California Supreme Court Rules Homeowners Forfeited Right to Challenge Coastal Development Permit Conditions By Undertaking Work Authorized By Permit

The California Supreme Court ruled on Thursday in Lynch v. California Coastal Commission that two homeowners who obtained a coastal development permit (CDP) from the California Coastal Commission (Commission) to construct a new seawall forfeited their right to challenge mitigation conditions attached to the permit because they accepted the benefits conferred by the permit by undertaking the work authorized.

Key procedural takeaway: With exceptions noted below, if a permit applicant accepts a proffered CDP and acts on that permit – even while expressly reserving its asserted right to challenge the legality of the permit – the permittee has forfeited its right to subsequently challenge the permit in court.

Key takeaway on the merits of the claim: None. Since the Supreme Court ruled that the permittees had forfeited their right to challenge the CDP by undertaking the authorized construction, it found no need to address the underlying merits of the permittee’s challenge. In particular, the Court left unaddressed the contention that the mitigation conditions were unconstitutional, including the condition that limited the life of the seawall to 20 years unless reauthorized at the end of the term.

Homeowners Challenge CDP Conditions

The homeowners, Barbara Lynch and Thomas Frick, sought a CDP (more precisely, an amendment to the 1989 CDP authorizing construction of the existing seawall) to authorize demolition of an existing seawall, construction of a replacement seawall and rebuilding of a lower stairway providing access from the bluff to the beach. The Commission granted the CDP allowing seawall demolition and reconstruction but imposed several permit conditions.

The homeowners filed an administrative writ petition in superior court challenging the following three permit conditions: (1) a prohibition on reconstruction of the lower stairway; (2) a 20-year expiration period on the seawall permit and a prohibition on relying on the seawall as a source of geologic stability or protection for future blufftop redevelopment; and (3) a requirement that prior to expiration of the 20-year period, the homeowners must apply for a new permit to remove the seawall, change its size or configuration, or extend the authorization period.

Around the same time, the homeowners recorded deed restrictions on their property stating that the CDP conditions were covenants, conditions and restrictions on the use and enjoyment of their properties, satisfied all other permits conditions, obtained the permit and demolished and reconstructed the seawall.

Lower Court Rulings

The trial court issued a writ directing the Commission to remove the three challenged conditions from the CDP and found that the conditions prohibiting reconstruction of the stairway and imposing a 20-year expiration period were not valid. The appellate court reversed the trial court, determining that plaintiffs had waived their claims and, in any event, both conditions were valid.

California Supreme Court Ruling

Though the Court affirmed the appellate court’s reversal of the trial court decision, it did so on a different basis. The appellate court’s ruling rested on the concept of waiver while the Court found that the homeowners forfeited their right to challenge by accepting the benefits of the permit. The Court explained that forfeiture differs from waiver in that forfeiture results from a failure to invoke a right and waiver denotes an express relinquishment of a known right. The Court identified the crucial point as being that the homeowners “went forward with construction before obtaining a judicial determination of their objections.” By accepting the benefits of the CDP and undertaking the permitted project, the homeowners effectively forfeited the right to maintain their otherwise timely objections.

The Court rejected the homeowners’ argument that because the challenged permit conditions did not affect the design or construction of the seawall, it was possible to challenge the conditions while the project was being built. Such a rule, the Court said, would effectively expand the Mitigation Fee Act (Gov. Code, §§ 66000 et seq.), which establishes a procedure for developers to proceed with a project and still protest the imposition of “fees, dedications, reservations, or other exactions.” Not included in this list, however, are land use restrictions. The Court stated that only the Legislature has the power to declare that permits may be accepted and acted upon, even while the underlying land use restrictions imposed as a condition of that permit are being challenged in court.

The Court did note that there are potential remedies available to permit applicants. Responding to the homeowners’ protest that imposing a forfeiture under the circumstances present here – where the seawall was in danger of collapsing into the sea thus allowing no time to delay repairs until resolution of the litigation – the Court offered two solutions. First, property owners can address imminent dangers by obtaining an emergency permit from the Commission under Public Resources Code section 30624. Second, property owners can try to reach an agreement with the permitting agency to allow construction to proceed while a challenge to permit conditions is resolved in court, which the court noted could prevent a finding of equitable forfeiture. Neither remedy appears to have been pursued in this case.


Developers and property owners should view the unanimous Court’s holding as applying beyond CDPs and should thus proceed with extreme caution when faced with objectionable permit conditions. By refusing to extend the Mitigation Fee Act’s “pay and protest” option beyond fees and exactions, this decision gives permitting agencies leverage to impose potentially controversial permit conditions, knowing that permit applicants are often constrained in terms of time and money when choosing between moving forward with objectionable permit conditions or going to court. Legislative action on this issue could provide some relief, but may not be likely for the foreseeable future.

This post was written by Courtney A. Davis and James T. Burroughs  Allen Matkins Leck Gamble Mallory & Natsis LLP.

The Zoning and Land Use Handbook

The ABA presents The Zoning and Land Use Handbook by Ronald Cope.

zoning land useZoning law has a major impact on the development of our cities and villages, and where we live and work; it also plays a major role in numerous business and real estate transactions. The Zoning and Land Use Handbook is a reference guide for zoning and related land use issues.

This book will help the busy general practitioner answer the most frequently asked questions and provide guidance on basic zoning procedures, property rights, and the nature of zoning litigation. In addition, this handbook provides an introduction to zoning law for land use practitioners, and will be helpful to laypersons and professionals not familiar with land use or zoning law.

Click here to purchase the book.

About the author:

“Ron Cope is the most authoritative and impressive source of knowledge about the legal aspects of land use, urban planning, and zoning. During my 45 years of planning practice, he has remained my go-to expert for every complex issue I have had regarding land use, planning, and zoning law. The Zoning and Land Use Handbook is a must-have resource that condenses Ron’s practical knowledge into a comprehensive guide.”
Allen L. Kracower, Chairman, Allen L. Kracower & Associates, Inc.

“Ron Cope is the dean of Illinois zoning lawyers. He is legally erudite and knowledgeable in all areas of real estate law and combines those with practical common sense.”
— J. Samuel Tenenbaum, Director, Investor Protection Center, Bluhm Legal Clinic, Northwestern University School of Law

The New Wild West: Considerations for Commercial Landlords and Tenants in the Era of Open and Concealed Carry of Firearms

concealed carryIn a retail setting like a grocery store, it might be shocking for the average customer to see an individual openly carrying a rifle slung over his shoulder. While the gun-toting patron might be shopping for cantaloupe and exercising his open-carry rights, other customers might panic and call 911 to report a “man with a gun.”

Gun ownership laws continue to evolve nationwide and many states have expanded legal open carry laws in recent years. Currently, only a handful of states prohibit open carry of a firearm in any form. “Open carry” is generally characterized as carrying a gun in public where others can see it in plain sight. Every state, including the District of Columbia, allows the carry of concealed firearms in some regulated form. “Concealed carry” is usually defined as carrying a firearm where the casual observer cannot see it.

While most proprietors expect a person carrying a gun onto the property to have benign intentions, accidents (including accidental discharges) do happen. Furthermore, mass shootings and other incidents involving firearms continue to be an unfortunate part of reality in today’s society. Landlords and tenants of retail properties should be aware that bodily injury or death caused by a weapon wielded by an employee or invitee on the property can leave a business open to lawsuits under various theories of liability. Consequently, it is important for landlords and tenants to be aware of the implications of allowing or prohibiting firearms on their property, and the resulting liability that might come from gaps in insurance coverage, or firearms policy decisions.

What options do commercial landlords and tenants have to address the risk of liability?

  • Check your state, city, and municipal laws regarding concealed and open carry

    • Some state laws allow private businesses to ban guns from their premises, but not every jurisdiction permits private owners to ban guns from their property.

    • Some state laws may address liability. For example, Wisconsin law states that a property owner or occupier is immune from liability arising from the decision to allow firearms on the property. By inference, banning weapons from the premises may give rise to a standard of care where the owner or occupier has a duty to enforce the ban.

  • Evaluate the business occupying the premises and requirements under state law

    • For example, bar owners or places where alcohol is served will likely have an affirmative duty under state law to ban firearms from their premises.

  • Engage in a dialogue with your landlord/tenant and property manager about firearms policy

    • Consider making this a part of the lease, or amending the lease as to who can decide what is allowed on the premises (especially if seeking to ban concealed weapons.)

    • Discuss how any policy will be enforced.

    • Address insurance provisions for tenants regarding exceptions in coverage for firearms incidents.

  • Review any signage requirements under state, city, and municipal law

    • States may require certain dimensions, language and placement for signs notifying patrons of firearms prohibitions on the property.

      • For example, in Texas the sign text must be in English and Spanish.

  • Talk to your insurance carrier

    • Do not assume that you are currently covered for incidents relating to firearms.

      • Firearms are commonly excluded from commercial general liability policies.

      • Discuss the impact of allowing or prohibiting guns on the premises with your insurance carrier.

      • Consider purchasing additional gun liability coverage.

Regardless of personal position, commercial landlords and tenants must be aware of the state and local firearms laws that apply to their property. The intersection between premises liability and firearms statutes continues to develop, and sound risk management calls for review of current policies and insurance coverage to help mitigate any existing gaps in coverage.

©2016 von Briesen & Roper, s.c

Big Box Redux: Dilemma of Abandoned Big Box Stores

During the 1980s and 1990s “big box” retail locations popped up all over the United States. In the past few years, however, a number of larger chains, including Sears, Kmart, Circuit City, and Sports Authority, to name a few, have closed or announced that they will be closing their doors. The question remains: what can and should be done with an empty big box location?

While it would be easiest to replace one big box tenant with another, three main hurdles exist to this approach. First, some big box retailers may choose to just “go dark” and continue to pay the rent at the location in order to maintain market share. Second, many big box leases include clauses prohibiting the landlord from leasing space to a tenant’s competitors even after the tenant has vacated. Third, and most significantly, abandoned big box buildings in popular retail locations likely already have other successful big box retailers nearby, thus limiting the pool of potential new tenants for that space. As a result, very often the space will need to be demolished or repurposed, adapted, and redesigned.

Adaptive reuse and redesign of abandoned big box retail locations requires property owners, developers, and financiers to get creative and be committed in pursuing reuses that fill the specific retail needs of their geographic markets. The large space may need to be subdivided and leased to multiple tenants. Adaptive use of large retail spaces requires vision, foresight, a deep understanding of the local retail market, and the marketing expertise to find alternative categories of tenant. Potential tenants for adapted big box locations are those that can take advantage of some of the features of these abandoned stores, such as large open spaces, ample parking and a centralized location close to major transportation routes. Some of these alternative reuses of big box locations include: apartments/condominiums, hospitals/health care clinics, museums, churches, commercial gyms, and offices.

Like owners and developers, municipalities also have an important part to play in redevelopment of abandoned big box locations. Municipalities must be flexible and utilize any number of tools at their disposal to ease the development costs and bureaucratic burden to the reuse and adaption of abandoned locations. One municipal tool that could minimize the barriers to reuse is the creation or revision of local zoning ordinances to incentivize reuse and ease some of the financial development hurdles. This process may include rezoning of the area in question to allow for residential, office and light industrial, instead of strictly commercial uses. Second, the municipality could create a tax incremental financing district to make a potential redevelopment more financially attractive or viable to potential developers. Finally, the municipality or its community development authority could acquire title to the abandoned property to utilize for its own purposes (such as a school, library or community center) or to better control and manage redevelopment and associated financial incentives.

In summary, one size does not fit all. Rather, the dilemma of what to do with an abandoned big box retail location often requires all involved (the leasing, design, finance and legal teams, as well as the municipality) to think outside of the box and be flexible, thoughtful and creative in crafting an individualized plan and solution tailored to that particular locale.

©2016 von Briesen & Roper, s.c

Ninth Circuit Weighs In: Nevada “Superpriority” Law for HOA Superliens Violates Due Process

HOA superliensIn a 2-1 decision, the United States Court of Appeals for the Ninth Circuit overruled the 2014 decision from the Nevada Supreme Court about which we previously wrote. In Bourne Valley Court Trust v. Wells Fargo Bank, N.A., (August 12, 2016), the federal appellate court holds that the non-judicial foreclosure of Nevada HOA superliens cannot constitutionally extinguish a mortgage lender’s security interest.

In 2014, the Nevada Supreme Court held that, as a matter of lien priority, the foreclosure of a superlien for HOA assessments can extinguish a first mortgage. However, the Nevada Supreme Court did not address whether the provisions of Nevada state law governing notice to purported junior lienholders, including mortgagees, were constitutional.

In Bourne Valley, the home in question had a mortgage loan for $174,000 from Plaza Home Mortgage. The beneficial interest in the noted and deed was subsequently assigned to Wells Fargo, N.A. in 2011.  After the homeowner fell behind on her HOA payments, the HOA recorded a notice of delinquent assessment lien for $1,298.57 in August 2011.  In October 2011, the HOA recorded a notice of default and election to sell the home. Then, on April 9, 2012, the HOA recorded a notice of trustee/foreclosure sale against the property.  The Horse Pointe Avenue Trust then paid $4,145 for the home at a foreclosure sale, before conveying its interest in the property to the Bourne Valley Court Trust, which then filed an action to quiet title and extinguish any other junior liens.

In Bourne Valley, the Ninth Circuit panel notes that Nevada state law requires a purported junior lienholder to “opt in” before receiving notice of an HOA foreclosure sale, which the Court calls a “peculiar scheme” for providing mortgage lenders with information about when an HOA intended to foreclose on a property.  “Even though such foreclosure forever extinguished the mortgage lenders’ property rights, the [Nevada] statute contained “opt in” provisions requiring that notice be given only when it had already been requested,” the Court noted.  “Thus, despite that only the homeowners’ association knew when and to what extent a homeowner had defaulted on her dues, the burden was on the mortgage lender to ask the homeowners’ association to please keep it in the loop regarding the homeowners’ association’s foreclosure plans,” the Court continued. “How the mortgage lender, which likely had no relationship with the homeowners’ association, should have known to ask is anybody’s guess.”

Therefore, the Court concludes, Nevada’s laws violate the Due Process Clause of the U.S. Constitution.  From the Court’s decision:

Nevada Revised Statutes section 116.3116 et seq. strips a mortgage lender of its first deed of trust when a homeowners’ association forecloses on the property based on delinquent HOA dues. Before it was amended, it did so without regard for whether the first deed of trust was recorded before the HOA dues became delinquent, and critically, without requiring actual notice to the lender that the homeowners’ association intends to foreclose.

We hold that the Statute’s “opt-in” notice scheme, which required a homeowners’ association to alert a mortgage lender that it intended to foreclose only if the lender had affirmatively requested notice, facially violated the lender’s constitutional due process rights under the Fourteenth Amendment to the Federal Constitution. We therefore vacate the district court’s judgment and remand for proceedings consistent with this opinion.

The Court gets specific:

But that the foreclosure sale itself is a private action is irrelevant to Wells Fargo’s due process argument. Rather than complaining about the foreclosure specifically, Wells Fargo contends—and we agree—that the enactment of the statute unconstitutionally degraded its interest in the property. Absent operation of the statute, Wells Fargo would have had a fully secured interest in the property. A foreclosure by a homeowners’ association would not have extinguished Wells Fargo’s interest. But with the statute in place, Wells Fargo’s interest was not secured. Instead, if a homeowners’ association foreclosed on a lien for unpaid dues, Wells Fargo would forfeit all of its rights in the property.

For now, the Bourne Valley opinion is binding on all Nevada federal courts. It will also serve as strong persuasive authority (at the very least) in actions pending in Nevada state court, as well as throughout the U.S. in states with similar paradigms.

Delta, Boarding Line

“HOA liens, the elderly, and those with military service may now board.”

Copyright © 2016 Womble Carlyle Sandridge & Rice, PLLC. All Rights Reserved.

New Opportunities for Credit Union Ownership of Real Estate in Massachusetts

Proposed changes to National Credit Union Administration’s rule on federal credit union (FCU) ownership of real estate and to the Massachusetts credit union parity rules, promise to open new areas of credit union investment in real estate as an ancillary business line. Assuming both proposed rule changes take effect this summer, FCUs and MA state charters will have the ability to buy, develop, own and sell commercial real estate, provided that the FCU eventually (within six years of purchase or such longer period as NCUA may allow) occupies at least half of each property. The remaining space in each property may be leased by the FCU to unaffiliated tenants or to a developer entity, for re-leasing to third parties. In calculating how much of a property a specific CU occupies, space occupied by a CUSO that is controlled – through voting rights, without necessarily majority economic ownership – by the CU may be included.House, Real Estate

Combined with last year’s NCUA action which eliminated the 5% cap on fixed asset ownership by non-RegFlex FCUs, NCUA is now about to allow FCUs to acquire commercial properties they can never fully utilize, by treating up to half the property for investment/rental purposes. This will allow FCUs to consider ownership of small strip malls and other income-producing properties which were previously off-limits, and could signal a shift away from leasing and toward ownership as FCUs site their branches and operations centers.

The financial benefit from this major regulatory change can be enhanced if FCUs are able to create CUSO-based joint ventures with private real estate capital sources to reduce the portion of the equity investment required from the credit union. Further regulatory guidance on this potential aspect of FCU real estate investment is needed, but insofar as all FCUs and many state CUs (soon to include Massachusetts, through the currently proposed amendments to its CU parity rules, to allow state chartered Massachusetts CUs to partner with non-credit union co-owners of CUSOs, just as FCUs have been able to do for more than a decade) can through CUSOs partner with non-credit union co-owners/capital sources, it is possible that through a CUSO credit unions may  acquire commercial property partly for use and partly for investment/rental, and raise at least a portion of the acquisition’s equity capital  from non-CU third party equity sources. Of particular interest is the ability of CU executives to share ownership of CU real estate as partners in a CU-led CUSO, an arrangement that would allow select individuals to co-invest privately in these new real estate ventures. Completing the financing picture could be a commercial first mortgage loan from the sponsor credit union to the CUSO, perhaps with customary limited guaranties from some of the non-CU co-investors in the CUSO.

While this action by NCUA is a welcome step toward more rational, flexible facility ownership and management practices for affected credit unions, and offers those institutions a new ancillary revenue source, NCUA is clear that its action does not allow real estate speculation or full-scale CRE investment by credit unions. All acquired properties must eventually, typically within six years, be at least 50% devoted to housing the CU-owner and/or any CUSO controlled by it.

Whatever deal structures ultimately emerge, NCUA is about to open the door to limited but meaningful credit union equity investment in the kind of commercial real estate deals that previously CUs could finance only on the debt side. And with Massachusetts about to allow state charters to partner with non-credit union co-investors through CUSOs, we can expect to see both federal and state charters here explore equity co-investment opportunities with more traditional real estate investors and developers, and possibly even individual CU executives, as CUs move into this newest investment arena.


Distressed Assets in Connecticut: What to Know Before Jumping In

There are many benefits for out of state lenders or investors looking to engage in business in Connecticut, one of the wealthiest (per capita) states in the United States of America. For example, Connecticut has relatively stable property values. However, Connecticut also has a number of legal pitfalls for lenders or investors who acquire Connecticut mortgages as part of a loan sale transaction. These pitfalls may end up causing undue delays and unnecessary expense when it comes to the legal process. A lender or entity unfamiliar with Connecticut specific laws and procedures should, prior to committing to acquire an asset secured by property in Connecticut, undertake due diligence and seek advice on what programs and statutes are or are not applicable prior to consummating the deal. Below are a few of the procedural thickets that must be navigated prior to being able to seek to foreclose a mortgage deed, the most common form of collateral for a real estate transaction, in Connecticut.

Preliminarily (and interestingly), Connecticut is unique in the United States in that it, as of January 1, 2015, recognizes three separate and distinct methods of foreclosure of a mortgage deed: Strict Foreclosure (appropriation of the mortgaged property after passage of law days set by judicial order); Foreclosure by Sale (created by statute and permits judicially ordered and overseen auction process); and Foreclosure by Market Sale (created by statute and permits agreement for marketing and private sale of property by mortgagor with consent of the mortgagee). Every foreclosure commenced in Connecticut is a judicial proceeding regardless of which of the above three forms the judgment of foreclosure will eventually take. The fact that every foreclosure is a judicial action alone can create havoc to the plans of a party who is otherwise unfamiliar with the foreclosure process in Connecticut and is best understood up front before committing any sum to a transaction where the main source of potential recovery is a parcel of property in Connecticut.

Secondly, Connecticut has many legislatively imposed requirements which must be met prior to even commencing an action for foreclosure of a mortgage deed. The vast majority of these programs were implemented either during or immediately after the nancial crisis of 2007 through (roughly) 2014 and, accordingly, revolve around 1 to 4 family owner-occupied residential property but are nonetheless worded vaguely enough so that they arguably apply to non-owner occupied or commercial properties as well. Amongst these programs are the Emergency Mortgage Assistance Program (“EMAP”), codified at Conn. Gen. Stat. 8-265dd, et seq., and the Foreclosure by Market Sale procedure, codi ed at Conn. Gen. Stat. 49-24b, et seq.

Article By Alena C. Gfeller & Andrew P. Barsom of Murtha Cullina

© Copyright 2016 Murtha Cullina