News and Insights on Connecticut Real Estate Law


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Tuesday, September 22, 2009

New Laws Affecting Real Estate in Connecticut--Part 1

The Connecticut General Assembly was preoccupied with addressing the severe budgetary crisis affecting the state as a result of the current recession.  Nonetheless, our representatives managed to get some other work done.  This is a first in a series of postings which explain legislative changes to Connecticut real estate laws.

Copies of the complete public acts can be found at the State web site at www.cga.ct.gov.   Just click on “Quick Search,” select “Public Act” and enter the public act number set forth below. 

Public Act 09-127 (HB 6114).  An Act Concerning Disclosure of a Historic District Designation and Leased Items to Prospective Purchasers of Residential Property.

This Act amended Section 20-327b of the general statutes (relating to Residential Condition Reports).  It requires disclosure of a leased item (including, but not limited to, propane fuel tanks, water heaters, major appliances and alarm systems) to prospective purchasers of a residential property.  It also requires disclosure if the real property is located in a municipally-designated village or historic district, or has been designated on the National Register of Historic Places. The Act requires a statement that information concerning those districts may be obtained from the municipality’s village or historic district commission (if applicable).

Signed by the Governor on June 18, 2009; effective from passage.


Tuesday, July 14, 2009

Changes to Remediation Standards are Dropped

The Connecticut Department of Environmental Protection decided earlier this summer not to finish the changes to the Remediation Standard Regulations, commonly known as the RSRs.  The RSRs provide exact requirements for remediation of contamination in soil and groundwater.  Previously remediation standards were handled by DEP on a case by case basis, which was a much more cumbersome process. The RSRs provide a level of certainty, espectially for Connecticut Transfer Act properties.

The new RSRs would have added requirements for new contaminants and would have made the remediation requirements for some other contaminants more stringent.  There has been no explanation as to why, after years of work, DEP decided to drop the changes.  One reason may be the budget problems facing all Connecticut state agencies.  DEP may have decided to devote its limited resources to other priorities.  Another reason could be the difficulty in developing a workable transition period.  Since most remediation projects go on for many years, it would be difficult to apply the new standards to an existing project.  This had become a hot topic.


Tuesday, March 3, 2009

Requirements for Security Deposits for Residential Leases

The current economic downturn we are all suffering through has brought an increased focus on renting property. Many individuals and families, unable to afford their mortgage or rent, have downsized to save money. Other people looking for investment opportunities have begun buying rental properties. In all of these situations it is critical people know both their rights and obligations with respect to security deposits. Connecticut has some very specific requirements which are not complicated but which can create an unwelcome trap for anyone who does not follow the rules. Note that these requirements only apply to residential property, including single-family homes.  They do not apply to commercial property.

 Amount: For tenants under the age of 62, the maximum security deposit which can be required is two months’ rent, plus the current month’s rent. For tenants age 62 and older, only one month’s rent is allowed for a security deposit, plus the current month’s rent.
 
Bank Account: All security accounts must be deposited in a bank account at a financial institution located in Connecticut. That means the account must be set up at a branch here in the state. The account must be used solely for security deposits and cannot be commingled with the landlords own funds. But security deposits from different properties can be commingled in one account. There does not need to be a separate account for each property, although this is a good idea for large properties. Of course, the landlord should keep accurate records of all accounts and security deposits.
 
Interest. Landlords must pay interest on security deposits at the rate of 1.5% each year. The interest is required to be paid yearly on the anniversary of the start of the lease. If the account earns a lesser rate, the landlord must make up the difference. If the account actually pays more, the landlord can retain the excess.
 
Refund of Security Deposits. When a lease ends, there are very specific requirements for refunding security deposits. If the landlord does not follow these rules, there are substantial penalties. When a tenant leaves, the landlord should obtain a forwarding address for the tenant. If the tenant provides a forwarding address, then the landlord has thirty days from the end of the lease to return the security deposit (plus the required interest) or to provide a list of any damage to the property and the balance of the security deposit after deducting the cost to repair the damage. The list must be itemized and must list the cost to repair for each area of damage.  Of course, damages can include unpaid rent.  If the landlord does not have the tenant’s forwarding address, then the landlord has fifteen days following the date the landlord receives the address to return the security deposit or to provide the list of damages. So if the tenant breaks the lease and does not leave a forwarding address, the landlord would not be immediately required to return the security deposit.
 
If the landlord does not refund the security deposit or provide the itemized list within the statutory time period, then the landlord is automatically liable for double the amount of the security deposit. There is no defense to this liability, even if the tenant has caused substantial damage to the property. Therefore, it is critical that the landlord follow the statutory procedure.

Friday, December 12, 2008

Voluntary Remediation—An Alternative to Transfer Act Compliance

The Connecticut Transfer Act seems to get all the press when it comes to remediation of commercial and industrial properties. There is good reason for this. The Transfer Act affects every sale of commercial property in the State of Connecticut, and even some residential properties. More about the Transfer Act can be found on at the DEP website. But there is an alternative to Transfer Act compliance. It is voluntary remediation under Sections 22a-133w and 22a-133y of the Connecticut General Statutes. One statute is for areas in which the groundwater is GA/GAA, or clean, and the other statute is for where the groundwater is GB/GC, or not so clean. There are some slight differences between the two programs, but the procedure is pretty much the same. The property owner hires a licensed environmental professional (LEP), who investigates the contamination at the property and develops a remediation plan, which is filed with DEP. The property owner, under the guidance of the LEP, completes the clean up of the property in accordance with the DEP standards. When everything is completed, the LEP files a final report. If the DEP has no objections to the report, then the remediation is complete. There is a $3,000 fee payable to DEP for participating in the program, but this fee may be credited against a subsequent Form II fee under the Transfer Act. More information on the voluntary program can be found at the DEP website.
 
What are the advantages of the voluntary remediation program? If a property owner knows that the property is subject to the Transfer Act and compliance will be required upon a sale of the property, the voluntary program allows the owner to be proactive. The clean up of the property can be completed prior to a sale. This will enhance the property’s market value and marketability. In addition, it will to help to avoid lengthy (and expensive) negotiations with a potential buyer about remediating the property, as well as escrows. It also allows the owner to retain total control over the clean up without the buyer wanting to be involved.
 
There is another advantage to using the voluntary program. When the Transfer Act was new some sellers may have filed Form I’s, certifying that there has been no spill at the property, when in fact there may been some contamination. This was especially true where the amount of contamination was very small. But DEP is now very careful about reviewing Form I’s and will reject a Form I if there is any evidence of contamination, regardless of how small. So it is better to address the issue head on.
 
When the owner decides to sell the property, it will still have to comply with the Transfer Act. But the owner will be able to file a Form II, in which the owner certifies that the property has been remediated in accordance with DEP requirements. The advantage of the Form II is that the owner has no post-closing obligations. The filing of the form is all that is required. 
 
Please note that the owner is still responsible for any activities that may have happened at the property since the clean up was completed. For example, if there has been a spill since the completion of the clean up, then on a sale the owner is going to have to file a Form III under the Transfer Act.

Thursday, December 4, 2008

Could a Drop in Mortgage Rates Jumpstart a Turnaround?

The New York Times reported today that a drop in mortgage rates has resulted in an increase in mortgage refinancing. According to the Times, the drop in rates was the result of a decision by the Federal Reserve to buy up $500 million in mortgage-backed securities. In addition, both the Times and CNNMoney.com have reported that the Treasury Department is looking into ways to drive mortgage rates even lower. The drop in interest rates, coupled with the nationwide decline in housing prices, just might convince people to jump back into buying homes. This would include not just people looking for a new place to live, but also investors looking to gobble up good deals. With the record number of foreclosures in this country it is important that these houses get back in the hands of people who will maintain them and find occupants for them. Lower interest rates certainly are not going to solve all of the nation’s housing woes, but they could be a good first step.

 

As the articles noted, lower interest rates aren’t going to help people who can’t afford their current mortgages, because only the most qualified borrowers will get the new lower rate. But there are many proposals on the table to help the millions of distressed borrowers, and hopefully our government will finally find the right plan and get it moving. There is no dispute that stabilizing real estate is critical to reviving our economy.

Yahoo Finance also has a good article.


Monday, November 24, 2008

Lead Paint Disclosure Requirements in Residential Transactions

A recent article in the Commercial Record reported that a number of real estate brokerages throughout New England were being investigated by the federal Environmental Protection Agency for failing to comply with lead paint disclosure requirements. I don’t know if these agencies really were not in compliance, but it presents a good opportunity to provide some background information on the disclosure requirements. I won’t go into the requirements in depth because a detailed description of the requirements can be found at the HUD website. But it is important to remember that, before any contract for 1-4 family property is fully signed, the seller and the agent must provide the following information:
 
  • EPA approved pamphlet on lead-based paint hazards.
  • Disclose any known information concerning lead paint at the property.
  • Provide copies of all existing reports on lead paint at the property.
  • Include an attachment to the contract which includes a lead paint warning statement.
  • Allow the buyers an opportunity to inspect for lead paint hazards.
 

Note that these requirements also apply to leases of apartments and single-family residences.


Thursday, November 13, 2008

Protection from Existing Environmental Contamination

In my last post I talked about a recent statute which addressed the issue of disclosure of environmental issues in a property sale. Now I would like to address protection from existing contamination on a site being purchased. Many prospective purchasers, in deciding whether to buy a property, want to know if they can be responsible for contamination at a property they purchase, even if they had no hand in creating the contamination. The short answer is yes! Even if the buyer did not create the condition, he or she can be responsible for it. Under Connecticut statutes, any person who is “maintaining any facility or condition” which is a source of pollution can be required to clean it up.  Owning the property is the same as maintaining the source of pollution.
 
So how do you protect yourself? One way is to be 100% sure that there is no contamination on the property. That, of course, isn’t always possible. That is especially true if you know there was contamination on the site previously but it was supposedly cleaned up. Even the most thorough testing and remediation can miss something, although if the work is done by a competent environmental firm that should not happen.
 
There are some limited statutory protections in Connecticut. Section 22a-452e of the Connecticut statutes provides some protection to “innocent landowners.” To qualify as an innocent landowner, you must have purchased the property with no knowledge of the existing contamination and also must have conducted some due diligence in accordance with “good commercial practices.” So the buyer must have checked the site out and found nothing.
 
The protection afforded by this statute, however, is very limited. Under Section 22a-452e, if the state incurs clean up costs, the state can still file a lien against the property for those costs. The property owner cannot be assessed costs over and above the value of the property.  But your equity is still very much at risk. In addition, if the contamination has traveled into the groundwater or somehow affected a neighboring property, no protection is afforded.
 
A more recent statute, Section 22a-133ee offers some liability protection if the right conditions are met. If a person purchases a property that has contamination or has contaminated adjacent property, the owner will not be liable for damages to an adjoining property owner if the owner did not create the contamination, the site has been remediated, and the DEP has approved the remediation. These are pretty stringent requirements, especially the part where DEP has to sign off on the final report. In many clean ups the remediation can now be supervised by an environmental consultant and the DEP has no active role. In that case it might be sufficient if the final report has been submitted to DEP and DEP has elected not to audit the report. But the law isn’t clear about that.
 

Note that all of this doesn’t have to have taken place before the owner buys the property. The person can buy the property and then clean it up. If the DEP approves it, the owner is still protected, as long as the owner isn’t the one who caused the contamination in the first place.


Friday, October 31, 2008

Disclosure of Environmental Issues in Residential Real Estate Transactions

In the 2008 session the Connecticut legislature made some revisions to a little known law regarding disclosure of environmental contamination in residential real estate transactions. The law is Section 20-327f of the Connecticut General Statutes.  The original law stated that if a seller of a one to four family home disclosed to the buyer that a list of a list of local hazardous waste sites could be found at the local town clerk’s office, then the seller satisfied any possible obligation to disclose the existence of any of these facilities. Presumably this meant any facilities located near the property being sold, but of course the statute isn’t that specific. By statute the Connecticut Department of Environmental Protection is required to deliver the list to each town clerk. 
 
The revisions to the law kept the old language and added a new provision. It says, again for 1-4 family real estate, if the seller provides notice to the buyer of the “availability of information concerning environmental matters” from several different federal agencies and “third-party” providers, then the seller and any broker shall have satisfied any duty to disclose “environmental matters concerning properties other than the property that is the subject of the contract.”
 
The law specifically provides that the enactment of this law does not create a duty to make these disclosures. I am not aware of any law, either by statute or common law, which would require these disclosures. Why would a seller be required to disclose the environmental condition of a property he or she doesn’t own? Disclosures usually only apply to the property being sold. What else are they not required to disclose? What if the moon doesn’t hang quite as high as it used to? (Sorry, I always liked that line and couldn’t resist.) The end of caveat emptor and the emerging obligations of sellers to make disclosures about the property being sold, especially matters not easily found, are good things. But even suggesting that sellers make disclosures about other properties doesn’t make much sense to me.
 

Nonetheless, if you have the opportunity, it’s a pretty easy thing to put in a real estate contract. Most contracts for residential property are done on preprinted forms, so that isn’t going to be easy to do. But it is worth considering.


Tuesday, October 21, 2008

Update on Websites of Connecticut Cities and Towns

A recent article in the Connecticut Law Tribune (October 6, 2008) reports that some small towns in Connecticut have been forced to take down their web sites because of a new Connecticut law which requires them to post notices and minutes of their commissions. These towns say they do not have the staffing required to update their sites on a daily basis, or the funds to hire a webmaster. As a result, they have shut down or disabled their sites in order to avoid complying with the new law. Eventually it is likely that the towns will find a way to provide the information and their sites will up and running again.  Please refer to the entire article for more information.

Wednesday, October 8, 2008

Proposed DEP Release Reporting Regulations

On September 8th the Connecticut DEP released draft regulations for reporting of releases of hazardous wastes, petroleum products and other substances to the environment. The Connecticut General Assembly had passed a law requiring the reporting of such releases, codified at Connecticut General Statutes Section 22a-450, back in 1969. But DEP has never adopted regulations to implement the requirements of the statute, making it mostly ineffective. Now the DEP has started the process of adopting those regulations.
 
The proposed regulations will require that a report be sent to DEP if there is a release of any hazardous waste, hazardous substance, petroleum products, biomedical waste, or other substances in an amount greater than 10 pounds. Generally this means one incident, so releases of smaller amounts do not have to be added together. But in certain situations releases must be aggregated. For example if there have been a series of releases from the same source, the release amounts must be added together and cannot be considered separate releases for purposes of determining whether a release of more than ten pounds has occurred. Releases from underground tanks are included.
 
In some situations a release report would be required even if the amount released is less than ten pounds. Examples include releases near drinking water wells and releases to any watercourse or wetland.
 
A telephone report of any release would have to be made immediately to the DEP’s Emergency Response Unit Reporting telephone number. A written report would be required within seven days.
 
Finally, records would need to be kept for releases which do not have to be reported. The records would have to be kept for three years.
 
Since the regulations are not final a complete summary and analysis is premature. The regulations will go through a period of public comment and revision before they are adopted. In addition, the regulations will not be finalized until DEP has also finalized the revisions to the Connecticut Remediation Standard Regulations, which are also in the process of public comment.

Wednesday, October 1, 2008

How Not to Draft (or Interpret) a Real Estate Contract

Lawyers are criticized for many things, and their writing is one of the most popular. Legal documents of all kinds often read as if they were prepared by an attorney from a Charles Dickens novel. My wife and I recently had our wills redone by a good friend of mine, and I told him that I had a hard time figuring out what the documents meant, and I’m an attorney! Of course, we also get our share of criticism for the cost of drafting the documents, with many comments suggesting that we charge by the letter, the word or page. Many of us try to make our documents simpler, but it just never seems to catch on.
 
So it was with some amusement, and then disbelief, that I read a recent decision by the Connecticut Appellate Court entitled WE 470 Murdock, LLC v. Cosmos Real Estate, LLC, 109 Conn. App. 605 (2008). This case involved a large commercial real estate transaction gone bad. Two parties entered into a purchase and sale agreement for the property, but they were not able to complete the closing because one of the owners was not a party to the contract and ultimately refused to sell. The buyer was not able to sue to force the sale to go through (specific performance) because not all the owners had signed the contract. So the buyer’s only option was to terminate the contact because the seller could not deliver clear title.
 
In many contracts, when a buyer terminates because of inability to deliver clear title, the buyer is entitled to recoup some out of pocket costs. In this contract the buyer was entitled to get its deposit back plus “any expenses actually incurred by the buyer for attorney’s fees, nonrefundable fees of lending institutions, title search costs and inspection fees (the total cost of which shall not exceed the cost of fee title insurance based upon the amount of the purchase price.” The parties agreed that the amount of the title insurance would be $4,650, but disagreed how the limit applied. The seller said this was a limit on all the expenses, while the buyer said it only limited the amount of inspection fees because that was the category that immediately preceding the limitation. This was an important point because the buyer claimed its expenses exceeded $100,000.
 
The court ruled that the language of the contract was clear and did not require any consideration of the parties’ intent. It said that the “parenthetical places a limit on the ‘total cost,’” but that the “the logical and sensible conclusion is that the use of that term in the parenthetical is limited to the total costs of the inspection fees.” According to the court, “interpreting the provision so that the parenthetical modifies the entire preceding list results in an illogical result that obviates the need for an enumerated list.”
 
Does that make sense to anyone else? How does it obviate the need for a list? In drafting contracts we often include lists which are not exclusive. I do not have access to the court transcripts, testimony or other records, so I don’t know what other evidence of the parties’ intent might have been provided to the court. But why would the parties’ limit the cost of only one item? If the seller was concerned about writing a blank check for reimbursing expenses, I would think that the seller would want a limit on the total costs, not just one item. Inspection fees are not typically the biggest cost in these transactions, so I don’t know why anyone would be especially concerned about that amount.
 
I suppose the language could have been drafted a little clearer. There is room for more clarity in all legal writing, although it typically requires more words. For example, a good way is to use a defined term, such as “Buyer’s Expenses.” Buyer’s Expenses would be defined as all the buyer’s reimbursable costs, and then it would be subject to the limit. Or maybe it would have been sufficient to say “the total cost of all of the foregoing expenses shall not exceed …” Every contract needs a few “foregoings” and “thereafters”. Frankly I thought the language was pretty clear as is.




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