Appeals Court Decisions with Implications for Real Estate Owners, Developers, and LandlordsDecember 2011 – Advisories
Two recent decisions of the Massachusetts Court of Appeals are significant for real estate owners, developers, and landlords. In the first decision, Killorin v. Zoning Bd. of Appeals of Andover, 80 Mass. App. Ct. 655 (2011), the Court ruled that conditions imposed by special permits do not expire after 30 years, but can continue to burden a property indefinitely. In the second decision, Panagakos v. Collins, 80 Mass. App. Ct. 697 (2011), the Court ruled that a commercial landlord has no duty to mitigate damages when a rent acceleration clause is triggered by a tenant default.
Killorin: Deed Restrictions Are Time-Limited; Special Permit Conditions Are (Or At Least Can Be) Forever
In Killorin, property owners argued that the 30-year time limit imposed by G.L. c. 184, § 23 on restrictions on real property should apply to eliminate conditions imposed in a 70- year old special permit. The Appeals Court disagreed.
The plaintiffs owned land that was subject to a 1940 special permit. The special permit included conditions that prohibited further subdivision or further development of an acre-plus parcel. The plaintiffs asked the local zoning board to amend the special permit to eliminate the conditions. The zoning board refused. The plaintiffs appealed the zoning board’s decision, arguing to the trial court that the 30-year limitation on real property restrictions found in G.L. c. 184, § 23 should apply to erase the 1940 special permit conditions. The trial court upheld the zoning board, and the plaintiffs sought further review by the Appeals Court.
The Appeals Court upheld, reasoning that the 30-year time limit did not apply because the statute applied only to restrictions created by “deed, will, or other instrument,” not to restrictions or conditions imposed by a special permit. The court noted that private deed restrictions or restrictions imposed by contract are subject to the 30-year limit, but conditions imposed in the grant of special permits or other governmental approvals are conditions imposed for the public interest and can therefore be of potentially indefinite duration.
Panagakos: Acceleration Without Mitigation
In Panagakos, the defendant was the guarantor of a commercial lease. The tenant’s business failed and the tenant vacated with three and one-half years remaining on the lease. The landlord made only limited efforts to find a new tenant and also did not make certain repairs to the leased premises. Ultimately, the landlord sued the guarantor, arguing that the tenant’s default had triggered the lease’s acceleration clause and that the guarantor was liable for the entire amount due under the lease for the full term, plus other damages. The guarantor argued that the landlord had a duty to mitigate his damages, and that any damages should be reduced for landlord’s failure to do so. The trial court agreed with the guarantor. The landlord appealed.
The Appeals Court reversed, holding that the landlord had no duty to mitigate damages. The Court held that mitigation was irrelevant to an acceleration clause, which could be an enforceable liquidated damages provision. The Court found that by negotiating an acceleration clause, the parties had traded the opportunity to determine damages post-breach for the certainty that comes with a liquidated damages provision. However, the Appeals Court remanded the case to the trial court with the instruction that in further proceedings at the trial level the tenant could still reduce the damages by proving that the accelerated rent operated as an unenforceable penalty.
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