Rhode Island Property Law : Rhode Island Real Estate & Environmental Attorney & Lawyer John Boehnert for Development & Permits in RI

To all those developers rushing off to federal court to sue because state regulations preventing development have “taken” your property without just compensation—NOT SO FAST!

And to all those real estate investors who can’t wait to get into real estate development to make the really Big Money—NOT SO FAST!

That first warning was the clear and unequivocal message from the First Circuit Court of Appeals on a Rhode Island inverse condemnation case, issued just days ago. Downing Salt Pond Partners  v. State of Rhode Island and Providence Plantations, No. 10-1484  (1st. Cir. May 23, 2011).

And the second warning may be buried within the pages of the Court’s decision.

Developer’s Worst Nightmare

The facts are every real estate developer’s worse nightmare.

The developer, Downing Salt Pond Partners, acquired real estate in Narragansett for a residential development, and in 1992 received a Coastal Resources Management Council (CRMC) Assent to develop the property for a 79 lot residential subdivision.

After building 26 homes from 1992 through 2007, the Rhode Island Historic Preservation and Heritage Commission determined that artifacts found during construction indicated the property was the site of a Narragansett Indian settlement. The Historic Commission urged CRMC to withdraw the Assent.

While CRMC did not formally invalidate the Assent, it wanted to assess the issues raised by the Historic Commission.

Construction was halted, and Downing alleges the Historic Commission wanted to either prevent further development of the project or require the developer to undertake an archeological data recovery project that Downing asserted would cost it $6 million.

So there the developer sat, with the uncertainty of whether it could ever complete its project, after having purchased the land, gotten its permits, installed infrastructure to support development, and built less than a third of the houses it expected to sell.

By June, 2009 the issue had not been resolved, Downing started development, CRMC issued a cease and desist order, and Downing headed to federal court, claiming its property had been taken without just compensation, and also alleging denials of constitutional due process and equal protection provisions.

The Court Speaks—And Things Get Even Worse For The Developer

The federal District Court found against Downing, saying the developer was required to bring its claims in State court. Downing/Salt Pond Partners, L.P. v. Rhode Island, 698 F. Supp. 2d 278 (D.R.I. 2010)  On May 23, 2011, the First Circuit Court of Appeals affirmed.

In essence, the Court held that the United States Supreme Court’s decision in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), establishing ripeness requirements for such suits in federal court, required that the suit be brought in state court because Rhode Island had an adequate remedy for inverse condemnation claims and the claim must therefore be pursued in State Court.

The First Circuit refused to address the argument that even if the inverse condemnation claim was not ripe for hearing in federal court, the due process and equal protection claims were ripe. And while it did not address that argument substantively, it did suggest it did not find it a compelling argument.

(If you want to read an excellent commentary on the mess the Williamson County case has made for property owners claiming a taking, see the recent posting (May 30, 2011) by attorney Robert H. Thomas about the Downing Salt Pond case on inversecondemnation.com.)

So after four years of uncertainty, the developer still has no resolution, and no compensation, and presumably has to head back to court—this time State court—and perhaps back to the negotiation table.

Lessons Learned

It appears fairly clear that the federal courts continue to be reluctant to entertain land use regulatory takings cases, and your remedy is in State court.

There is a reason real estate developers expect to make Big Money; they take Big Risks, and the developer’s return is the compensation for those risks. And sometimes those Big Risks result in Big Losses.

So the next time you see a real estate developer driving a big fancy car, well, you may just want to wish him well!

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If you are a landlord, the First Circuit Court of Appeals has made it clear you may be liable for the overly exuberant merriment of your tenants if you own rental property in Narragansett, Rhode Island. And similar laws may be coming to other cities and towns in Rhode Island, Massachusetts, Maine and New Hampshire, given the green light provided by the Court.

The Court recently upheld a Narragansett ordinance which made landlords jointly and severally liable with their tenants and others organizing events, including social gatherings, which result in a violation of law and created a “substantial disturbance”. See URI Student Senate  v. Town of Narragansett, No. 10-1209, 2011 WL 17610 (1st Cir. Jan. 05, 2011).  (The ordinance is appended to the Court decision.)

The Problem

Narragansett is home to some stunning beaches and numerous college students, which have spawned a thriving rental market, with vacationers (and sometimes college students) renting houses during the summer and college students renting houses in the off-season (September-May, coinciding with the academic year).

Apparently the town felt the need to take action to control the partying of renters, and the ordinance it enacted gives some clue as to the behavior it was attempting to address.

“It shall be a public nuisance to conduct a gathering of five or more persons on any private property in a manner which constitutes a substantial disturbance of the quiet enjoyment of private or public property in a significant segment of a neighborhood, as a result of a violation of law. Illustrative of such unlawful conduct is excessive noise or traffic, obstruction of public streets by crowds or vehicles, illegal parking, public drunkenness, public urination, the service of alcohol to minors, fights, disturbances of the peace, and litter.”

Picky! Picky! Picky! Can’t college kids have any fun, for heaven’s sake?

The Solution

And the authorities didn’t stop there. Not satisfied with just prohibiting what may be the mainstays of college recreational activities, they actually imposed fines for violations, and even increased the fines for subsequent violations ($300, $400 and $500), perhaps targeting slow learners. And court-ordered community service was also a weapon sanctioned by the ordinance.

Not only that, they implemented a notice posting requirement that was particularly controversial, and they cast a wide net for violators.

The Scarlet Notice

At the heart of the ordinance, if one could say that any ordinance which clamps down on wholesome fun for college kids has a heart, was a requirement that a notice of the violation be posted on the offending property, and remain posted during the summer, for violations that occur during the summer, or during the remainder of the academic year, for violations that occur during the academic year.

And those wily town officials had the notice printed in orange, causing the Court in a footnote to suggest it was reminiscent of The Scarlet Letter. (The Court noted in that footnote that there was no explanation as to the color and “the choice of hue” was “perplexing”. There I part company with the Court, as it seems the choice of orange was not at all perplexing but rather was selected for the same reason hunting vests are orange—maximum visibility; so police could readily identify a “party house”.)

Subsequent violations at the same house incurred increased fines and subjected to joint and several liability the property owner (but only after receiving notice of the first violation), tenants, organizers of the offending event, and participants in activity resulting in a public notice.

The Decision

The Court’s decision swatted away a challenge to the ordinance arguing that the State’s Landlord and Tenant Act preempted the ordinance, as well as several constitutional challenges based on procedural due process, overbreadth, and vagueness. 

Indeed, the Court only appeared to express reservations about the lack of a hearing before the Scarlet Notice was posted on the offending property and the possibility that the ordinance could potentially be applied in an unconstitutional manner. In considering the procedural due process challenge, the Court  noted as follows:

 “We, like the district court, are uneasy about the absence of a hearing. In addition, we recognize that there are potential applications of the Ordinance that might impair constitutionally protected liberty or property interests (say, if the police were to enforce the Ordinance in an invidiously discriminatory way). But the appellants have brought a facial challenge, not an as-applied challenge, and the record is barren of evidence that unconstitutional applications have occurred. The mere possibility of the misuse is insufficient to invalidate an ordinance on a facial attack.”

What Can Landlords Do

Landlords joined the legal challenge to the ordinance, arguing that the Scarlet Notice made the house harder to rent, and could result in the loss of rental income. (The Court was unmoved from a constitutional perspective.)

If you own rental property in Narragansett:

•          Make sure you know what your tenants are doing
•          Make sure your leases require Tenants to indemnify you for liability arising under the ordinance
•          Make sure the town has your correct notice address
•          Consider increasing your security deposit to address fines, if necessary
•          Consider trying to convince the town to amend the ordinance (difficult after being sustained by the Court) (i) to allow the removal of the notice if the tenant(s) causing the violation are subsequently evicted, at least as to a first violation, and (ii) to clarify designation of the offending premises (i.e. if it is a particular condominium unit, or one of many apartments, are all units in the complex tainted?)

If you own rental property in other localities where there are student populations or a large young rental market, as in the summer, such as Providence, Newport or Bristol, be alert for a similar ordinance being enacted and attempt to make it more “landlord friendly” as suggested above.

Oh, and for heaven’s sake, in any event, don’t join the partying yourself!

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Many real estate developers and property owners got a significant break from the General Assembly late last year, when legislation passed to extend the expiration date of a broad range of governmental permits.

And many don't know it!

And the General Assembly recently improved on that substantial benefit.

And many still don't know it!

Because these measures passed with so little fanfare, many are unaware that hundreds of State permits which would ordinarily have expired get a new lease on life.

The first bill extended these permits until June 30, 2011. The second bill extended them even further, given the continuing economic slump.

The Legislature was concerned that because of  the economic crisis, banks were not lending and many real estate developers and ordinary property owners were in the position of not having sufficient funds to perform under governmental permits that had been issued to them.

Why Action Was Appropriate

The legislation first enacted says it well:

“The general assembly hereby finds that the current economic conditions in the real estate market demonstrate that there is little or no demand for new construction. In addition, the banking crisis has made it extremely difficult for real estate developers to obtain financing for new real estate construction. Currently there are real estate developers who have expended substantial amounts of money to obtain permits and approvals from various local and state agencies. Many of the permits and approvals will expire prior to an improvement in the economy and the financial and banking industries.”

The General Assembly’s first solution was simple and effective. All permits in effect at the time of passage, November 9, 2009, would not expire until June 30, 2011, regardless of what the permit terms say. (See the legislation.)

But in June of this year the General Assembly acted again, as the economy remained in the doldrums and no doubt there was concern that the original extension of permits may not be sufficient.

First, the new  legislation increased the number of permits protected from expiration by providing that it was not limited to permits in effect on November 9, 2009 but also included permits issued after November 9, 2009 and on or before June 30, 2011.

Secondly, the new legislation said that permits in effect on November 9, 2009 "will be recalculated as of July 1, 2011 by adding thereto the number of days between November 9, 2009  and the day on which the permit or approval would otherwise have expired".

This second bill went on to provide that the expiration date of permits issued between November 10, 2009 and June 30, 2011 "will be recalculated as of July 1, 2011 by adding thereto the number of days between the day the permit or approval was issued and the day the permit or approval otherwise would have expired". (See most recent legislation.)

Permits Affected

The legislation extends to permits issued by the Rhode Island Department of Environmental Management, the Rhode Island Coastal Resources Management Council, and by municipalities under subdivision and zoning ordinances. (See DEM’s Emergency Regulations.)

Not just professional developers will benefit from this legislation. For example, if a homeowner has obtained a variance to put an addition on his house, only to find that the local bank will not lend for the project, the homeowner’s permit will remain valid substantially beyond its normal expiration. Hopefully, lenders will then be in a feistier mood and the funds will be flowing.

A Tip of the Hat!

Given how costly it can be to get development permits, this has to be one of the smartest things the General Assembly has done in some time. And they not only did it right once, they actually improved upon it.  A tip of the hat to the folks on Smith Hill for this one!

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