Virginia Real Estate, Land Use & Construction Law : Virginia Construction Lawyers & Attorneys : Bean Kinney & Korman Law Firm : VA Real Estate, Land Use & Zoning

I know most people out there who follow land use in the DC metro area are pretty familiar with the Columbia Pike Revitalization Plan and the Columbia Pike Form Based Code.  Then, like many others, you've probably wondered what will happen to the trolley system once Columbia Pike hits the Arlington County line?  Well, instead of continuing to head west down the corridor, it abruptly bangs a left at the county line, and heads south up the hill to Skyline (here is a transit plan showing approximate station locations and here is an aerial transit plan overlay).

Actually, this is in conformance with the transit plans that have been in place for several years now, so it is no great shock to see this concept on the "Preferred Plan" which is the latest culmination of two prior land use plans presented to the community last month and updated and posted yesterday on Fairfax County's website.  Not surprisingly, the highest densities are planned along the proposed street car system, which culminates at the existing high density sites at Skyline.  As you can see on the Preferred Plan, however, the system only tracks the eastern periphery of this first portion of the Community Business Center plan area (the "CPC"), leaving much of the planned area geographically disconnected from the trolley system, and in particular the Columbia Pike corridor.

So rather than seeing higher densities planned along the Columbia Pike Corridor as might be the intuitive preconception, right now the idea is to concentrate higher densities in Land Unit C between Leesburg Pike and South Jefferson Street, with street car stations straddling both the north and south sides of Leesburg Pike on Jefferson Street.  Adjacent to the conceptual transit center and and station north of Leesburg Pike is where the highest density mixed use sites and the high density retail nodes are proposed to be located under this portion of the CPC.

While this is a revitalization plan for the Baileys Crossroads area rather than an extension of the Columbia Pike Revitalization Plan into Fairfax, it does seem, at least initially, counter-intuitive to connect the old Skyline density to the planned Columbia Pike transit corridor.  But life is not perfect, and Fairfax has to deal with the existing, built densities at Skyline, and probably needs to take advantage of the new transit system now  to alleviate some of the immediate conditions at Skyline.  I just wonder if it would not be more wise to take a longer view and realign the density and transit capability up Columbia Pike rather than focus on connecting the aging density at Skyline.  I also have to admit though, it is pretty exciting to think of Pentagon City and Skyline being connected by a street car system.

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Last week, Montgomery County, Maryland passed what has been described as the nation's first local carbon tax.  The tax imposes $5 per ton on any entity that emits more than 1 million tons of carbon dioxide in a single year.  Interestingly, the tax only applies to Mirant Corporation which owns the Dickerson Generating Plant in Montgomery County.  Mirant will reportedly challenge the tax in court.  The county also passed an 85% increase on its energy use tax.

The passage of the tax highlights the distinct differences in local authority between Maryland and Virginia.  In Maryland, localities are far more free to adopt their own regulations, taxes and requirements. Proponents point to increased local control.  Detractors point to the patchwork regulatory scheme in Maryland which makes doing business across the state more complex and potentially expensive.

In Virginia, the Dillon rule still controls which provides that localities only have the powers given to them by the state.  While often criticized by local officials seeking more muscular authority, it does tend to lead to more uniformity in business regulation, taxes, and code requirements.  This can be particularly important in the real estate and construction industries.  It appears clear that localities in Virginia would not currently be able to pass a local carbon tax like that passed in Montgomery County, Maryland.

Image by Phillip

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Here is a new sampling of cases in which the Virginia Supreme Court has recently granted appeals.

In April, the Court granted the petition for appeal in Studio Center Corporation v. WKW Construction, LLC, Record No. 092257, challenging the ruling of Judge Shockley from the Circuit Court of the City of Virginia Beach. Studio Center is contesting Judge Shockley’s holding that Virginia Code Section 54.1-1115(C) applied when the unlicensed contractor admitted it knew Virginia law required a license, but did not realize that it could not use someone else’s license. This case should give us some much needed guidance on Section 54.1-1115(C)’s requirement of “good faith” and “actual knowledge.”

What “Case Watch” would be complete without an appeal involving one of my favorite topics – BPOL tax! In March, the Court accepted the petition for appeal in Ford Motor Credit Company v. Chesterfield County, Record No. 092158. This case will delve into, among other issues, when a tax payer can take a deduction for out-of-state gross receipts under Virginia Code Section 58.1-3732(B)(2), and when it is appropriate to use the default apportionment method in Virginia Code Section 58.1-3703.1(A)(3)(b) to measure the tax payer's gross receipts.

In January, the Court also granted the petition for appeal in AMEC Civil, LLC v. Commonwealth of Virginia, et al., Record No. 091662. AMEC Civil designated no less than twenty-two assignments of error, with the Commonwealth designating seven assignments of cross-error. Much of the debate revolves around whether AMEC was required to give VDOT written notice of its claims at the “beginning of the work,” or whether AMEC could have given notice at the “time of the occurrence” under Virginia Code Section 33.1-386, whether that notice requirement could be satisfied by VDOT’s actual notice, and whether VDOT must show prejudice by any delay in providing notice. Some of the other issues involve whether sustained elevated lake levels constituted a differing site condition, and whether VDOT had a reciprocal duty to provide AMEC notice of that condition under the contract.

As always, stay posted!
 

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Improving sustainability does not mean just increasing costs. Indeed, the best thinkers in the sustainability dialogue understand and embrace the need to include economics and profitability into the equation. This is particularly true in the current economic environment.

Despite these challenging times, Walmart has continued to move forward with its global sustainability initiatives and indeed has even increased its goals. Its recent 2010 Progress Update released this month reflects extensive progress in some areas, moderate success in other, and on-going work. This is not an isolated example, such as use of LED lighting for a store or two. Instead, Walmart reports it has completed its design of a viable store prototype that is up to 25-30% more efficient and produces up to 30% less greenhouse gas emissions than its baseline 2005 store design. Walmart has already opened multiple high efficiency structure prototypes. Other progress reported includes:

• Improvement of shipping fleet efficiency by 60% compared to the 2005 baseline fleet
• Redirection of 64% of store generated waste via recycling in the US
• Reducing greenhouse gas emissions at existing stores by 5.1% towards a goal of 20% reduction by 2012

The most interesting thing to watch will be the development of the Sustainable Product Index. Walmart is requiring its vendors to participate in development of the index which will identify suppliers “instrumental to our sustainability progress.”  Walmart certainly has tremendous leverage with its suppliers and does not appear shy about pushing this initiative downstream into its supply chain.  Walmart's efforts to compel its vending and supply chain to get on the sustainability bandwagon is the arena where its gigantic economic footprint will yield the most impact.

It may be a bit controversial to call Walmart a leader in sustainability, but it is very clear that Walmart’s initiatives are serious, detailed and worthy. There is still a long ways to go implementing these changes, reducing packaging, and finding a way to balance corporate growth and profits against sustainability.  Still, Walmart is clearly taking serious steps and making serious investments in sustainability.  With regards to energy efficiency in particular, these investment will only reap bigger economic benefits over time as the economy improves, demand increases, and energy pricing increases accordingly.

What do you think of Walmart’s efforts?

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We were very pleased to be recognized Thursday by the Arlington Chamber of Commerce at their 24th annual Best Business Awards, the ABBIES.  Bean Kinney received a Green Business Award for our efforts in green building projects, lecturing and writing, and development of our sustainability policy.  As quoted from the event by our friends at the Sun Gazette, “Sustainability is here to stay,” said Tim Hughes of Bean Kinney. “In our mind, it’s not only good citizenship, but it’s good business.”

Thanks again goes out to Shari Shapiro who provided a lot of good thoughts and advice on the path to development of our sustainability policy.  She also gets the funniest quote, via twitter, related to the same: "Lawyers hold on to their bottled water like two year olds and their sippy cups."  I am happy to report that not only is BKK unhooked off the bottled water quite nicely, but my daughter does not squawk too much when I hand her a regular cup.

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For those of you that follow our blog who are familiar with land use planning in Virginia, I'm sure you already know that localities are required by the Code of Virginia to create and adopt a Comprehensive Plan.  Typically, a Comprehensive Plan contains a land use plan component, a transportation plan component, various engineering plans, and open space plans, among other things.  Makes sense right?  It is common sense that localities should plan the build-out of their communities in a logical manner, taking into considerations planned densities and uses, necessary transportation systems, and the infrastructure to support everything.

Up until now in Virginia, however, promoting efficiency in energy use and encouraging other sustainable design elements have been accomplished pursuant to ad hoc incentive programs for new construction, and almost universally applicable as part of the public negotiation process for special exception approvals, such as committing to certain USGBC LEED certification levels, etc.  This has resulted in a spattering of improvements to individual buildings and site designs throughout localities in Virginia.  Anybody with a background in engineering knows, however, that a city or county is not just a bunch of separate, distinct buildings, but rather is a large, connected system made up of all of the various components that make localities tick, such as water, sanitary sewer, storm water, communications, electrical and gas systems, etc., etc.  While commercial buildings are a major user of these systems and resources, localities up until now have focused on the users of the systems, rather than focusing on a comprehensive analysis and plan for the entire system.

Well, Arlington County may now be doing just that, and at the direction of Chairman Jay Fisette, has created the Community Energy and Sustainability Task Force to guide the development of a "Community Energy Plan" for Arlington County.  The purpose of the Community Energy Plan is to take a holistic look at the County's energy use from a systemic perspective, and to establish a plan to achieve specific goals for the County, rather than just focusing on improving the County's energy efficiency on a building by building basis (although individual building and site design incentives will remain). 

I could be wrong, but I believe Arlington County is the first locality in Virginia to do this.  It is unclear at this early stage whether the end result Community Energy Plan will become a component of the County's Comprehensive Plan or a separate, stand-alone policy, however, as we've seen before, Arlington might be the setting the next trend in Virginia, provided that localities actually have the authority to do this.  I cannot imagine this will not have an impact on the public negotiation process for new development - building and site design, components, etc. may very well be part of broader public systemic goals in the future.  To what extent at this point, though, is hard to say.  It is also certainly likely to have a broader impact on Virginia's public service corporations.

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I regularly face the question of whether arbitration is "good or bad", "better than court", or best for a particular client.  I always give that most lawyerly of all answers: It depends.

Arbitration is presented as a means of streamlining disputes, cutting down expenses, and providing the parties with a more informed decision maker to boot.  I have seen arbitration work just like that.  I have also participated in more than one arbitration that seemingly was sidetracked by the arbitrators into examinations that neither counsel nor the parties believed was germane.  I have seen the process work in a streamlined fashion with cooperative document and information exchange.  I have also seen the same types of discovery sandbagging and withholding of information and documents that are way too prevalent

Anyone considering arbitration should understand that their dispute will almost certainly be permanently decided at the end of the arbitration.  The right of appeal and legal challenge is so limited as to be almost completely non-existent in most disputes.  In some states, this might be a huge change.  In Virginia this is less of a factor due it its limited appellate access in civil construction cases.

The question in my mind often comes down to types of disputes, potential for motions practice, and cost/benefit.  I tend to like arbitration in smaller, less complex matters where streamlined discovery makes sense.  Bigger cases with more issues translate to a far greater potential for the high-jacked "frolic and detour" arbitration that breaks down into multiple arbitration hearings.  Legally complex matters often present excellent contract arguments, legal defenses (such as statute of limitations), and evidentiary arguments.  Be prepared for such legal maneuvers to mean little in arbitration due to its nature.  For this reason, I often prefer the courtroom for more complex cases.

If you follow this pattern, make sure to avoid having three arbitrator panels hear small cases as that breaks the bank.  For budget reasons, you may also want to consider alternatives to AAA for arbitration as their filing fees have gotten extremely expensive, especially when the arbitrator's fees are added in as well.

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Given the current commercial real estate market and the difficulties faced by many lenders, it is no surprise that many tenants are more concerned than ever about their landlord’s financing. In particular, even if the property is mostly leased and producing a steady income stream, tenants are concerned that highly leveraged landlords will have difficulty refinancing given declining property values and the challenging lending environment. Because of these factors, tenants are paying more attention than ever to their rights in the event of foreclosure by insisting that their landlord and landlord’s lender enter into a subordination, non-disturbance and attornment agreement (an “SNDA”).

Part I of this post will give a brief overview of how SNDAs can protect both tenants and lenders, and Part II will suggest other ways tenants can protect themselves in the current marketplace.

Unlike the lease agreement, which is a two-party agreement between landlord and tenant, the SNDA is a three-party agreement by and among landlord, tenant and landlord’s lender. The SNDA provides protection for both the tenant and the lender, with the landlord playing the role of necessary but reluctant middleman.

The SNDA has three main parts: subordination, non- disturbance and attornment.

• By subordinating the lease to the mortgage, the tenant agrees that the lease will be junior to the lien of the mortgage. If the lease had priority, then it would survive foreclosure of the mortgage. Most form leases, even without an SNDA, provide that the lease is automatically subordinate to the lien of present and future mortgages from institutional lenders.

• Attornment means that the tenant agrees to recognize the lender, or the foreclosure purchaser, as its new landlord after the sale and will continue to pay rent and honor its obligations under the lease. Together with the subordination language, most landlords’ form leases provide for attornment at the lender’s election. The attornment section of the SNDA protects the lender.

• Lastly, the non-disturbance portion provides that in exchange for tenant’s attornment, the lender, or the foreclosure purchaser, will not terminate the lease or disturb tenant’s physical occupancy and possession of the premises. The non-disturbance section of the SNDA protects the tenant.

Without an SNDA, the rights and obligations of the tenant and the lender in foreclosure will depend on the language in the lease and whether the mortgage or the lease has priority. The priority issue is a common source of dispute, which depends on the laws of the state where the property is located. Some states provide that, absent an SNDA, a foreclosure automatically extinguishes subordinate leases. The laws of other states hold that the lender can pick and choose which leases are extinguished by foreclosure. In most cases, the foreclosing lender would not want its income-producing leases to be wiped out, but there are always exceptions. For example, the lender may want to terminate a lease with below market rents, or may want to remove smaller leases or undesirable uses. Attornment provisions in the lease can further complicate matters. Without an SNDA, there could be a multitude of other ambiguous post-foreclosure issues between the tenant and lender involving tenant improvements, deposits and future liabilities. Usually, it is to the advantage of both tenants and lenders to reach agreement beforehand with respect to a possible post-foreclosure relationship than to rely simply on murky common law principles and limited state law.

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Back to another of the cases highlighted in Case Watch: Upcoming Virginia Supreme Court Opinions. In Schefer v. City County of the City of Falls Church, the Virginia Supreme Court was confronted with a 2006 amendment to a Falls Church ordinance that specified different building height requirements for one-family dwellings in the same zoning district.

Schefer owned twelve lots in Falls Church, all of which were zoned R1-B, a medium-density residential district. The minimum lot area requirement for one-family dwellings in the R1-B district is 7,500 square feet. Schefer’s lots were less than the minimum of 7,500 square feet, but had been lawfully created prior to that requirement, and were designated as “substandard lots.” For substandard lots, the maximum building height for “residential use” on all R1-B lots was the less of 35 feet or two and a half stories.

In 2006, Falls Church adopted Zoning Ordinance 1799, amending permissible height and yard set-back requirements for one-family dwellings of substandard lots. Ordinance 1799 created a formula for calculating the allowable building height of one-family dwellings on substandard lots within residential zoning districts, resulting in an allowable building height between 25 and 35 feet depending on the size of the lot. The maximum height for one-family dwellings on standard lots in R1-B districts remained 35 feet.

When Schefer discovered that Zoning Ordinance 1799 changed the maximum building height for one of his lots to just over 28 feet, he filed suit against Falls Church, claiming that Ordinance 1799 violated Virginia Code Section 15.2-2282’s uniformity requirement and the Equal Protection Clause.

The Court had no problem rejecting Schefer’s arguments and siding with Falls Church. Looking at the plain language of Section 15.2-2282, the Court pointed out this section is taken verbatim from the Standard State Zoning Enabling Act, except for the addition of the word “uses.” In full, Section 15.2-2282 reads:

All zoning regulations shall be uniform for each class or kind of buildings and uses throughout each district, but the regulations in one district may differ from those in other districts.

To make his argument under Section 15.2-2282, Schefer claimed that one-family dwellings constituted “buildings and uses” that required identical building height requirements. The Court rejected that argument, concluding that this case turned on two kinds of uses – residential use on standard lots and residential use on substandard lots.

The Court gave very short shrift to Schefer’s equal protection argument. Before reaching this issue, the Court noted that Section 15.2-2282’s purpose is to ensure that zoning regulations are not discriminatory, acting as a “statutory reaffirmation” of equal protection. Under its equal protection analysis, Ordinance 1799 was presumptively reasonable, with Schefer carrying the initial burden to show it was unreasonable. Schefer tried to avoid shouldering this burden by arguing that Ordinance 1799 was facially discriminatory, but the Court refused to allow him to escape his burden of proof because there was nothing inherently suspect about Ordinance 1799 and it did not infringe on the exercise of any fundamental right.

Two more highlighted cases remain. In TIR Connail Properties, L.C. v. 2401 Wilson, LLC, we have yet to see whether the Virginia Supreme Court will say that the plaintiff should have been allowed to sue using its trade name, and what the Court will do about the scope of use of discovery deposition testimony. In Advanced Towing Company, LLC, et al. v. Fairfax County Board of Supervisors, we’ll find out whether the Court agrees with the trial court regarding the Dillon Rule and the doctrine of ultra vires. Stay posted!
 

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This week we have announcement of two significant bond offerings to cover transportation funding.  According to ENR, Governor Bob McDonnell announced last Friday that Virginia will sell $500 million in bonds for transportation projects in the Commonwealth.  This will be the first in a wave of bond offerings contemplated by Virginia which will total $2.2 billion over the next six years.  Count me as an observer that says the state bonds are nice, but Virginia will not solve its transportation problems absent a steady, consistent and meaningful source of transportation funding at the General Assembly.

In separate news, the Washington Examiner reports today that the Metropolitan Washington Airport Authority announced plans for a $650 million bond sale this month.  This bond issuance is calibrated to take advantage of stimulus funding support towards interest expenses.  The MWAA bond issuance is planned to help defray costs for the Metro rail extension to Dulles Airport and will be paid down by proceeds from the Dulles Toll Road.

The Washington Examiner report notes that the MWAA bonds issued last year for Dulles Rail received a A rating from Standard and Poor's and an A2 rating from Moody's.  In contrast, this latest issuance received a Baa1 and Baa2 rating from Moody's.  Moody's cited risks associated with slow toll revenue growth, construction cost overruns, and the potential loss of the stimulus bond subsidy.

Image from VDOT/VA Mega Projects

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