned the Housing Court’s ruling, finding that the City of Worcester’s interpretation of “lodging” (that the plain meaning of “lodging” and “let” suggested that the statute applies to “any place to live in any house”) was myopic and would “lead to absurd results and selective enforcement.” The SJC therefore refused to adopt the interpretation put forth by the City of Worcester and followed by the Housing Court, holding that the defendants were not operating “lodgings” within the meaning of the act.

The SJC’s interpretation in College Hill Properties has created a logical standard for distinguishing lodging houses from apartment buildings and has helped to facilitate the increased need for housing for college students in Massachusetts. If you are a property owner who rents to multiple unrelated persons or are considering renting in Massachusetts you should contact an experienced attorney to ensure compliance with all laws regulating rental apartments and lodging houses.

Airbnb Tax Dropped from Budget after House Negotiations

By on August 8, 2017

This post updates our previous post regarding proposed taxation of revenue generated by Airbnb rentals.  Despite prior consideration of an Airbnb tax as early as July 2017, the proposal was dropped from the fiscal year 2018 budget proposal. Earlier this year, the state Senate pushed to apply Massachusetts’ state hotel tax, and local levies, on private residences rented for short stays by Airbnb and its competitors, but lawmakers in the House could not agree on a budget measure.

Although the so-called Airbnb tax will not be included in the 2018 fiscal year budget, Representative Aaron Michlewitz, a leader in the efforts to install an Airbnb tax, remains confident that the legislature will institute a tax plan for short-term housing. It seems all parties concerned — from Governor Charlie Baker to industry leader Airbnb — agreed that short-term housing in Massachusetts should be subject to some taxation along the way.  Thus far, however, no consensus could be reached to keep the tax on the 2018 budget proposal.  Expect more updates on this matter as they develop in state government.