Virginia Real Estate, Land Use & Construction Law

A Landlord's Duty to Mitigate. Part II.

John G. Kelly — Mon, 30 Jan 2012 11:14:30 -0500

We will discuss the commercial landlord's duty to mitigate damages after a default by tenant in Washington, D.C., Virginia and Maryland. First, Washington, D.C. is as follows.

District of Columbia

The District of Columbia essentially follows the traditional common law approach. In the District of Columbia, a landlord has no duty to mitigate its damages after a tenant abandons its premises, provided the lease has no contractual provision reserving the landlord's right to re-enter and re-let while holding the tenant liable for deficiency or loss of rent upon tenant's default. If, however, the lease contains such a clause, then a landlord in the District has a duty to make reasonable efforts to mitigate damages upon re-entering the premises after abandonment. In a 1971 case, Simmons v. Federal Bar Bldg. Corp, 275 A.2d 545 (D.C.App. 1971), the District of Columbia Court of Appeals held that "it has long been the rule in this jurisdiction that in the absence of a contractual provision reserving the landlord's right to re-enter and re-let upon tenant's default while holding the tenant liable for any deficiency or loss of rent, the landlord is under no obligation to mitigate damages before the expiration of the lease even after an abandonment." The lease clause permitting the landlord to re-enter and re-let is construed as the landlord's assumption of a duty to use "reasonable efforts" to re-let. A more recent District Columbia Court of Appeals case on the subject, Hart v. Vermont Investment Limited Partnership, 667 A.2d 578 (D.C.App 1995), affirms that D.C. law provides a landlord with three options in the event of a wrongful abandonment in a lease without a re-entry clause. First, the landlord may accept the abandonment, terminate the lease, and terminate the tenant's obligation to pay future rent. The tenant remains liable for any damages specified in the lease as a penalty for its breach. Second, the landlord may re-let the premises and hold the tenant liable for any deficiency in the rent, without acquiescing in the abandonment. The landlord's third option is to allow the premises to remain vacant and to hold the tenant liable for the full rent. Hart also affirms the mitigation exception when the lease contains a re-entry clause as discussed above.

A Landlord's Duty to Mitigate. Part I.

John G. Kelly — Tue, 10 Jan 2012 13:30:39 -0500

A Landlord’s Duty to Mitigate in Washington, D.C., Maryland and Virginia

Under common law, a landlord had no duty to accept or procure a new tenant in order to mitigate damages (i.e., take reasonable action to avoid additional injury or loss) resulting from a tenant's breach of a lease, including with respect to an abandonment or refusal to occupy its premises. The rationale for this traditional view arose from the characterization of a lease as a conveyance of a real property interest, and not as a contract. In recent years, many states have enacted statutes applicable to residential landlords that impose a duty to mitigate damages. There is no clear consistency, however, in the law regarding a commercial landlord's duty to mitigate damages. The modem trend, followed in approximately half of the states, is to require commercial landlords to mitigate damages. This modern view characterizes the lease as a contract rather than a conveyance of real estate, and it is an established principle of contract law that parties to an agreement have a duty to mitigate their damages. There are certain exceptions to the historical common law view that a landlord has no duty to mitigate, which in different variations, are currently recognized by some of the "traditional view" states. One exception imposes a duty to mitigate once the landlord re-enters the premises following an abandonment by the tenant. There are different standards as to what constitutes re-entry. For example, merely accepting the keys to the premises or keeping the premises in good repair would not typically be considered a re-entry. A second exception imposes a duty to mitigate on a landlord if the lease contains the common "re-entry clause," which permits the re-entry of the premises following abandonment of the premises by the tenant. The District of Columbia, as discussed below, is among the jurisdictions that follow this exception.

Among the states that impose the duty to mitigate on commercial landlords, there is no consensus as to when, or how, that duty is met. Further, there is no consensus among the states as to whether the landlord or the tenant has the burden of proof regarding the landlords efforts to mitigate damages. Typically, the landlord does not need to re-let the premises in order to satisfy the duty to mitigate. Instead, the landlord must only exercise reasonable diligence by taking steps such as advertising and engaging the services of a broker.

It is an important reminder to note that in the states that do not impose a duty on a commercial landlord to mitigate damages following a default by tenant, the parties can agree to the contrary in the lease. The default law only comes into play absent clear language in the agreement. Even in some states that do impose a duty to mitigate, the landlord and tenant can usually agree to negate such a duty contractually provided there is no violation of public policy. Commercial landlords and tenants are thus better served by agreeing on the respective rights of each party in the lease document, and it is crucial that the parties negotiating and drafting the lease understand the governing law. The laws of the District of Columbia, Virginia and Maryland relating to the duty to mitigate will be discussed more fully in Parts II, III and IV to follow.

Note that the article that is the basis for this post first appeared in the October, 2011 issue of Commercial Leasing Law & Strategy.

Fixing the Construction Problem Apparently Does Eliminate Insurance Coverage

Timothy R. Hughes — Wed, 22 Jun 2011 13:37:47 -0500

A Virginia federal court has ruled that by proactively replacing defective drywall rather than waiting to get sued and found liable, a contractor was left without liability insurance coverage. This decision should send shivers down the spine of not just contractors, but also owners and developers.

The builder, Dragas Management, built 70 houses in the Tidewater Virginia area with Chinese drywall. After it received multiple reports of health symptoms and property damages, Dragas filed claims on multiple liability and umbrella insurance policies. It also stated in writing to the carriers that it was planning on beginning a remediation protocol and forwarded the same to the carriers. Four home owners filed suit against Dragas and later voluntarily dismissed the cases based on the remediation protocol.

Initially, both insurance companies denied coverage and one filed a declaratory judgment suit. Eventually, one carrier agreed to defend Dragas subject to a reservation of rights. Dragas in turn claimed it was entitled to coverage for its remediation costs. The carriers argued that because the liability policies obligated the insurers to pay damages for which the builder became legally obligated to pay, the builder’s voluntary remediation plan was not covered under the policies.

The recent decision is actually round three of this issue in the case. The trial court initially agreed with the insurance carriers and found that Dragas’ complaint seeking coverage failed to state a claim. In round two, Dragas’ amended complaint survived a motion to dismiss by alleging more facts surrounding the threats of litigation by the homeowners as justification for its remediation protocol. Third time being the charm, on summary judgment the court ruled that in fact there was no insurance coverage. The mere threat of litigation did not rise to the level of a “legal obligation to pay”, so there was no insurance coverage. As stated by my good friend Chris Hill at Construction Law Musings, apparently good deeds still go punished.

While this decision may be correct from a strict language reading, the policy and industry implications are just horrible. This result basically states that to keep your insurance coverage intact, you cannot fix the problem, mitigate damages, and remove the condition that may even be creating significant personal injuries to occupants as alleged in these drywall lawsuits. This would seem to be an arena where the General Assembly in Virginia can and should pass a statute that affords some level of cushion to builders for doing the right thing.

Virginia Clarifies Economic Loss Rule, and Why This Case May Matter

Timothy R. Hughes — Mon, 21 Mar 2011 04:59:55 -0500

A decision issued this month by the Supreme Court of Virginia, Kaltman v All American Pest, answers a question often debated by Virginia lawyers regarding the economic loss rule. The case also may contain a hidden Trojan horse to contract defenses that everyone should pay attention to.

As we have discussed here on several occasions, the economic loss rule is a critical concept in Virginia construction law. Stated simply, a party cannot sue under Virginia law for economic losses without establishing they have a contract. Another case and its progeny, Richmond v. McDevitt Street, ruled that a plaintiff cannot sue in tort for a duty assumed solely by contract.

In Kaltman, a worker failed to properly clean his equipment after a commercial job. The next day, he used the same equipment on a residential home, including on porous surfaces. The result was a high-powered commercial pesticide was used on home despite it being inappropriate for residential use. Despite multiple rounds of cleaning, the owners could not remove the pesticide smell from the home. The owners claimed personal injuries and property damage from their home being rendered uninhabitable by the smell.

The defendants request that the trial court dismiss the case based on the economic loss rule barring tort claims. The court agreed. On appeal, the Supreme Court reversed and found that the owners could allege an independent tort duty to protect against personal injury and property damage. While the court threw out the willful and wanton conduct allegations, it allowed both negligence and negligence per se to survive.

Why does it matter if you can sue in both contract and tort? I can think of several strategic and practical reasons:

The tort claims may more easily trigger insurance coverage;
The tort claims may escape the net of contractual notice of claims provisions; and
The tort claims may escape the restrictions of limitations of liability clauses.
The tort claims may allow broader damages more easily than contract claims.

Image by US Air Force

Agents and Sellers - Is There a New Way To Get Sued In Virginia?

Timothy R. Hughes — Thu, 17 Feb 2011 06:18:38 -0500

We delve into a more legal, technical and lengthy post this week for a good reason — a recent decision from a Virginia trial court (PDF of decision) points to a new avenue for claims by buyers of real estate in Virginia.

Virginia generally looks to the sales contract to evaluate liability. Sales contracts often have very limited warranty and disclosure obligations placing the buyer into the position of "caveat emptor," or let the buyer beware. Fraud claims have traditionally operated as a separate path to liability; however, fraud claims are notoriously difficult to allege prove. They require the buyer to allege claims with extreme specificity and prove them to the elevated standard of "clear and convincing evidence" rather than a simple preponderance. Fraud claims also exclude liability for statements of opinion or future performance.

A decision from Charlottesville, just reported this week by Virginia Lawyer's Weekly (VLW subscription only) allowed a new potential claim to survive the initial pleading stage. A buyer of a residence suffered flooding caused by a clogged drain of a neighboring property. The buyer learned that the drain had clogged and caused flooding of the residence several times before the purchase. The purchase contract contained a home inspection contingency, but the inspection did not reveal the problem. The sellers and agent did not disclose the problem.

The buyer sued the real estate agent who was also a partial owner and thus seller of the property. The buyer included claims for fraud, constructive fraud and also for a violation of the agent's statutory duty to disclose known property defects contained in Virginia Code § 54.1-2131(B). On motions, the court dismissed the fraud and constructive fraud claims finding there was no showing of active concealment of the flooding as opposed to mere lack of disclosure. The court permitted a count based on "Breach of Statutory Duty to Disclose Material Adverse Facts" based on the code section.

This case may present a novel situation in that the agent was also a partial owner and thus seller of the property. The statute does not create a specific cause of action. A prior 2004 case from Loudoun County (VLW subscription only) had ruled the statute does not allow a separate cause of action. Agents and sellers should beware of this case as it may provide a complete end run around the contract and traditional concepts of caveat emptor.

Originally posted at the Washington Business Journal, reprinted with permission.

Virginia Raises General District Court Jurisdictional Limits

Timothy R. Hughes — Wed, 16 Feb 2011 06:24:07 -0500

Virginia's General Assembly has passed a bill that, among other things, raises the upper limit of cases that may be filed in the General District Court. This increase will potentially make it easier to try certain matters more cost effectively moving forward.

General District Court is a court not of record with very limited discovery, i.e. no access to depositions or interrogatories and even only limited means of obtaining documents and witnesses via subpoena. While this naturally limits the parties' ability to evaluate the case and evidence, it dramatically reduces the potential legal fees associated with litigation. At the current time, General District Court has had concurrent jurisdiction with circuit court for matters that are between $4,500 and $15,000.

The bill passed by the General Assembly raises the upper limit on General District Court to $25,000. While this does not completely solve the challenges faced when trying to handle cases cost effectively, it certainly makes it easier to file suit on some smaller cases.

Class Action Lawsuit Against LEED and USGBC Evolves

Timothy R. Hughes — Thu, 10 Feb 2011 11:44:16 -0500

In October 2010, Henry Gifford filed a lawsuit against USGBC alleging misrepresentation claims against USGBC and some of its individual founders regarding its LEED rating system. The crux of the suit centers on Gifford’s claims that USGBC and the LEED green building rating system makes false promises about energy performance of LEED buildings. The original complaint named Rick Fedrizzi, Rob Watson and other individuals as defendants, included misrepresentation style claims, and also included monopolization anti-trust based claims.

On Monday, Gifford and the other plaintiffs filed an Amended Complaint. Unlike the original claims, which included class action claims, the new lawsuit focuses on false advertising and consumer protection act claims. The new complaint drops the anti-trust and class action claims. They also dropped the individual defendants.

Energy performance has been an open sore for LEED that critics have pointed to, from the New York Times poking at the energy performance of a courthouse in Ohio to the USGBC’s own regional case study showing the energy usage was wildly different in performance compared to design modeling in Illinois. USGBC had already pushed through LEED for New Construction 3.0 which shifted credit focus far more towards energy issues than version 2.2.

The plaintiffs may have a difficult time demonstrating that they individually were harmed and have standing to sue. That does not mean that disconnects between energy performance and modeling are not a threat to USGBC. Indeed, the marketplace may present a greater threat to USGBC and LEED maintaining its current preeminence.

The advent of green building codes such as IGCC and ASHRAE 189.1 certainly represent a significant potential shift that is coming. Energy Star is already available for owners interested in focusing on actual energy performance as opposed to design modeling. Actual energy performance of buildings will occupy a greater focus as energy prices inevitably go up in the future. Design and construction standards, certification systems, and codes that are directed towards improving energy performance in the built environment would seem to have a better chance at ultimately prevailing over theoretical modeling.

Originally published in the Washington Business Journal, reprinted by permission.

Richmond Hammers on Arlington HOT Lanes Lawsuit

Timothy R. Hughes — Fri, 28 Jan 2011 08:51:57 -0500

Arlington County has been widely criticized for its aggressive lawsuit over the proposed Interstate 395 HOT lanes expansion, which includes allegations that individual state and federal officials committed civil rights violations in approving the project. In a time of significant economic troubles and governmental budget challenges, the county has reportedly paid over $1 million in legal fees advancing this case.

The county may now be reaping an ugly harvest from the negativity it is sowing. Arlington County, with the support of the business community and in particular the Arlington Chamber of Commerce, is currently seeking renewal of a transient occupancy tax that charges Arlington hotel guests and uses those funds directly to promote tourism. In a hearing on the bill in front of the General Assembly’s House Committee on Finance chaired by Del. Timothy Hugo, R- Fairfax.

Del. Hugo reportedly punted on action on the bill until a representative of Arlington County would appear and defend the County’s action on the HOT lanes lawsuit.

The Washington Post quoted Del. Hugo yesterday as saying, "If they have so much money to spend on frivolous, intimidating, abusive lawsuits on private individuals," then the tax is not needed. The Post indicates further that Del. Hugo filed three budget amendments prohibiting state funding for the Columbia Pike Streetcar produce, reducing Arlington transportation funding, and requiring an audit of Arlington’s road maintenance funding.

The Chamber and others have tried to get Arlington to drop this suit. I have previously been strongly critical of the Arlington lawsuit, especially the civil rights claim stating they should have avoided the suit “instead of further killing Arlington’s credibility in Richmond.” That appears to be exactly what has happened but the County does not seem to appreciate this prescience. This lawsuit, particularly the civil rights claims, needs to end. Still, picking this bill as the target for Richmond’s ire seems like misplaced aggression.

Reprinted with permission from the Washington Business Journal

EPA Accepts Virginia's Plan for the Bay

Timothy R. Hughes — Fri, 07 Jan 2011 06:00:00 -0500

Last week EPA issued its "pollution diet" for the Chesapeake Bay. The total maximum daily load (TDML) of various materials is established by EPA in the diet and includes a 25% reduction in nitrogen, a 24% reduction in phosphorous, and a 20% reduction in sediment according to Engineering News Record (subscription only). The plan also includes annual total watershed limits.

This announcement was tied to EPA's express approval of Virginia's state Watershed Implementation Plan (WIP). A statement issued by Virginia Governor Bob McDonnell stated in part, "[T]he approved plan balances the important environmental protection concerns with the need to protect jobs in agriculture and farming. While we maintain our concern about aspects of the EPA watershed model and enforcement authority, as well as the significant additional public and private sector costs associated with plan implementation, we believe Virginia's plan will make a significant contribution to improving water quality in the Bay."

The efforts at EPA to regulate stormwater run-off from development has been a topic we have covered here previously. EPA regulatory junkies will already know that the agency announced in December its plans to move forward with standards regarding greenhouse gas emissions from fossil fuel power plans and petroleum refineries. Certain permitting requirements on stationary sources, in addition to GHG emission regulations of some vehicles, kicked in on January 2, 2011.

It is a tough balancing act between environmental regulation and the economy. The economic climate has battered the construction and development industry and while there are some modest signs of improvement, particularly locally, it is not a explosive market. Similarly, the Bay shows some signs of improvement according to the 2010 State of the Bay report issued by the Chesapeake Bay Foundation, but continues to by a "system dangerously out of balance". Hopefully we can manage the path between Scylla and Charybdis and get this right.

Reprinted with permission, originally published at the Washington Business Journal.

Image by ronzzo1

Competitors Challenging Land Use Approvals

Timothy R. Hughes — Thu, 16 Dec 2010 11:13:33 -0500

Real estate lawyers and developers know that overcoming NIMBYism is a huge challenge. We are finding that even after approval, you still may face other hurdles including neighbors or even your business competitors challenging or appealing your zoning or permit approval.

Virginia Lawyer’s Weekly recently reported that the Supreme Court of Virginia issued an “unusual order” ... “acting with uncommon speed” when it ordered a halt to two planned local government hearings in Prince William County in such a case.

Spectrum Healthcare obtained zoning and permit approval and started construction of a health care facility as part of a bid for a federal government contract. A competitor of Spectrum, CRA, lost out on the federal contract award and filed a bid protest. CRA separately requested a zoning interpretation from local officials that the use of the facility would violate local ordinances. The zoning administrator rejected CRA. CRA then tried to “appeal” that interpretation to the local Board of Supervisors and Board of Zoning Appeals (BZA).

Spectrum asked the local circuit court to step in and issue an injunction stopping the CRA appeals. The circuit court refused finding that Spectrum should first exhaust its administrative remedies. Spectrum then filed an expedited review request to the Supreme Court of Virginia. This request resulted in the rapid order from the court ordering a stay of the BZA and Board of Supervisors hearings pending the circuit court’s complete review.

The standard in Virginia is that only an “aggrieved person” may appeal a “determination” of a zoning administrator. Even beyond the Spectrum case, I have started to hear rumblings of other parties aggressively attacking zoning and permit decisions, including properties which are not adjoining or even nearby but which instead involve business competitors. We can expect this issue to continue to percolate, and possibly be the topic of legislation soon. Be warned that approval may not be the end of challenges.

(Full disclosure: My colleague, Raighne Delaney, represents Spectrum Healthcare in this case.)

Reprinted with permission from the Washington Business Journal.

The Lights are On!

Timothy R. Hughes — Thu, 16 Dec 2010 10:30:57 -0500

Apologies from the staff for things being a bit quiet here of late .... speaking for myself, I have been whipped by over-engagement. A whirlwind tour of seven different speaking gigs from mid-October through early December, a busy case load and other intervening factors have jointly conspired to make posting a tough reach lately.

It has been a blast lately though, from the Green Legal Matters seminar in New Orleans to speaking on social media, my first webinar, a fun AIA event, moderating a very interesting Bisnow sustainability panel, to wrapping up at Eco-build.

We return into action today shortly with a repost from the Washington Business Journal and you can expect more regular action here again moving forward!

GSA and WMATA Working On New Rent Cap Policy Flexibility

Tad Lunger — Tue, 30 Nov 2010 17:19:28 -0500

According to a good source, GSA and WMATA are working on a new policy to allow GSA to modify its rent caps for sites that meet certain transit oriented development criteria (i.e. sites within a certain proximity to Metro stations, etc.). As many of our readers know, GSA caps its rents as a result of negotiations with OMB per rules created to implement the Budget Enforcement Act of 1990. OMB (through Circular A-11) created a set of rules which are used to determine whether a federal lease is an "Operating" or "Capital" Lease. To make a long story short, GSA and OMB have agreed to rent caps to make it easy to stay within "Operating Lease" guidelines. The current Operating Lease rent caps are $34/SF in Maryland, $38/SF in Virginia, and $49/SF in the District of Columbia. With vacancies finally falling and rental rates starting to rise, the natural effect of these caps will be to push federal office space development away from mass transit locations, which yield the highest rental rates. Currently, big chunks of space for federal agencies just aren't normally available below these price caps where there are mass transit services available.

This clearly goes against the current policies for transit oriented development being advocated by the current administration, the EPA, HUD, pretty much all of our regional localities, and our state level transportation agencies. So enter the solution: GSA and WMATA are working together to achieve modify current guidelines to be in line with modern transit oriented development goals to allow GSA the flexibility to adjust rent caps upwards to allow large government employers to locate in areas where there is mas transit systems available to handle the commuter volumes they will create. Apparently, GSA and WMATA are about five months away from realizing this new policy. This has the possibility of having sweeping impacts to how and which localities and private interests can capture federal tenants/departments/agencies and the resultant collateral economic development benefits these opportunities provide. How these new transit oriented development guidelines/policies will define which sites are eligible for upward flexibility for rent caps remains to be seen, but we'll keep on top of it and keep you posted.

Nope, Not A Typo - GAR, Not FAR

Tad Lunger — Mon, 22 Nov 2010 18:00:00 -0500

Have you heard the DC Zoning Commission is looking into adopting a new set of GAR requirements? No, we're not talking about the kind of fish that eats every other kind of fish it can fit in its mouth, we're talking about Green Area Ratio ("GAR") requirements. According to the report prepared by DC zoning staff, the GAR concept is not a new concept, but is a Low Impact Development best management practices tool used in major cities in Europe such as Berlin and Malmo.

According to the USGBC, GAR "..is the ratio of the weighted value of specific landscape elements to land area... [and] is determined by calculating the area of specific enumerated landscape elements, multiplied by a factor assigned to each element, which is then divided by the lot area of the project." According to DC zoning staff, GAR "...is an environmental site sustainability metric intended to set requirements for landscape and site design that meets goals for stormwater runoff, air quality and urban heat island... [based on] allowing a user to pick among optional elements in order to meet an overall [minimum] GAR score." DC is proposing to include the GAR regulations within Subtitle B and Subtitles D through J with Subtitle B containing an explanation of the GAR system and the other land use subtitles containing zone specific permission, conditions, and requirements.

In a nutshell, what they are talking about doing is requiring property owner to meet a certain weighted score in relation to the amount of land area they have as a requisite to filing for building permits and approval will be a prerequisite to obtaining a certificate of occupancy. Submission requirements are outlined in proposed Section 1305, and of course you can get a variance if your site is particularly difficult per Section 1306. If you need to understand the specific details of what is being proposed, the text amendments and staff report are available here for your review, and the hearing is slated for December 20th before the DC Zoning Commission, with the Zoning Review Task Force considering it on November 27. Here's staff's slide presentation from October if you want a primer before you dive into the details.

Tenant Issues in Real Estate Leases Part II

John G. Kelly — Fri, 19 Nov 2010 14:21:55 -0500

Part I of this post focused on basic provisions found in commercial real estate leases such as assignment and subletting, use restrictions and the determination of the commencement date. Here in Part II, below, we will address other important issues from the tenant’s perspective including insurance, mutual waivers and defaults.

Tenant’s Insurance and Self-Insurance.

· Liability Insurance. Landlords typically carry their own liability insurance policies, so tenants should not be too concerned over the amount of tenant’s coverage limits. Instead, the tenant should check with their risk management department (or outside insurance agent) to determine the current and appropriate coverage amount. Tthe landlord and property manager will likely be required as additional insureds. The primary benefit to these parties is the insurer’s obligation to defend claims, which is not limited by the amount of the policy.

· Property Insurance. Most landlord form leases require tenants to fully insure the tenant’s furniture, equipment and other personal property. Unless there is a special reason that landlord wants this equipment insured, these clauses can often be revised in the negotiations to allow tenant to carry such insurance at its option or self-insure.

Release and Waiver of Subrogation. This is a legal issue that is often overlooked, but is very important from a risk management perspective.

· Release. In a good mutual clause, the landlord and tenant “release” each other from liability for damage to their respective property and agree that they will look solely to their insurance, regardless of negligence or fault. The rationale from the landlord’s perspective is that a leak in the roof that destroys valuable computer equipment owned by tenant is something that is more easily insured by the tenant, since the tenant better knows the value and the potential risk of loss. That said, a tenant should be able to obtain reciprocal provisions from the landlord for the benefit of the tenant, even in small leases. Typically, tenants are paying for the landlord’s insurance either as an element of rent in a gross lease or as a direct pass-through; accordingly, it is equitable for the tenants to receive the benefit of this insurance. Note, however, that most form leases only protect the landlord in this regard. A one-sided waiver of claims provision requires the tenant to look to its own insurance coverage, even if the casualty is the result of the landlord’s negligence.

· Waiver of Subrogation. Insurance policies provide that the insurer is “subrogated” to any claim its insured may have against third parties for damages to the property insured under the applicable policy. In the absence of a “waiver of subrogation”, if the tenant’s negligence caused fire damage in the landlord’s building, the landlord’s insurer could “step into the shoes” of the landlord and pursue a claim against the tenant for the damages through its right of subrogation. If the lease contains release language, the applicable party must obtain waiver of subrogation provisions in its policy; otherwise, the party risks validating their insurance coverage.

· Insurance Company Responses. Insurance companies often resist waiving subrogation even though they rarely use the right. Push hard and you will generally prevail.

Indemnity and Hold Harmless. The parties should agree to protect each other based on who can most easily and efficiently obtain the insurance protection.

· Indemnity. The term “indemnity” relates to one party “indemnifying” or protecting the other against claims of third parties.

· Hold Harmless. The term “hold harmless” is another term for “release”, pursuant to which one party agrees to release or hold harmless the other party with respect to claims between the parties. The term “hold harmless” is often mistakenly used when the parties intend to refer to indemnification.

· Objective. Similar to the discussion regarding release and waiver of subrogation above, the objective of indemnification provisions should be to allocate claims amongst the parties so that they are covered by appropriate insurance.

Default.

· Notice of Monetary Defaults. It is crucial that a tenant receive adequate notice of monetary defaults. Remedies for default are often severe, and it is not unreasonable to require the landlord to give the tenant an opportunity to cure before pursuing eviction. On the other hand, landlords typically will not want to have to give a default notice every month in order to collect the rent. A common compromise for smaller tenants is to limit the number of notices in any given 12 month period and perhaps the total number of notices during the lease term.

· Vacating. Most landlord form leases provide that deserting, vacating or abandoning the premises is an event of default, especially so in retail leases. Covenants to operate in retail leases cannot be specifically enforced in Virginia and are rarely found in anchor tenant leases or other leases involving sophisticated parties. A reasonable compromise that protects the interest of both parties is to provide the landlord with a right of termination in the event tenant vacates the premises or “goes dark” (in a retail context). From the tenant’s standpoint, you will want to negotiate a requirement that the premises be vacant for a minimum period and exclude vacancies due to fire, remodeling and similar circumstances. Also, if the tenant has made a substantial investment in improvements, the tenant may want to negotiate for reimbursement of its unamortized costs.

The Silver Line: Station #1 and the East Falls Church Plan

Tad Lunger — Fri, 19 Nov 2010 09:00:00 -0500

This is the second posting in my station by station land use analysis of Northern Virginia's new Silver Line. The first station (at the Silver Line's eastern terminus) is the East Falls Church Metro Station, which will serve as the transfer station from the Silver Line to the Orange Line.

The East Falls Church Plan is currently undergoing its public review process, and is a collaborative effort between the City of Falls Church, Arlington County, VDOT, WMATA and the community. It has been in the works for several years at this point and has been a hard plan for everybody to get behind, not because everyone doesn't want to prepare for the inevitable fact that the East Falls Church Metro Station will need to be able to handle the increased number of commuters funneled into the Orange Line from as far out as Loudoun County, but instead because they can't start from scratch, and are trying to provide a solution to a difficult set of existing circumstances.

The first thing you'll notice about the plan is that the station area is located in a predominantly single family home neighborhood. The second thing you'll notice about the plan is that the East Falls Church station area is cut up by a number of multiple lane highways and major arterial roads (click here for a full size vicinity map of the plan), including I-66, Lee Highway, Washington Boulevard and Sycamore Street, and their associated merging/ramp systems. This creates a number of complicated problems from the start - a single family community obviously does not want to have a ton of density dropped into the middle of its neighborhood, and because the neighborhood is already fractured by these major roadways, it makes it very difficult to connect density to the Metro Station. Separating density from mass transit clearly goes against what many consider one of the basic tenants of modern urban planning.

As you can see from the plan, the planned upgraded metro and transit station is not really centrally located within the plan. Instead, density is planned along Lee Highway on both sides of the I-66 overpass. The result has been a bit of an identity crisis about whether this is the Lee Highway "gateway plan" or whether this is in fact a new plan for the East Falls Church Metro Station, and no real defined sense of "place" when it comes to East Falls Church.

Setting all of those issues aside, the plan itself is pretty limited in scope, with only a little over a dozen sites planned for redevelopment (the redevelopment sites are shown here). The plan keeps most of the planned redevelopment sites to 5 to 6 stories, with a few sites on the Falls Church side of the line having the potential to creep up to 8 stories (click here for the Building Heights Plan). The plan is for a mix of uses, though given the location I imagine (here's the use plan) the market will demand more residential uses than commercial, and, except for the new planned transit station, there is not a lot of retail planned.

The plan for the upgraded station itself is really the highlight of the plan. The station (projected to be a 450,000 SF facility) is planned around a 30,000 to 38,000 SF public plaza that will be framed by retail to serve the surrounding neighborhoods, and will provide an additional 75 to 100 spaces of retail parking. Here's an elevation of what it might look like. A massing study was also prepared which helps give it some context, and can be viewed here.

Next stop: Tysons East.

The Silver Line, One Station At A Time - A Comprehensive Look At Northern Virginia's New Transit Corridor

Tad Lunger — Sat, 13 Nov 2010 00:00:57 -0500

With the FFW holding behind us, I thought it would be an opportune time to spend some time focusing on how the planned Silver Line Metro Station areas are planned to build out, so that we can provide a comprehensive guide to Northern Virginia's new transit corridor, station by station. This first post is a macro-analysis of the system as a whole, which will be followed by a station by station land use, transportation and density analysis, and then probably an end-cap article summarizing the capacity of the corridor as a whole.

As you can see from the system wide map, the Silver Line will extend at its western terminus beyond Dulles Airport to Route 772 in Loudoun County, and the East Falls Church Station will serve as the transfer station from the Silver Line to the Orange Line at its eastern terminus in Arlington County. The construction of the Silver Line will occur in two phases. Phase I includes the construction of the four stations included as part of the Tysons Corner Plan and the Wiehle Avenue Station on the eastern side of Reston. Phase II will include six additional stations, beginning at Reston Parkway and continuing out through Route 772. Phase I is expected to be completed as early as late 2013, and Phase II is targeted to be complete sometime in 2016.

While there are a lot of statistics out there, some believe the initial Phase I component of the system is anticipated to add 60,000 daily rail trips to the Metro system, and the initial Phase I and Phase II combined is anticipated to add 100,000 daily trips to the Metro system. These statistics will change as density fills behind station construction.

With the design and location for each station nailed down, it is a good time to focus on how the land use and planning studies for each station area are playing out. We'll start in the east and move west, and will provide a use and density analysis for this new mass transit corridor. Next post: Station #1, East Falls Church and The East Falls Church Plan.

Mushrooms May Replace Styrofoam?

Timothy R. Hughes — Fri, 12 Nov 2010 07:03:04 -0500

I ran across a recent TED presentation by Eben Bayer, co-inventor of MycoBond. MycoBond is an adhesive based on mycelium, a living organism. In essence, the process uses fungi to transform agriwaste and convert it into a foam-like material that can be used for packaging and insulation.

Styrofoam is ubiquitous in transport and packaging. Styrofoam takes up 25-30% of landfill area by volume. Polystyrene manufacturing was recognized by the EPA as the 5th largest creator of hazardous waste all the way back in 1986. In addition to not being particularly degradable, Styrofoam uses significant amounts of petroleum.

Styrofoam packaging may be more significant in the retail chain of commerce than construction per se, but even construction material packaging uses this material. The part that intrigues me is two-fold: one, replacing Styrofoam with a natural product as a insulation material may be a sustainability game changer; and two, MycoBond represents a technological advancement that can change the playing field dramatically of our environmental footprint on multiple levels.

I do not know a great deal about this product, but what an interesting and exciting possibility. I hope you enjoy!

IGCC Public Version 2.0 Released For Comment

Tad Lunger — Tue, 09 Nov 2010 08:39:59 -0500

The second draft version of the International Green Construction Code being prepared by the International Code Council (Public Version 2.0) was released last week as anticipated, which incorporates the actions taken at the hearings this past August. If you have any suggestions on how to improve on Public Version 2.0, Code Change Submittals are now being accepted and the forms are available on the ICC's website. The final action to adopt the IGCC is a year away, and the public review process will continue until then. The schedule can be found on their website here, and we'll endeavor to keep you updated as it continues to evolve.

It is a lean, 221 page document, so you're going to have to set some time aside to wade through it. In a nutshell, it really is a lot like the LEED Reference Guide for Green Building Design and Construction, so if you are familiar with that already, as many of our readers are, it is pretty much the same thing repackaged, but your local Building Official will be interpreting it, enforcing it, conducting commissioning, etc., rather than the current "voluntary" system set up by the USGBC. There are a lot of kinks that will need to be worked out by each jurisdiction as they elect which components of the IGCC to adopt, as there is a lot of overlap and conflict with federal environmental law, ADA regs, zoning ordinances, etc. Hopefully, this opportunity is used to clean up some of the conflicts. Also, where the development community has been in a position to resolve a lot of these conflicts on its own during the various special exception processes, being flexible with design and being able to pick and choose which LEED credits it wanted to chase, we now stand to lose some of this flexibility (i.e. certain components of the IGCC will be mandatory and while other provisions will be elective), so hopefully an eye toward the appropriate amount of flexibility will be maintained during the process - but this may very well be part of the trade-off in the transition from an incentive based system to a mandatory system.

Also, there is no distinction in the IGCC between building types, as it proposes to apply to "...every building or structure or any appurtenances connected or attached to such buildings or structures and to the site on which the building is located." The IGCC won't just apply to new construction, either, but to "...the design, construction, addition, alteration, change of occupancy, movement, enlargement, replacement, repair, equipment, location, maintenance, removal and demolition of every building or structure..." That's some pretty broad language...

Commercial Real Estate Tax Upheld - FFW Appeal Struck Down

Tad Lunger — Thu, 04 Nov 2010 08:47:09 -0500

Did you hear that whooshing sound? That was the collective sigh of relief from localities embraced by the Northern Virginia Transportation Authority who have levied a special transportation tax against commercial property owners while exempting residential property owners from that same tax. The Supreme Court released its opinion this morning that commercial and industrial property owners may be taxed for transportation improvements (such as the Dulles Metro extension) while multifamily and other residential properties may be exempted from the tax. Here's a copy of the opinion. The Supreme Court had granted the appeal back in April and heard the arguments in mid-September.

This decision is a "green light" to Virginia's legislature and localities that it is now OK to exempt certain types of property owners from taxes for public improvements that do in fact benefit everyone. The Court found that under this challenge to Code §§ 58.1-3221.3 and 33.1-435 under the Constitution of Virginia, the plaintiff failed to meet its burden to prove that no reasonable basis for the tax classifications in these provisions could be conceived. The fact that untaxed others will benefit to some extent from the improvements funded by the taxes does not prove that there is no rational basis for the tax classifications approved by the General Assembly. By doing so, the Supreme Court diverged and distinguished the case from the 1941 "benefit-burden" precedent.

This solves some major problems for several Northern Virginia localities. The funds in question had already been levied and collected and were likely no longer available to be refunded if the transportation tax had been found unconstitutional. No new tax will have to be levied against all property owners now. This holding also solves the political dilemma of how the rest of Virginia has been able to compromise with Northern Virginia and its funding issues for some of this region's major transportation problems, and the mess overturning this taxing authority would have created.

From Incentives to Mandate - The ICC's Green Construction Code - Will We Need Third Party Rating Systems in Virginia in 4 Years?

Tad Lunger — Mon, 01 Nov 2010 17:11:48 -0500

As I was discussing some of Arlington's Community Energy Plan goals with an architect friend of mine the other day, it was apparent to both of us that a number of the County's stated goals for energy efficiency (such as the 30% increase in efficiency) in its plan track the time line for the incorporation of the the International Code Council's Green Construction Code in one form or another by Virginia. After spending some time reviewing the Synopsis of the International Green Construction Code currently in process to be adopted by November of next year by the ICC, it was clear that what has been contemplated and encouraged by USGBC's third party rating system was adopted by the proposed ICC Green Construction Code. In fact, the requirements set out for election by jurisdictions should sound pretty familiar to you, such as Site Development and Land Use, Material Resource Conservation and Efficiency, Energy Conservation and Earth Atmospheric Quality, Water Resource Conservation and Efficiency, Commissioning, Operation and Maintenance, etc. There's even a handy checklist to use, just like the one the USGBC provides.

With the revised public version due out as early as tomorrow (Public Version 2.0), and the Final Action Hearing to be held November 3rd through November 6 of 2011, Virginia will be in a position to review and decide on how to incorporate this new code proposal in 2012, with plenty of time to coordinate and be prepared to implement these new changes by 2015.

So, how would this impact what USGBC presently does? Well, it would obviously be profound. If the International Code Council's Green Construction Code is broadly adopted, mandating equitable green building design in jurisdictions across the country, need for a third-party certification body would be in question. Ongoing monitoring and enforcement would fall under the legal purview of your local Building Official, rather than a remote "voluntary" certification body, and everybody would be subject to the new code, rather than just those electing to go through the process, broadening the environmental and efficiency impacts dramatically. However, one difference I noticed that kind of jumped out at me was the lack of reward for innovation, which may unfortunately become a trade-off for mandating design requirements.

So if any of you are wondering how Arlington County expects to be in a position to mandate improvements to by-right projects (both new construction and renovation) through its new Community Energy Plan, hopefully this clears things up. Here's the official primer video explaining the proposed Green Construction Code if you are interested.