iWithin his first several months in office, Governor Charlie Baker took steps to make Massachusetts a friendlier place to do business. On March 31, 2015, Governor Baker issued Executive Order No. 562 (the "Order") addressing the burdensome regulatory framework within the Commonwealth of Massachusetts. In the preamble to the Order, Governor Baker writes:
"WHEREAS, confusing, unnecessary, inconsistent and redundant government regulations inconvenience individuals, encumber cities and towns, stress resources of non-profit organizations, including our health care and educational institutions, inhibit business growth and the creation of jobs, and place Massachusetts for profit enterprises at a competitive disadvantage relative to their out-of-state and foreign competitors…"
The Order requires every Executive Department regulating agency to conduct a comprehensive review of existing regulations. Each agency must sunset, simplify or revise its existing regulations in a manner consistent with the Order by March 31, 2016. In addition, when proposing new regulations, the agency must submit a business and competitiveness impact statement assessing the disruptive impact the proposed regulation might have on small businesses.
Each agency must be able to demonstrate that the existing regulations satisfy seven criteria:
1. There is a clearly identified need for governmental intervention that is best addressed by the Agency and not another Agency or governmental body.
2. The costs of the regulation do not exceed the benefits that would result from the regulation.
3. The regulation does not exceed federal requirements or duplicate local requirements.
4. Less restrictive and intrusive alternatives have been considered and found less desirable based on a sound evaluation of the alternatives.
5. The regulation does not unduly and adversely affect Massachusetts citizens and customers of the Commonwealth, or the competitive environment in Massachusetts.
6. The Agency has established a process and a schedule for measuring the effectiveness of the regulation.
7. The regulation is time-limited or provides for regular review.
Particularly important is the requirement that the state regulation does not exceed federal regulatory requirements. To that end, a few regulations come to mind that may be ripe for either sunsetting or revising. For example, 760 CMR 27, promoted by the Department of Housing and Community Development, governs relocation benefits afforded to both residential and commercial tenants forced to move as a result of any development project benefitting from federal financing. 49 CFR 24 is a second set of regulations governing the exact same scenario as 760 CMR 27, but enacted and enforced by the federal Department of Transportation.
Although the state and federal relocation benefits govern the same activity, the procedure and entitlement to benefits can differ under the state and federal regulations. Any developer or project proponent must take due care to comply with both sets of regulations, which can increase total development costs that are likely passed on to prospective tenants.
In 2009, Massachusetts enacted The Menu Labeling Act of 2009, which requires certain restaurants to publish calorie counts on their menus. The FDA also publishes rules on menu labeling, which federal rules may be subject to change by the proposed federal legislation entitled the Common Sense Nutrition Disclosure Act. Federal, state and even local regulations governing menu labeling each impose a heavy financial and compliance burden on restaurants. If the state and federal menu labeling standards are uniform, then compliance will become easier and less costly for restaurants.
This new Executive Order has the potential to eliminate a number of costly regulations that are obsolete, duplicative and overly burdensome to business. It is far too early to tell which regulations may be eliminated or revised; however the business community and their advocates should use this opportunity of comprehensive regulatory review to inform the Governor’s office of overly burdensome regulations affecting their business.
Landlord Waivers
In the course of obtaining financing, tenants often ask their landlords to sign a landlord waiver. Landlord waivers are intercreditor agreements provided for the benefit of the tenant’s lender or equipment lessor, stipulating certain rights and obligations with respect to the lease and certain property owned or leased by the tenant. Such waivers are often misleadingly simple documents, may be only a page or two long and contain non-technical language, but nevertheless can present unexpected difficulties for a landlord. Too often, landlords fail to recognize all of the consequences of signing a landlord waiver.
Waivers, as their name implies, typically require that a landlord waive its lien rights as to the identified collateral, but the document can also effectively act as an amendment to the lease to the lender’s benefit and the landlord’s detriment. There are certain core issues that often require negotiation, including the timing and length of lender’s access and occupancy rights, insurance and indemnity provisions, the obligation to pay rentals/cure defects, notice and extended cure rights to the lender, the lender’s right to assume and thereafter freely assign the lease upon default, restoration obligations, and the right to conduct public and/or private auctions of the collateral from the demised premises. For example, a waiver typically requires a lender to pay rent only during its "period of occupancy;" a landlord should insist that a lender pay rent for the period which the lender has the right to occupy the leased premises. Attention should also be given to the definition of "collateral," as the ownership of (and/or the ability to dispose of) trade fixtures and other leasehold improvements (even if the landlord paid for the improvements) may be unwittingly transferred by the document.
Options to Purchase Pursuant to a Commercial Lease? Beware of Technicalities…
The Connecticut Supreme Court recently issued a decision confirming what is required of a commercial lessee who seeks to exercise an option to purchase. In Howard-Arnold, Inc. v. T.N.T. Realty, Inc., 315 Conn. 596 (2015), the Court found that the lessee failed to comply exactly with the provisions of the lease to exercise its option to purchase. Specifically, the Court found that the lessee failed to tender the purchase price for the leased premises at the time of the exercise of the option to purchase as required by the lease and rejected the lessee’s claim that the lease was ambiguous as it did not specify the exact purchase amount. The Court further stated, "[w]ith respect to the actual exercise of the option, [t]o be effective, an acceptance of an offer under an option contract must be unequivocal, unconditional, and in exact accord with the terms of the option. . . . If an option contract provides for payment of all or a portion of the purchase price in order to exercise the option, the optionee . . . must not only accept the offer but pay or tender the agreed amount within the prescribed time." Ultimately, the Supreme Court rejected both the lessee’s claims and affirmed the Superior Court’s denial of entry of an order for specific performance of the sale provision.
Proper Damages for Breach of Commercial Lease Include Rent, CAM, Fees and Interest through Re-letting
In a recent Connecticut Appellate Court case, the Court re-affirmed the longstanding proposition that when a tenant has breached the terms of a commercial lease, the landlord has the right to sue for breach of contract to collect unpaid rent, plus additional charges due under the lease. In Southhaven Associates, LLC v. McMerlin, LLC, 159 Conn. App. 1 (2015), the Court considered an appeal of the guarantor of a commercial lease which claimed that the landlord failed to properly mitigate its damages after a breach of the lease and that the Superior Court erred in awarding as damages all rent and amounts due under the lease through the date of the Plaintiff’s re-letting the premises. The Appellate Court rejected both claims.
The Court noted that the general rule for the measure of damages when a landlord sues for breach of lease (following termination) is contract damages that should place the injured party in the same position as he would have been in had the contract been performed. The Court held that the Superior Court properly included as damages the rent which accrued from the date of the termination of the lease through the date when the landlord was able to backfill the space with a new tenant. In doing so the Court stated it was proper for the Superior Court to have awarded damages to the landlord comprised of rent, common area maintenance charges, merchant dues, and interest through the time of reletting.
Wage Issues to Resurface During the Connecticut 2016 Legislative Session
The retail and food-service industries spent the 2015 session of the CT General Assembly in the cross-hairs of a group of vocal legislators who are considered advocates for the worker class. Echoing the position of a number of very active labor unions and their lobbyists, these legislators made a case in support of a proposal to impose a fee on certain employers who pay their employees $15 per hour or less. The group defended the bill by linking increased state spending on social services and health care spending to low wages, arguing that people working full-time at minimum wage or low-wage may still rely on supplemental public assistance programs.
Senate bill 1044 would have established a quarterly fee imposed on employers with at least 500 employees and it specifically included franchisors whose franchisees collectively employ 500 or more employees. Such employers would have been required to pay a one dollar per-work-hour fee for each employee who had been on the payroll for 90 days prior to the most recently completed calendar quarter and was paid $15 dollars or less. The fees would have been collected by the CT State Labor Commission and would have been deposited into a newly created Human Services Support Account intended to support and improve certain activities by the CT Departments of Social Service and Developmental Services and the Office of Early Childhood.
With strong opposition from the CT Retail Merchants Association (CRMA) and the CT Business and Industry Association (CBIA), SB 1044 was never called for a vote. The proponents of the bill however, were able to revive a component of the bill which established the Connecticut Low Wage Employer Advisory Board within the Department of Labor. This body is empowered to advise the Labor Commissioner on matters related to public assistance use among working residents of the state, ways to improve those public assistance programs and large business’ reliance on state-funded public assistance programs, among other things.
Despite having minor business representation on this newly created advisory board, it is expected that the group will recommend either resubmitting SB 1044 next year or crafting another version of the bill that will target companies that employ large numbers of employees at hourly wages. Since the close of the 2015 legislative session activists have been holding rallies at fast food and large discount retail stores calling for an increase in the minimum wage and criticizing businesses for their failure to provide what they term a "livable wage." Expect to see these same folks working hard to advance their agenda in Connecticut and throughout the country as legislatures reconvene in 2016.
