A recent decision by the District 5 Environmental Commission raises serious concerns about Vermont property owners’ abilities to rebuild projects in the event of unforeseen and unpreventable loss. On April 3, 2015 the District 5 Environmental Commission ruled in In Re. Mountainside Condominium Association, Application No. #5W0504-6 that a landowner, Mountainside Condominium Association, could not rebuild a condominium building that had been destroyed by fire despite the fact that the association was proposing to rebuild the condos in the same footprint, and within the same scale, as the destroyed building. A link to the decision can be found here.
The Commission based its ruling on its decision that the project did not satisfy Criteria 1(D) Floodways, 1(E) Streams and Criteria 4(Soil Erosion). The Commission’s decisions as to Criteria 1(D) and 1(E) are most noteworthy.
As to 1(D) the Commission found that the project, while being built in roughly the same spot as the prior building, was at risk of damage from fluvial erosion and could promote downstream erosion damage. The Commission therefore concluded that the project did not comply with Criteria 1(D). The Commission based its decision heavily on The Vermont Agency of Natural Resources’ (“ANR”) request that “every effort be made” to locate the project further away from Rice Brook. The Commission’s suggestion seems unreasonable when an applicant is merely asking to re-build a building that was approved under an existing permit. Moreover there is a wide gulf between ANR’s “suggestion” that an effort be made to relocate a project and a formal requirement under the Flood Hazard Management guidelines which do not speak to rebuilds. For an Act 250 commission to base its decision on merely a “suggestion” is troubling.
As to Criteria 1(E), the Commission found that the owner did not re-scale the project to fit the site. The Commission suggested that the applicant should have reduced the number of units, or developed new parking areas so as to properly “fit” the project into the space. While the Commission’s concerns would appear reasonable to protect stream health if this were a new undeveloped parcel, the concept of re-scaling a rebuild (under an existing permit no less) raises concerns. How would the applicant decide which of the prior 36 condominium owners would lose their units as a result of the scale down? How would the applicant address the allocation of insurance proceeds for owners that were not going to see their units rebuilt by decision of the applicant? These are just a few of the questions presented by the Commission’s suggestion.
This decision also raises a number of additional questions about a landowners ability to obtain financing for its projects. A requisite of commercial real estate (or any real estate) financing is that the landowner carry insurance on the real property and improvements. The obvious reason being that if the property is destroyed by fire, it can be re-built, thus protecting the lender’s investment. Under this ruling it is possible that merely carrying property casualty insurance would not be sufficient to protect a lender’s interest. If the property can’t be re-built due for permit reasons, then perhaps lenders need to consider requiring permit insurance and/or develop some contingency agreement in the event a rebuild were prohibited by permitting bodies.
It will be interesting to see how this matter develops if an appeal is filed to the Vermont Superior Court – Environmental Division. Given the nature of the issues present by this matter, it will be watched closely by those in the development community.
A recent decision by the District 5 Environmental Commission raises serious concerns about Vermont property owners’ abilities to rebuild projects in the event of unforeseen and unpreventable loss. On April 3, 2015 the District 5 Environmental Commission ruled in In Re. Mountainside Condominium Association, Application No. #5W0504-6 that a landowner, Mountainside Condominium Association, could not rebuild a condominium building that had been destroyed by fire despite the fact that the association was proposing to rebuild the condos in the same footprint, and within the same scale, as the destroyed building. A link to the decision can be found here.
The Commission based its ruling on its decision that the project did not satisfy Criteria 1(D) Floodways, 1(E) Streams and Criteria 4(Soil Erosion). The Commission’s decisions as to Criteria 1(D) and 1(E) are most noteworthy.
As to 1(D) the Commission found that the project, while being built in roughly the same spot as the prior building, was at risk of damage from fluvial erosion and could promote downstream erosion damage. The Commission therefore concluded that the project did not comply with Criteria 1(D). The Commission based its decision heavily on The Vermont Agency of Natural Resources’ (“ANR”) request that “every effort be made” to locate the project further away from Rice Brook. The Commission’s suggestion seems unreasonable when an applicant is merely asking to re-build a building that was approved under an existing permit. Moreover there is a wide gulf between ANR’s “suggestion” that an effort be made to relocate a project and a formal requirement under the Flood Hazard Management guidelines which do not speak to rebuilds. For an Act 250 commission to base its decision on merely a “suggestion” is troubling.
As to Criteria 1(E), the Commission found that the owner did not re-scale the project to fit the site. The Commission suggested that the applicant should have reduced the number of units, or developed new parking areas so as to properly “fit” the project into the space. While the Commission’s concerns would appear reasonable to protect stream health if this were a new undeveloped parcel, the concept of re-scaling a rebuild (under an existing permit no less) raises concerns. How would the applicant decide which of the prior 36 condominium owners would lose their units as a result of the scale down? How would the applicant address the allocation of insurance proceeds for owners that were not going to see their units rebuilt by decision of the applicant? These are just a few of the questions presented by the Commission’s suggestion.
This decision also raises a number of additional questions about a landowners ability to obtain financing for its projects. A requisite of commercial real estate (or any real estate) financing is that the landowner carry insurance on the real property and improvements. The obvious reason being that if the property is destroyed by fire, it can be re-built, thus protecting the lender’s investment. Under this ruling it is possible that merely carrying property casualty insurance would not be sufficient to protect a lender’s interest. If the property can’t be re-built due for permit reasons, then perhaps lenders need to consider requiring permit insurance and/or develop some contingency agreement in the event a rebuild were prohibited by permitting bodies.
It will be interesting to see how this matter develops if an appeal is filed to the Vermont Superior Court – Environmental Division. Given the nature of the issues present by this matter, it will be watched closely by those in the development community.
-by A. J. LaRosa