Real Property & Environmental Law Alert : New Jersey, New York, Pennsylvania & Delaware Lawyers & Attorneys for Real Estate Development & Environmental Law

With the Governor and many Republican legislators pushing for full privatization, further amendments or even reintroduction of some original proposals might be likely before a final version of the new law is ready for a vote. In any event, retail licensees large and small should be keeping a close eye as Pa. H.B. 11 moves through the law-making process. Whether legislators ultimately agree to proceed with the current public-private competition plan or something closer to full privatization, Pennsylvania’s retail sellers and its citizens seem poised for big changes.

Mark B. Conlan is a Director in the Gibbons Financial Restructuring & Creditors' Rights Department. Brett S.Theisen, an Associate in the Gibbons Financial Restructuring & Creditors' Rights Department, co-authored this post.

Rather than simply applying the Dunham rule (as the trial court had), under which shale gas would have been excluded from the reservation in the deed and thus conveyed to the grantee, the Superior Court decided that expert testimony was needed before it could make a determination as to exactly what shale gas constituted. Is it a “mineral” under the rule in Dunham and Highland? Is it natural gas under the same rule? Or is it more like coalbed methane, and thus subject to the “whoever owns the rock owns the gas” rule in Hoge? The court thus remanded the case to the trial court, which will hear from the parties’ experts before deciding, for the second time, which rule applies to shale gas. In the meantime, the appellees have appealed to the Pennsylvania Supreme Court.

With the remand and likely appeals, the issues raised by Butler may not be resolved for years. For now, anyone with a stake in the Marcellus Shale or the gas it contains -- or in the Bakken Shale formation in Montana and North Dakota, which also contains natural gas -- should review the relevant documents (deeds, leases, etc.) to determine whether the uncertainty created by Butler affects any of their legal interests.

Paul M. Hauge is an Associate in the Gibbons Real Property & Environmental Department. John H. Klock, a Director in the Gibbons Real Property & Environmental Department, co-authored this post.

On July 3, 2008, the City and Morrison sued Dravo under §§107 and 113(g)(2) of CERCLA; they did not assert a claim under §113(f) of CERCLA. The City and Morrison argued that the costs incurred to construct and operate the groundwater remediation system could be recovered under §107. The District Court concluded that CERCLA §113(f) was the exclusive remedy available to a party that incurs response costs pursuant to an administrative order or a judicially approved consent decree. It also found that the City’s §107 cost-recovery claim for replacement of the City’s water system was barred by the applicable statute of limitations, and refused to allow Morrison’s motion for leave to amend its complaint to assert a claim under §113.

On appeal, the Eighth Circuit affirmed the decision of the District Court. Relying upon the Atlantic Research decision, the Court noted that §107(a)(4)(B) was only available to a private party who had voluntarily incurred response costs and that §113(f) allowed a contribution claim for a person who is liable or potentially liable under §107(a) during or following a civil action under §§106 or 107. It declined to allow a party with a §113(f) claim to also proceed under §107(a), because doing so would in effect, “nullify the SARA amendment and abrogate the requirements Congress placed on contribution claims under §113” quoting from Niagra Mohawk Power Corp. v. Chevron U.S.A., Inc., 596 F.3d 112, 128 (2nd Cir. 2010). The Eighth Circuit also relied upon pre Atlantic Research cases limiting a liable party to claims under §113. See Dico, Inc. v. Amoco Oil Co., 340 F.3d 525, 531 (8th Cir. 2003). Although the Supreme Court had noted the potential overlap between §107(a) and §113(f), in not only the Atlantic Research decision but also in Key Tronic Corp. v. United States, 511 U.S. (816) (1994), the Eighth Circuit determined that there was no overlap for a liable party compelled to incur response costs pursuant to an administrative order or a judicially approved settlement.

The decision highlights the need to assert all possible bases for recovery in cost recovery cases, given the complexities of CERCLA and the divergent and oftentimes conflicting interpretations of it.

Irvin M. Freilich is a Director in the Gibbons Real Property & Environmental Department.

They described our blog as:

A rotating group of contributors writes about transactional real estate, development and redevelopment, and environmental law. Although there is some focus on developments in New Jersey, New York, Philadelphia and Delaware, the content is also national in scope.

The Real Property & Environmental Law Alert content is authored by contributing attorneys from the Gibbons Real Property & Environmental Department. "Our goal is to provide timely commentary and analysis on developing legal and business issues within the industry. We are honored to be recognized by LexisNexis for our efforts," said Susanne Peticolas, Editor of the blog.

This Fall, Russ was named to Real Estate Weekly's nationwide list of professionals who are leaders in the real estate industry.

In one of the most challenging real estate environments in recent history, Bershad has expanded what is one of New Jersey's busiest regional practices.

Russ represents clients in buying, selling, financing, leasing and developing real estate assets including distressed debt and is NJ counsel to major corporations and leading developers.

Prior to the newly enacted Ordinance, "City financial aid recipients" were defined as "All persons or entities that receive from the City direct assistance in the form of grants, loans, or loan guarantees, tax incentives, in-kind services, waivers of City fees, or real property in the amount of more than $100,000 in any twelve (12)-month period. This term shall not include those who enjoy an economic benefit as an incidental effect of City policies, regulations, ordinances, or charter provisions."

So, captured under that definition were people or entities, including landlords, that purchased and/or developed properties with financial assistance from the City.

Ordinance No. 100756 has expanded the definition of "City financial aid recipients" to include certain tenants of City financial aid recipients.

The definition of "City financial aid recipients" now includes "a person or entity who (a) leases property or equipment from a City financial aid recipient; (b) employs more than twenty-five" employees; (c) in the case of a not-for profit entity, leases property or equipment for consideration in excess of $100,000 a year; and (d) in the case of a for-profit entity, has annual gross receipts in excess of $1,000,000 a year" so long as "such property or equipment was acquired (in whole or in part) with the City's assistance or was otherwise the subject of the City's assistance and the person or entity receives an intended material benefit from the financial assistance, and such person or entity shall be subject to the provisions of the Chapter for the same compliance period as the City financial aid recipient from which they are leasing the property or equipment."

The impact of this new legislation will likely be most felt by larger retailers and restaurants which lease space from landlords who qualify as "City financial aid recipients". The tenant’s obligation to comply with these standards is concurrent with the time the landlord is subject to them. Compliance by "City financial aid recipients" is required for 5 years following the receipt of the aid.

A prudent tenant should consider inquiring whether its landlord is a “City financial aid recipient” under the Code.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property & Environmental Department.

The Commonwealth Court reversed, noting that the Common Pleas Court, in denying the standing of the appellants, could only point to case law relating to appellant standing from Zoning Hearing Board decisions. The case law with respect to those matters is well settled, making clear that an appellant has no standing to appeal if it does not formally appear or object at the zoning hearing board proceedings.

The Commonwealth Court in Miravich found that standing consists of two concepts:

• “substantive standing” examining whether the litigant has “sufficient interest in the outcome of the litigation to be allowed to participate,” and
• “procedural standing”, i.e, “[w]hether one has asserted his right to participate sufficiently early.”

Substantive standing is typically found where a party is aggrieved, or in other words, where the party has a direct, immediate and substantial interest in the application. A neighbor’s proximity to the subject property, such as existed here, will normally satisfy that requirement. It is the procedural question which separates the subdivision/ land development approval matters before the Planning Commission and the Board of Supervisors from the Zoning Hearing Board proceedings.

The Pennsylvania Municipalities Planning Code treats Zoning Hearing Board hearings as much more formal proceedings, requiring that, among other things, they conform to specific procedural requirements including the posting of the subject piece of property, the right of all parties to be represented by counsel and present evidence and arguments, and that a stenographic record of the hearing be kept. The MPC also defines those who will be afforded party status before the Zoning Hearing Board.

In contrast, applications for subdivision/ land development proceed down a much more informal track. The MPC even specifically states that public hearings are not required. As a result, the Commonwealth Court found that, “because similar procedural protections are not required in subdivision and land development applications, it will be manifestly unfair, if not a denial of due process, to impose such a stringent rule as a prerequisite to subdivision and land development appeals.” Consequently, the fact that the Miravichs and the other appellants did not appear at or participate in the Township meetings on the application was not a bar to their appeal of the Board’s decision. The Commonwealth Court determined that such an appellant need only satisfy the “party aggrieved” standard.

The Court does note however that if the Board of Supervisors had voluntarily followed the procedural requirements imposed by the MPC on a Zoning Hearing Board matter, than the Commonwealth Court would have agreed with the Court of Common Pleas that the appellants would have had to appear during the proceedings in order to appeal and would have been subject to the Leoni standards.

As a result of this decision, a developer can no longer take for granted the fact that the absence of participants at subdivision/ land development proceedings before the Township will preclude a viable appeal from the decision of the Township on that application. The prudent developer should consider waiting the requisite appeal period from the issuance of that Township decision before proceeding with the project and confirm that no appeal was filed.

Whether the Commonwealth Court’s decision has or will be appealed to the Supreme Court of Pennsylvania is unknown as of the date of this writing.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property & Environmental Department.

The traditional way of demonstrating compliance with an applicable energy code is to calculate the “U” (thermal transmittance) value of various building components, such as walls, floors, windows, etc. There are tools that assist a builder to perform these calculations and demonstrate compliance with the applicable energy code.

These tools include:

1. Guidance on performing calculations in the American Society of Heating, Refrigerating, and Air-Conditioning Engineers, Inc. (ASHRAE) Handbook of Fundamentals,
2. RESCHECK SOFTWARE (these two apply for compliance for NY, NJ and PA),
3. NJ Energy Star Homes, which involves registration in the program and inspection by the utility company, and
4. Prescriptive packages for wooden constructed homes.

The first two tools are acceptable in New York, New Jersey, and Pennsylvania. The last two relate to New Jersey alone.

In general, building codes have focused on energy efficiency alone, because lower energy usage is seen as the key to controlling carbon emissions as well as reducing costs over time. However, the Green building concept also involves other notions such as green roofs, hydroponics, reuse of water, less use of water, sewage treatment and other sustainable practices. Other trends could impact building codes in the future. The International Accounting Standards Board (IASB) has determined that by 2012 a standard for biodiversity impacts should be adopted. Such new regulations would require companies to publish information concerning the companies’ environmental impacts.

This would require inventorying energy usage, fresh water usage, air emissions, waste practices, habitat destruction, thermal discharges not only for the company but for suppliers to the company. As a result green construction is becoming more than simply getting a handle on energy.

LEED, Leadership in Energy and Environmental Design, is not a building code itself, but a certification process based on building standards set by U.S. Green Building Council. The LEED certifications, which range from Platinum (the highest), to Gold, and Silver, are verified by independent third party verification. LEED points are awarded on a 100 point scale and weighted to reflect potential environmental impacts. The initiative seeks to lower operating costs, reduce waste, conserve water and energy, reduce greenhouse gases in order to qualify for credits, tax rebates and other incentives depending on the certification ranking.

There has been litigation over LEED. In Southern Builders, Inc v. Shaw, No. 19-c_07-11405 (Md. Somerset Co., filed February 7, 2007) a tax credit for a silver LEED certification which the developer claimed was worth $650,000 was at issue. The contractor was alleged to have built a substandard building which did not qualify for the tax credit. The case recently settled. However, it does point to the fact that owners, contractors and others have a lot at stake with such certifications.

Eventually, green codes will be adopted by states and code officials. Although LEED is one of the preeminent building certification systems, it is not officially adopted in the above states. Thus, it behooves the developer to choose a qualified Green Project Manager to insure that all interested parties understand what has to be achieved for the appropriate certification and environmental goals of the project. It is not enough to contract the risk to the contractor or subcontractor. Someone who is qualified should be hired to coordinate all levels of construction to insure that the appropriate tax credit, incentive or certification is achieved.

John H. Klock is a Director in the Gibbons Real Property & Environmental Department.

The feasibility review focuses on the ability of the property to function in a manner that will effectively and efficiently serve the Buyer’s needs now and in the future. Attention should be paid, at a minimum, to:

• Access to roadways
• Sufficiency and location of utilities
• Available building area

An environmental review of the property is also essential with a Phase I analysis and, where indicated, a Phase II study being conducted by a reputable consultant.

An understanding of the zoning regulations affecting the property is critical, as those restrictions dictate how the property can be used and developed. Included in the documents that the Buyer should review are:

• The municipal zoning code and map
• The local zoning file for the property
• Prior approvals for the property

The Buyer can also request a zoning compliance letter from the municipality, although the willingness to issue those letters and the level of detail contained in them varies depending on the municipality.

A study of the structural fitness of existing buildings on the property and/or geotechnical studies may also be warranted, depending on the nature of the transaction and the Buyer’s plans for the site.

Other property related items that a Buyer should consider reviewing during the due diligence period include:

• Leases (including subleases, if any) and rent rolls
• Brokerage agreements
• Casualty insurance policies
• Environmental insurance policies
• Service contracts that do not terminate as of closing
• Prior engineering and feasibility studies or reports prepared by the Seller
• Governmental permits and licenses
• Notices of violations
• Third party licenses

Like a used car, every property is unique, with its own individual history, nicks and scratches. There is no “one-size fits all” formula or approach to performing the due diligence on a property. Reps and warranties, title review and property investigation give a buyer the tools to determine whether the property is one which it should acquire. The thoughtful use of those tools is the key to a successful due diligence investigation and deciding whether to drive that car off the lot or look for a different one.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property and Environmental Department.

When drafting the title provision in the Agreement, consider the following:

• Buyer should require that Seller provide “good and marketable title.”
• Marketable title is “one that is free from liens and encumbrances and ‘which a reasonable purchaser, well informed as to the facts and their legal bearings, willing and ready to perform his contract, would, in the exercise of that prudence which businessmen ordinarily bring to bear upon such transactions, be willing to accept and ought to accept.’” Barter v. Palmerton Area School District, 18 Pa Super 16, 20 (1990).
• Buyer should never agree to take title “subject to encumbrances and other matters of record” because there will invariably be something recorded against the property, and until the Buyer obtains a title commitment, reads the exceptions and reviews those exceptions against the survey, the Buyer will not understand how those encumbrances impact the property or the Buyer’s intended use.
• As a compromise, Buyer could agree to take title subject to encumbrances of record which do not materially adversely affect the Buyer’s intended use of the property.

What title documents should a Buyer review? All of them.

• Review the vesting deed.
• Review the title exceptions in the commitment, both on Schedule B-1 and Schedule B-2.
• Understand what information Buyer will need to provide to the title company in order for it to insure title.
• Read ALL of the title back-up documents.
• Understand how the recorded encumbrances will affect the permitted use and development of the property.
• Buyer should send a title objection letter requiring the Seller to cure title issues to the extent curable.

A complete review of title cannot occur without also reviewing a current survey of the property.

• ALWAYS get a survey.
• The survey will allow you to confirm that the title exceptions do (or don’t) encumber the property.
• The survey will locate the encumbrances on the property.
• The survey will show encroachments onto both the property and the adjoining properties.
• A new survey is always preferable, but sometimes having the surveyor recertify a recent survey which he prepared will be sufficient.
• • The survey should contain a certification from the surveyor in favor of the Buyer, title company and Buyer’s lender, permitting them to rely on the accuracy of the survey. This certification will permit the title company to remove the standard survey exception from the policy.
• Surveys could be a long lead time item so set the length of the Agreement’s due diligence period accordingly.

There are a multitude of issues to consider when it comes to title review, and this post only scratches the surface. Above all, it is imperative to remember that the title history of each property, like the history of every car, is unique. Careful attention must be paid during title review to ensure that the Buyer is not getting a clunker when he thinks he is buying a coupe.

The last post in this series will deal with the actual property investigation.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property and Environmental Department.

I will address each of those areas over the course of three postings, beginning with this one.

The negotiation of the representations and warranties during the preparation of the Agreement of Sale is essentially the first form of due diligence for the Buyer. Think of it as a kind of discovery. It allows the Buyer to flag issues before the execution of the Agreement.

Here are just a few things to consider as you negotiate the reps and warranties for the Buyer:

• The reps and warranties that Buyer requests from Seller should be as expansive as possible. The Seller’s refusal to provide certain reps, or its inability to give certain reps without qualification, help the Buyer learn more about the property (and whether it wants to continue to pursue the Agreement).
• In PA, reps and warranties will merge into the Deed at closing unless the parties agree that they will survive for a specific period of time after closing. This is known as the “Doctrine of Merger.” It is common for a Buyer to seek a survival period of 6 months to a year at a minimum.
• The Buyer will often require that the Seller execute a Restatement of Representations and Warranties at Closing that also restates the survival period as additional guard against the Doctrine of Merger.
• A Seller will look to limit the scope of its representations by qualifying them as to “Knowledge,” with “Knowledge” being defined as the “actual knowledge, without investigation or inquiry, of [a specific person or persons]”. This helps to prevent the Seller from being imputed to have the knowledge of all of its employees, and also avoids Seller having to expend funds to perform an investigation as to its representations.

The negotiation of the Seller’s representations and warranties is a fantastic (and relatively inexpensive) way for the Buyer to identify issues with the property and to drill down on those items before committing to move forward with the transaction and to perform more in depth and costly analyses. Buyer’s counsel should take full advantage of this opportunity on behalf of their client.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property and Environmental Department.

The Act Does Not Apply to All Permits

The Act does not apply to other statutes, including the:

• "Keystone Opportunity Zone, Keystone Opportunity Expansion Zone and Keystone Opportunity Improvement Zone Act,"
• "The Underground Utility Line Protection Law," and
• certain other permits issued by the Pennsylvania Department of Transportation.

The Act also does not apply to permits with expiration dates determined by federal law, or to administrative consent orders and enforcement actions for a permit subject to the extension period.

How Long is a Permit Extended?

Under the Act, a permit granted under an applicable statute and having an expiration date after December 31, 2008 may have its expiration date extended until July 1, 2013, regardless of whether the permit was issued before or after the extension period. The Act does not shorten the life of a permit with an expiration date after July 1, 2013.

How Can You Find Out If the Act Applies to Your Permit?

The permit holder can request verification, subject to a fee, from the issuing agency of the existence of a valid permit and its expiration date, but must identify the permit in question and its anticipated expiration date. The issuing agency must tell you in writing within 30 days of receiving your request:

1. whether you have a permit;
2. its expiration date; and
3. stating any issues related to the validity of the permit.

Except in Philadelphia and Pittsburgh, the failure of the issuing agency to respond within 30 days will result in the "deemed affirmation of the existence of the [permit] and the expiration date set forth in the request."

In the City of Philadelphia, in order to exercise its right to extend the permit under the Act, the permit holder must provide the issuing agency with notice of its intent to extend the permit and pay the agency a fee equal to fifty percent of the original application fee, not to exceed $5000. Elsewhere, the issuing agency may charge a fee up to twenty five percent of the original application fee, but no more than $5000, to extend the Permit.

Permits granted pursuant to the MPC are protected from changes in a "zoning, subdivision or other governing ordinance or plan," such that those changes will not affect the permit holder’s right to begin or complete the activities authorized by the permit during the extension period. The extension period is further extended for the length of litigation, including appeals, concerning permits issued under the MPC that prevent the completion of the work authorized by the permit.

The Act brings Pennsylvania into line with New Jersey which enacted its own permit extension legislation in 2008. The Act gives needed flexibility and time to developers who may be facing financial challenges in the current economy. At a minimum, permit holders should consider verifying the viability of permits, and extending them as required, now so they will be in a position to proceed when market conditions warrant.

Alfred R. Fuscaldo is a Director in the Gibbons Real Property and Environmental Department.