Short-Term Rental Law Takes Effect July 1st

aribnbGovernor Baker recently signed “An Act Regulating and Insuring Short-Term Rentals”, imposing new taxes, registration and inspection requirements, and other rules governing the short-term rental of homes and residential units through Airbnb, VRBO, and similar platforms.

Overview:

The new law (Chapter 337 of the Acts of 2018) takes effect July 1, 2019, and applies to rentals for not more than 31 consecutive days.  The highlights of the law are as follows:

  • State excise tax of 5%, plus a .7% surtax on the total amount of rent.
  • Optional local excise tax of up to 6% (additional amounts in Boston and the Cape & Islands).
  • Optional local impact fee of up to 3% on certain units (up to 35% of revenue from the fee must be dedicated to affordable housing or local infrastructure projects).
  • Mandatory state-wide registration system.
  • Optional local registration programs and inspection requirements.
  • Mandatory insurance requirements.
  • Operators renting for 14 days or less each year are exempt from excise taxes and impact fees, but are subject to registration, inspection, insurance, and other requirements.

Local Regulations:

While all short-term rental operators must comply with the new state regulations, local requirements will vary town by town. Communities may impose additional local taxes and fees, but are not required to do so. However, the local tax automatically applies to short-term rentals as of July 1 in communities that previously adopted a room occupancy tax. Not sure of your community’s status? Check the Department of Revenue’s database.

In addition to taxes and fees, the new law provides specific authorization for local bylaws and ordinances to regulate short-term rentals with respect to:

  • Regulating the existence and location of short-term rentals, including the number of local licenses or permits that may be issued to operators and the number of days a person may operate and rent out an accommodation in a calendar year.
  • Establishing a local licensing or registration system.
  • Requiring zoning and code compliance for any short-term rental.
  • Requiring health and safety inspections and inspectional fees.
  • Imposing penalties for violations of local requirements.
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Recovery of Attorney’s Fees and Costs in Construction Disputes

When construction projects become construction disputes, contractors and suppliers start thinking about how to recover their attorney’s fees and other legal costs.  Massachusetts follows the “American Rule” for recovery of legal expenses that states each party must pay their own attorney’s fees.  There are a few exceptions within the American Rule:  where a law or Court rule awards legal fees to a prevailing party or the parties’ contract provides for the recovery of legal fees.  Here are the most common circumstances in which parties who prevail in construction disputes can recover their attorney’s fees and other legal costs.

  • Prevailing on a claim for payment on a payment bond required for public construction projects under M.G.L. c. 149, § 29.  Pursuant to the statute, a judgment for a payment bond claimant “shall include reasonable legal fees based on the time spent and the results accomplished…”   A Massachusetts Appeals Court decision from 2016 confirmed that an award of fees is mandatory and not subject to a court’s discretion.  (Unlike a payment bond claim, a party cannot recover their attorneys’ fees for prevailing on a mechanic’s lien claim under M.G.L. c. 254.)
  • Prevailing on a claim for unfair and deceptive trade practices under M.G.L. c. 93A.  The bar is set high for unfair and deceptive practices between two businesses, but if a business obtains a judgment on its M.G.L. c. 93A claim, the Court shall award reasonable attorneys’ fees and costs, notwithstanding the amount of the judgment.
  • Where the parties’ contract provides for the recovery of legal fees.  The contract language does not need to be elaborate.  It is sufficient to state that a party “is entitled to recover its legal fees, including attorneys’ fees and costs, arising from a breach of this contract.”  What is necessary is that this agreement is in place as part of the parties’ contract and not simply added to documents sent by the parties later, such as an invoice or statement.

If these circumstances do not apply, you may still be able to recover some amounts over your principal damages if you win your claim.  Massachusetts statutory interest applies if the contract does not set the rate of interest that accrues on past due amount.  By law, interest will accrue at 12% per year (1% per month) from the date the debt was due until it is paid in full.  Additionally, Massachusetts law allows a party that prevails in court to recover limited out-of-pocket costs, such as filing and service fees and certain trial costs.  While this does not allow recovery of attorney’s fees, it gives a prevailing party some recoupment of their legal costs.

Construction disputes can be complex and pursing your rights is difficult without a solid understanding of the law.  For questions or assistance with your Massachusetts construction dispute, contact Jessica Murphy at (508) 791-8500 or another member of Mirick O’Connell’s experienced Construction Group.

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Construction Insurance: Game of Risk

Steel Silhouette Explosion

Construction work is risky by nature.  Common risks include natural disasters, inclement weather, flood or fire, accidents t

hat cause property damage or bodily injury, and the failure of one or more parties to perform their designated responsibilities, resulting in defective work, negligent design, missed schedules, regulatory investigations, or the failure to make payment, among other things.  It is impossible for construction industry participants to avoid all of these risks.  Rather, prudence dictates a risk management portfolio that identifies risks and assigns a mechanism to reduce or eliminate the consequences of those risks, if they occur.  A primary mechanism is to maintain appropriate insurance coverages.

Natural Disasters, Weather, Theft, Fire

If your business or house is damaged by a natural disaster such as flood or wind, or by theft or fire, you logically look to a property insurance policy or business loss policy for coverage.  Most property policies, however, exclude damage to property under construction.  As a result, damage to the owner’s property, existing construction work, or the contractor’s materials or equipment is generally covered not by property insurance but rather by builder’s risk or all risk insurance, which is a niche property insurance product developed specifically for the construction industry.

Generally, builder’s risk insurance covers the out-of-pocket costs of repairing or replacing work damaged during construction.  These policies can vary significantly in terms of the scope of coverage and the types of allowable damages.  For example, some builder’s risk policies will cover not only direct damages but also indirect costs of delayed completion, such as lost overhead, additional fees incurred, and other similar costs.  Other policies will carve particular exclusions for types of losses, depending on the state of the work at the time of the loss.  For example, water damage may be excluded unless the building was weather tight.

Bodily Injury, Property Damage

Third-party claims of bodily injury or property damage are common risks associated with construction work.  These are the types of claims for which commercial general liability is intended to mitigate against.  However, whether your insurance policy will trigger defense or indemnity (i.e., payment) of a claim depends on several factors, including the timing and nature of the injury.

CGL policies are “occurrence-based” policies, meaning the policy will cover the claim as long as it was in effect at the time the event causing the injury occurred.  This analysis can become complicated, particularly in the case of latent or lingering property damage, or damage covered by subsequent work.

Some jurisdictions count the date of occurrence as the date when the damage is discovered or becomes apparent; others look for the date when the defective work is incorporated into the project; and others identify when the property is actually damaged.  Massachusetts uses a fact-based approach where the date of occurrence depends on the nature of the injury and the damage claimed.

Where the insurer agrees there has been an occurrence, within the meaning of the general liability policy, the insurer may still reject coverage if the claim falls within an exclusion.  A common exclusion in the construction context is the so-called “your work” exclusion, which states that the policy will not cover damage to faulty workmanship performed by the insured contractor.  Another example is the “contractual liability exclusion” which bars coverage for damages incurred by reason of assumption of liability in a contract.  The analysis does not end there, with exceptions to the exclusions, and endorsements that can restore or eliminate coverage.

Negligent Design, Errors, Omissions

Architects and engineers may design elements of a project in a way that might be deemed negligent, if the instruments of service are missing information, fail in their ultimate purpose, or result in nonconforming or noncompliant work.  Claims alleging negligent design are generally covered by professional liability insurance policies, sometimes referred to as “errors and omissions” coverage.  Unlike commercial general liability policies, professional liability policies are “claims-made” policies, meaning that they will cover claims made or asserted during the policy period, or within a designated time after the effective dates of the policy.  It is therefore important to notify the insurer of claims or potential claims as soon as the insured becomes aware of their existence.  Late notice which causes prejudice to the carrier’s ability to investigate a claim is a common ground for denial of a professional liability claim.

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A Landfill Is Not a “Point Source” Under the Clean Water Act, So Says the 4th Circuit and D.Mass.

Two recent rulings address the issue of whether a landfill is a “point source” under the Clean Water Act, 33 U.S.C. § 1251 et seq. (CWA), Sierra Club v. Virginia Electric et al and Toxics Action Center et al v. Casella Waste Systems et al.  While much of the attention in CWA litigation recently has focused on the scope of CWA jurisdiction over groundwater as “Waters of the United States,” the “point source” question is not one to be overlooked.

A little background:  the CWA generally prohibits the “addition of any pollutant to navigable waters from any point source” without a permit.  33 U.S.C. § 1362(12) (emphasis added).  “Navigable waters” are “the waters of the United States, including the territorial seas.”  33 U.S.C. § 1362(7).  A “point source” includes “any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged.”  33 U.S.C. § 1362(14).

In September, the 4th Circuit in Sierra Club v. Virginia Electric et al ruled that a landfill and settling pond was not a “point source,” and therefore, not subject to CWA jurisdiction.  Focusing on the plain language of the CWA, the Court found that “the landfill and ponds were not created to convey anything and did not function in that manner … Indeed, the actual means of conveyance of the arsenic was the rainwater and groundwater flowing diffusely through the soil … Thus, the landfill and settling ponds could not be characterized as discrete ‘points,’ nor did they function as conveyances.”

More recently and closer to home, the U.S. District Court for the District of Massachusetts (Hillman, J.) came to the same conclusion concerning the Southbridge Landfill in Toxics Action Center et al v. Casella Waste Systems et al.  Like the Fourth Circuit, Judge Hillman did not decide whether a “hydrological connection” between groundwater and Waters of the U.S. is sufficient for CWA jurisdiction.  Instead, citing the 4th Circuit’s decision in Sierra Club, the Court found CWA jurisdiction lacking because the landfill is not a discrete point source within the meaning of the CWA.  Under the Court’s analysis, generalized diffusion through groundwater is insufficient to satisfy the requirement under the CWA that the discharge be from a discrete point source.

There is no doubt that litigants will continue to test the limits of CWA jurisdiction, both on the issues of Waters of the U.S. and the point source requirement.  Sierra Club and Toxics Action Center signal a growing trend that alleged, non-discrete discharges from a landfill to groundwater are insufficient to satisfy the point source requirement for CWA jurisdiction.

NOTE:  My firm and your humble author were counsel to the Town of Southbridge, a defendant in the Toxics Action Center case.

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The New Massachusetts Clean Energy Bill: Solar Advocates Left Waiting for the Next Installment

solar photo for blog (A5585845x7A575)

On July 31, 2018, the final day of its formal session, the Massachusetts legislature passed H. 4857, An Act to Advance Clean Energy, which Governor Baker signed into law on August 9.

The bill represents several important steps forward in the Commonwealth’s path toward a clean energy future. Highlights of the bill include the following:

  • Renewable Portfolio Standards.  From 2020 through the end of 2029, retail electricity suppliers must increase the amount of energy procured from renewables by 2% per year, resulting in a requirement that retail electricity suppliers procure 35% of their energy from renewables by 2030.  (Previously, there was a 1% increase per year, resulting in a 25% standard for 2030.)
  • Clean Peak Standard. Massachusetts will become the first state in the nation to implement a so-called “clean peak standard,” which will provide incentives for the use of clean energy during periods of peak energy consumption. Beginning in 2019, and pursuant to standards and processes yet-to-be developed by the Department of Energy Resources (“DOER”), retail electricity suppliers will be required to “provide a minimum percentage of kilowatt-hour sales to end-use customers… from clean peak resources,” meaning resources that are not only “clean” but also delivered during peak consumption periods.
  • Storage Target Goal. Through policy-making authority granted to DOER, Massachusetts will attempt to store 1,000 megawatt-hours (“MWh”) of energy by 2025.
  • Mobile Battery Research. The bill charges DOER with studying “the feasibility of a mobile battery storage system to serve as a mobile emergency relief system that can respond to extreme weather events or power outages.”
  • Offshore Wind. DOER has the authority to require electric distribution companies to procure 1,600 MWh of offshore wind energy in addition to the 1,600 MWh previously prescribed in 2016 legislation.
  • Qualifying Technologies for Incentive Programs. Additional types of technologies, “including energy storage and other active demand management technologies and strategic electrification,” are eligible for energy efficiency incentive programs.

Despite these advances, many clean energy stakeholders, especially those in the solar industry, are judging the bill more by what was left out than by what made it in. Most notably, the bill does not increase the caps on “net metering,” the mechanism by which solar facility owners receive credit for electricity sent to the grid in excess of the electricity used on site.  The current caps have hindered the solar industry in continuing to make a compelling case for customers to install solar facilities on their buildings in non-residential settings.  The absence of any increase to net metering caps stands in stark contrast to the Senate version of the bill, which would have eliminated the caps altogether.

The final bill fell short of its Senate-passed predecessor in two other respects concerning solar. (It should be noted that the Senate version provided more ambitious clean energy policies in almost every area, not just solar.)  First, the final bill dropped provisions that would have delayed the imposition of a new charge on solar net metering customers known as a “minimum monthly reliability contribution,” settling instead for restrictions concerning customer notification of the charge.  Second, the final bill eliminated language that would have helped expand solar access to lower-income households by providing public housing residents with net metering reimbursements at full retail rates and removing limitations on the sharing of net metering credits by geographic “load zones.”

For clean energy advocates, there is little dispute that the recent bill is a step in the right direction, although the size and boldness of that step is subject to varying characterizations.

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Zoning Appeal Plaintiff Must Prove Standing, Even if Defendant Town Does Not Contest Issue at Trial

On Tuesday, the Appeals Court issued its opinion in Talmo v. Zoning Board of Appeals of Framingham.  Massachusetts suffers no shortage of case law on standing (the right to file suit) in zoning appeals.  In this case, the issue was whether the abutter’s “injury” was sufficient to create “standing” to appeal Framingham’s issuance of a building permit to his neighbor to convert a barn into “additional” living space.  This otherwise routine standing case is notable for two reasons.

First, it’s a useful reminder that a fatally flawed case can remain fatally flawed, even if the opponent doesn’t press the issue at trial. Here, Land Court Judge Howard Speicher found sua sponte (without being asked to do so by the parties) that Talmo lacked standing to bring his appeal.  Although Framingham had asserted a lack of standing as an affirmative defense, it never contested Talmo’s standing at trial.  Nevertheless, Judge Speicher found Talmo had no injury sufficient to confer standing.  Concluding that standing was a “jurisdictional prerequisite” to proceeding with the case, the Appeals Court affirmed.

Second, Talmo’s “presumptive” standing as an abutter was just that, a presumption. To have standing, the abutter’s injury must be more than speculative, and it must be different than the concerns of the rest of the community.  In this instance, Talmo’s home was more than 250 feet from the offending barn and buffered by trees, boulders and other landscaping.  The Court also rejected Talmo’s suggestion that his drinking water well was contaminated by the barn’s septic system.  Based on those facts, Judge Speicher concluded, and the Appeals Court affirmed, that Talmo’s presumptive standing was rebutted by the facts, including Talmo’s own testimony.

Now, if I could only get Elton John’s “I’m Still Standing” from replaying in my head. Over and over again…

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(Reluctantly) Open for Business: Momentum Gathering for Expanded Use of Continuous Operations Clauses

Two recent court decisions may embolden commercial landlords to use a familiar lease provision in an unusual way when responding to tenants seeking to close their business operations before the end of the lease term.

Continuous operations clauses are common features of commercial leases. Such a provision will often require a tenant to operate its business on certain days and during certain hours. Landlords use these clauses as a means of ensuring that their properties stay active, attractive, and profitable. Landlords do not, with rare exceptions relating to “anchor tenants,” use these clauses as the basis of a suit for injunctive relief to compel a tenant to operate a failing store throughout the remainder of the lease term, at a loss, and against its will.

But that’s just what two landlords have successfully done.

In Simon Property Group L.P. v. Starbucks Corporation, Case No. 49D01-1708-PL-032170 (Indiana Superior Court), the tenant, Starbucks Corporation, announced that it intended to close all of its Teavana stores across the country, including seventy-seven mall locations leased from Simon. The leases at issue contained various forms of continuous operations clauses, many of which expressly provided that Simon could seek specific performance to require Starbucks to continuously operate its Teavana stores. So instead of taking the well-worn path to remedies — recovering future rent and finding new tenants — Simon went to court demanding that Starbucks stay put. An Indiana judge issued a preliminary injunction preventing the closures despite conceding that “no court has ever entered preliminary or permanent injunctive relief to specifically enforce a continuous operations covenant against a non-anchor tenant extending nationwide.” Just a month later, in Bellevue Square, LLC v. Whole Foods Market Pacific Northwest, Inc., Case No. 17-2-27617-1 SEA (Washington Superior Court), a Washington judge granted the landlord’s request for a preliminary injunction requiring a Whole Foods concept grocery store branded “365 by Whole Foods Market” to remain open after Whole Foods announced that the store would close.

In the Whole Foods case, as in the Starbucks case, not at issue was whether the tenant would be breaching the lease by closing — that much was clear. The question in both cases, rather, was whether the landlord had available to it an adequate legal remedy, namely the recovery of monetary damages, that made the issuance of injunctive relief inappropriate. The judge in the Whole Foods case found that the grocery store’s closure would cause irreparable harm to the landlord, including negative effects on the landlord’s ability to secure financing on the property, on its lease negotiations with other tenants, and on the general reputation of the shopping center.

The limits of this reasoning — how small can the ripple effect of a closure be to justify an injunction? — remain unclear, but these two decisions represent a striking sensitivity to landlords’ efforts to create balanced, successful commercial centers. Just take the following excerpt in the Starbucks decision, in which the judge approvingly cites Simon’s expert witness as explaining, “[A] mall is not a random collection of stores, but rather is a co-dependent ecosystem that derives its success from the curation of a particular tenant mix, commonalities, externalities and cross-promotion.” Think about that the next time you’re trying to orient yourself on a mall directory map.

For tenants, these decisions should serve as a cautionary tale. If a tenant expects that it will be allowed to perform an “efficient breach” of the lease to close a failing location, that expectation should be factored into the drafting of any continuous operations clause.

Landlords should also give additional attention to the wording of these clauses. To improve its chances of succeeding in an action for injunctive relief, a landlord should include in the lease a right to obtain specific performance for breach of the clause and an acknowledgment by tenant that such a breach would cause the landlord irreparable harm that makes the right of specific performance necessary.

But before respectively fretting and celebrating over these two decisions, tenants and landlords should consider some matters of context. Starbucks and Whole Foods are especially large and financially strong companies, ones able to survive the requirement to keep open unprofitable locations. Prior to succeeding against Starbucks, Simon had failed in its attempts for injunctive relief to keep open Kenneth Cole stores as well as stores owned by Wolverine World Wide (including Stride Rite and Sperry) because the harm to the tenants of continuing to operate was deemed more detrimental than the imbalance that would befall the landlord’s “ecosystem” due to the tenants leaving.

Regardless of whether or not the Starbucks and Whole Foods decisions portend a larger shift in the courts, landlords and tenants should give continuous operations clauses careful consideration.

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Construction Defect Claims and the Often Misunderstood Application of Express and Implied Warranties

excavators-800996_1920A claim for breach of construction warranty must be filed within the time allowed by the applicable statutes of limitation or repose.  Most jurisdictions, including Massachusetts, allow parties to modify that period by agreement.  The agreement must be particular and leave no question as to the intent of the parties to alter the period of limitations for breach of warranty claims.  A poorly drafted or ambiguous provision is likely to be construed as a separate promise by a contractor to return and address defective workmanship, in addition to other warranty obligations.  The owner and contractor equally benefit from clarity in understanding their respective rights and obligations when it comes to warranty requirements.

The statute of limitations for a breach of express warranty claim is generally determined by the statute of limitations for breach of contract.  The time of accrual of the statute of limitations will vary depending on the state.  For example, some states’ statutes of limitations accrue at substantial completion, while others accrue upon discovery of the disputed defect.  A breach of implied warranty claim is generally regarded as a claim sounding in negligence, and is therefore subject to state statutes of limitations for negligence.  In most jurisdictions, including Massachusetts, this means that implied warranty claims must be brought within three years of the time that the claim was discovered or reasonably should have been discovered.

For breach of warranty claims involving the sale of goods, the UCC provides a four-year statute of limitations.  The UCC allows parties to reduce the period to no less than one year, but the period may not be extended.  Subject to certain exceptions, UCC warranties, express or implied, commence upon the tender of the goods, without regard to whether the tender was of conforming or conforming goods.  This is a drastic limitation because the breach is deemed to occur at the tender of delivery and not when the defect is discovered.  This concept excludes claims for latent defects and claims under warranties that are by their nature explicitly extend to future performance.

Regardless of the time of discovery of the breach of warranty, a statute of repose may well prevent an untimely claim.  In Massachusetts, M.G.L. c. 260, § 2B contains a six-year statute of repose in which time any action of tort for damages arising out of any deficiency or neglect in the design, planning construction or general administration of an improvement to real property.  Unlike a statute of limitations, a statute of repose is inflexible, regardless of the date of discovery.

Contract language is paramount and will in most instances, dictate the extent of warranty obligations.  The relevant language in the American Institute of Architects (AIA) A201 General Conditions of the Contract for Construction, commonly referred to as the “quality standard,” reads as follows:

A claim for breach of construction warranty must be filed within the time allowed by the applicable statutes of limitation or repose.  Most jurisdictions, including Massachusetts, allow parties to modify that period by agreement.  The agreement must be particular and leave no question as to the intent of the parties to alter the period of limitations for breach of warranty claims.  A poorly drafted or ambiguous provision is likely to be construed as a separate promise by a contractor to return and address defective workmanship, in addition to other warranty obligations.  The owner and contractor equally benefit from clarity in understanding their respective rights and obligations when it comes to warranty requirements.

The statute of limitations for a breach of express warranty claim is generally determined by the statute of limitations for breach of contract.  The time of accrual of the statute of limitations will vary depending on the state.  For example, some states’ statutes of limitations accrue at substantial completion, while others accrue upon discovery of the disputed defect.  A breach of implied warranty claim is generally regarded as a claim sounding in negligence, and is therefore subject to state statutes of limitations for negligence.  In most jurisdictions, including Massachusetts, this means that implied warranty claims must be brought within three years of the time that the claim was discovered or reasonably should have been discovered.

For breach of warranty claims involving the sale of goods, the UCC provides a four-year statute of limitations.  The UCC allows parties to reduce the period to no less than one year, but the period may not be extended.  Subject to certain exceptions, UCC warranties, express or implied, commence upon the tender of the goods, without regard to whether the tender was of conforming or conforming goods.  This is a drastic limitation because the breach is deemed to occur at the tender of delivery and not when the defect is discovered.  This concept excludes claims for latent defects and claims under warranties that are by their nature explicitly extend to future performance.

Regardless of the time of discovery of the breach of warranty, a statute of repose may well prevent an untimely claim.  In Massachusetts, M.G.L. c. 260, § 2B contains a six-year statute of repose in which time any action of tort for damages arising out of any deficiency or neglect in the design, planning construction or general administration of an improvement to real property.  Unlike a statute of limitations, a statute of repose is inflexible, regardless of the date of discovery.

Contract language is paramount and will in most instances, dictate the extent of warranty obligations.  The relevant language in the American Institute of Architects (AIA) A201 General Conditions of the Contract for Construction, commonly referred to as the “quality standard,” reads as follows:

§3.5 WARRANTY

The Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless the Contract Documents require or permit otherwise. The Contractor further warrants that the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit. Work, materials, or equipment not conforming to these requirements may be considered defective. The Contractor’s warranty excludes remedy for damage or defect caused by abuse, alterations to the Work not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear and normal usage. If required by the Architect, the Contractor shall furnish satisfactory evidence as to the kind and quality of materials and equipment.

The contractor therefore warrants (1) that materials and equipment used by the contractor will be new and of good quality unless otherwise required; (2) the work will be free from defects other than those inherent in the work as specified; and (3) the work will conform to the requirements of the contract documents.  This is a relatively unremarkable, vanilla promise on the part of the contractor.  Notably, there is no time limitation.

The A201 also contains a one-year “call-back period,” which reads as follows:

§12.2.2.1 In addition to the Contractor’s obligations under Section 3.5, if, within one year after the date of Substantial Completion of the Work or designated portion thereof or after the date for commencement of warranties established under Section 9.9.1, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition.

This language is generally construed by the courts as a separate promise by the contractor to return and address defects when properly notified by the owner, for a one-year period following substantial completion.  Therefore, it does not represent or constitute a one-year contractual warranty period.

A contractor wishing to eliminate warranty obligations beyond a designated, contractual period must clearly state as much in its written contract with the owner.  The written term must explicitly state the intent of the parties is to limit all warranty obligations, express or implied, except for that which is specifically contained in the subject clause.  Any language that falls short of this standard may well fail to accomplish the type and extent of limitation intended or expected by the contractor.

In this author’s experience, most contractual warranties fall short of this standard, and therefore most contractors operate under a false sense of security that their warranty obligations are so limited.  In fact, these obligations can extend for several years out, depending on the nature of the defect and how and when the defect is ultimately discovered.  As a result, the contractor (and the surety) may well be exposed to extended liability until the state statute of limitations or statute of repose has run.  The risk to the contractor is substantial.  Large-scale construction defect claims often lay hidden in the weeds for years before the true extent of the damage manifests.  When the risk does occur, years have passed making investigatory and analysis functions more difficult and sometimes impossible, if witnesses have died, companies have folded, or landscapes have changed.  Front-end due diligence and contract preparedness will go a long way towards mitigating against this risk.

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Massachusetts High Court Recognizes Employee Right of Qualified Medical Marijuana Users To Allege Handicap Discrimination For Off-Site Use of Medicinal Marijuana

This is an important update from my partner, Bob Kilroy and our OfftheClockEmployment Blog, for all employers, including contractors, subcontractors and developers. Note the important distinction between safety and non-safety sensitive positions. Clear take-away: get good advice!

offtheclockemploymentblog

In a long-awaited decision, the highest court in Massachusetts – the Supreme Judicial Court (“SJC”) – ruled today in Cristina Barbuto v. Advantage Sales & Marketing, LLC, et al. that an employee who used medical marijuana to treat a debilitating medical condition may proceed with a claim of handicap discrimination after being terminated from employment based on her testing positive for her off-site use of physician-prescribed marijuana.

Background
The facts in Barbuto were straightforward.  Ms. Barbuto was hired into an entry-level position by Advantage Sales & Marketing, where she would be assigned to supermarkets to set up and hand out food samples to supermarket customers.  After having accepted an offer of employment, Ms. Barbuto was informed that she would be required to submit to a mandatory drug test.  Ms. Barbuto immediately informed her supervisor that she would test positive for marijuana because she suffers from Crohn’s disease – a debilitating…

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New 2017 AIA Documents Released – Are You Prepared?

Construction Contract

The construction contracts created by American Institute of Architects (“AIA”) have, for several decades, been established as the industry standard for contract forms.  There exist AIA forms for every imaginable project relationship and delivery method.  Every ten years or so, the AIA releases revised documents, in order to keep the terms current with industry norms and trends.

This year, the AIA has released several new 2017 editions, including the A201 family of documents, the flagship documents, developed for the design-bid-build delivery model.  New forms were also released for cost-plus contracts, with and without a guaranteed maximum price, abbreviated and short form owner-contractor agreements, contractor-subcontractor agreements, owner-architect agreements, and architect-consultant agreements.

Some of the major changes that require immediate attention include the following:

  • A single sustainable project to address the risks and obligations generally associated with sustainable design and construction services;
  • Agreements now include a prompter for parties to negotiate and insert a “termination fee” in the event of an owner’s termination for convenience;
  • The architect is now entitled to additional compensation for re-design services, so long as the architect could not have reasonably anticipated market conditions that caused bids to exceed the owner’s budget;
  • A new category of design services has been introduced – any services beyond basic services identified at the time of agreement are now termed “supplemental services,” to avoid confusion with “additional services” that may arise during the project;
  • A new exhibit with comprehensive insurance and bonds provisions that can be attached to many of the owner-contractor agreements;
  • New provisions relating to direct communications between the owner and contractor; and
  • Revised provisions related to the owner’s obligation to provide proof of financial arrangements to pay for the project;
  • Simplified provisions for the contractor to apply for and receive payments.

Many of these forms have been released, and more are scheduled for release throughout 2017.  As of October 2017, the prior (2007) versions of the AIA family of documents will no longer be available. Our Construction Group has been and continues to stay very much at the forefront of these changes.  If you have questions, or if you would like to discuss these changes and what you should be doing to protect your company’s interests, please contact our Construction Group directly.

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Enforcing “No-Damage-for-Delay” Clauses: A Potential Landmark Construction Law Decision from the Massachusetts Appeals Court

A recent decision from the Massachusetts Appeals Court is likely to have a substantial impact on construction contract and claims practice in the Commonwealth.  The Massachusetts State College Building Authority (“MSCBA”) hired Suffolk Construction Company, Inc. (“Suffolk”) to serve as general contractor on a dormitory project at Westfield State University (the “Project”).  Central Ceilings, Inc. (“Central”) submitted a bid to serve as the subcontractor for exterior heavy metal gauge framing and sheathing, interior light gauge framing, drywall, and hollow metal door frames.  The Project was plagued with scheduling difficulties, and Central asked Suffolk for extensions of time on several occasions, while its workforce sat idle, unable to perform its work as a consequence of certain delays, principally caused by Suffolk’s inability to manage and coordinate the project.  Suffolk rejected these requests, apparently out of concern about a substantial liquidated damages assessment from MSCBA, if the Project missed its completion date.  Central accelerated its performance, and completed its work on a compressed schedule.  Central brought a lawsuit against Suffolk for breach of contract, seeking loss of productivity damages in the amount of $321,315, as well as payment of $82,538 for unpaid change orders.

Suffolk argued that a “No-damages-for-delay” clause barred Central’s claim for loss of productivity damages.  The clause provided, in pertinent part, that the subcontractor “shall have no claim for money damages or additional compensation for delay no matter how caused” but “shall be entitled only to an extension of time for performance of its [work].”  The Court rejected Suffolk’s argument on two grounds.  First, Suffolk was precluded from invoking the clause because it had materially breached the contract by refusing to allow Central’s requests for extensions of time, thereby depriving Central of its sole contractual remedy. Second, the loss of productivity damages were not “delay” damages, but rather they were project costs incurred by Central as a result of a compressed schedule.

Suffolk also challenged the trial judge’s adoption of the “total cost” method for calculating damages, which had been advocated at trial by Central’s expert witness.  This method takes as a measure of damages the difference between the subcontractor’s bid and its ultimate costs.  It has been historically disfavored, because it tends to ignore several mitigating factors, such as unrealistic subcontractor bids, and the subcontractor’s own participation in the delay.  Here, the Court determined that the “total cost” method was appropriate, largely because the nature of Central’s loss made it impossible or highly impracticable to determine its damages using more traditional methods.  Rather, as opined by Central’s expert, the loss was best quantified through the impact it had on manpower, and he reviewed Central’s original estimate for labor costs and compared that against the actual labor costs incurred.

This decision, unless or until reversed or modified by the Massachusetts SJC, will have significant and immediate impact on construction law risk management in Massachusetts.  Look for an increase in “total cost” claims, and a corresponding adjustment in drafting “No-damage-for-delay” clauses, including expanding the definition of “delay” damages, and potentially eliminating the right of subcontractors to request additional contract time.

The decision is Central Ceilings, Inc. v. Suffolk Construction Company, Inc., et al., No. 15-P-1117 (Mass. App. Ct., March 29, 2017).

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A Modern Take on the Antiquities Act of 1906

mountain-1462655_1280During the waning days of his administration, President Obama used the Antiquities Act of 1906 (16 USC 431-433) (“Act”) to create expansive national monuments on land and at sea.  According to the National Park Service, he established 34 national monuments during his administration totaling over 550 million acres. One of these monuments is located in Maine, and another is situated off the coast of Massachusetts.  While environmentalists have enthusiastically supported the designations, critics have raised concerns about their potential economic impacts and new limitations on resource area use.

Congress passed the Act in 1906 as a means of halting the destruction of archaeological sites, particularly those of the Southwest.  While only Congress can establish national parks, Section 2 of the Act authorizes a president “to declare by public proclamation historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest . . .  to be national monuments.” After signing the bill into law, President Theodore Roosevelt quickly designated Devils Tower in Wyoming as the first national monument. This designation proved to be one of many for Roosevelt and set a lasting precedent for his successors.

As part of his late-term designations, President Obama created the Katahdin Woods and Water National Monument in Maine on August 24, 2016.  According to his presidential proclamation, this monument is approximately 87,500 acres and borders Baxter State Park, home to Mount Katahdin.  Elliotsville Plantation Inc., run by Burt’s Bees founder Roxanne Quimby, donated the land to the federal government, along with a pledge of $40 million for infrastructure improvements.  In his proclamation, President Obama cited to the land’s biodiversity, recreational opportunities, geography, and rich history as justifying the designation.

Subsequently, President Obama created the first marine national monument in the Atlantic Ocean on September 15, 2016: the Northeast Canyons and Seamounts Marine National Monument. As set forth in his presidential proclamation, the Northeast Canyons and Seamounts Marine National Monument is located 130 miles off the southeast coast of Cape Cod and consists of 4,913 square miles.  The proclamation indicates the presence of significant underwater canyons, seamounts and abundant biodiversity.  Pursuant to the designation, commercial fishing, mining and drilling are banned within the monument area; fishing for lobster and red crab will be phased out over a seven-year period.  Recreational fishing, however, is permitted within the monument area.

President Obama’s use of the Act to create these national monuments has stirred much debate, and encountered some resistance from industry groups and local residents and officials.  In the West, concerns often include loss of mining, grazing, oil, gas and forestry rights.  In New England ports, the fishing industry has raised concerns over the impact of the Northeast Canyons and Seamounts Marine National Monument on the local fishing industry.  Specifically, fishing associations have argued that sufficient regulatory safeguards already exist, and that the loss of fishing grounds will cause further economic hardship to struggling fleets.

In Maine, some members of the state legislature and the governor have opposed the Katahdin Woods and Water National Monument.  Similarly, some local residents have feared that the new monument will curtail historical land uses such as logging, hunting and snowmobiling.  Additionally, opponents have claimed the designation will diminish the logging and paper industries.   But supporters point to recent media reports of visitor increases to the monument area since the designation and the corresponding benefits to local businesses.

On February 14, 2017, Maine Governor Paul LePage took the unprecedented step of sending a letter to President Trump requesting a reversal of the Katahdin Woods and Water National Monument designation. Some western congressional delegations, including those from Utah, have also sought to unwind certain designations and to restrain presidential authority under the Act.

In the history of the Act, however, no president has reversed the designation of a national monument.  In fact, there is no language in the Act that authorizes a president to reverse a designation, and such action would likely be met with a swift legal response.   Similarly, any attempts by Congress to curtail presidential use of the Act would likely generate spirited debate.   For the time being, however, designations under the Act remain a powerful and unusually swift vehicle of resource conservation.

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