Whether you are a Lender or a Borrower, it’s obviously very important to know what terms are included in your Loan Documents and how they may affect your interests. Periodically, I will be blogging on issues and concerns regarding Loan Documents and areas that I believe everyone needs to be particularly focused on.

Today, I’d like to highlight Casualty provisions. Most mortgages in Pennsylvania have provisions regarding what happens if a casualty or damage occurs to the mortgaged Premises. This is important for both Lender and Borrower.

For a Lender, the wording of a casualty clause could determine the manner in which insurance proceeds will be distributed, and if Borrower is required to use them in particular ways, or are free to use them as they see fit. Lenders typically prefer to have control in instances of a casualty and over any potential insurance proceeds. A casualty could detrimentally affect what is potentially a Lender’s most valuable piece of collateral, and taking steps before something goes wrong could save the Lender a lot of aggravation and money.

On the flip side, a Borrower also wants the ability to control any insurance proceeds. A casualty clause unfavorable to a Borrower may prevent it from receiving any of the insurance proceeds at all and Borrower will be at the mercy of the Lender if it wishes to rebuild the damaged property. Depending on the language in the casualty provisions, the Borrower could find itself in the unenviable scenario whereby all of its insurance proceeds are used to pay down the loan and now Borrower is left with the remaining debt and no building on the Premises to create income for the business.

It’s important whether you’re a Lender or a Borrower to have good representation assist you in reviewing, drafting, or negotiating your Loan Documents. If you have any questions or need assistance, please contact Tim at 215-918-3596.

If your development projects fronts on a state road, then it is likely that you will need a Highway Occupancy Permit (“HOP”) from PennDOT. If you need a HOP from PennDOT, then it is very likely that you will need to improve one or more state roads. If you need to improve one or more state roads, then it is also likely that you will need to obtain right of way or easements from third party property owners. Well now . . . as most of you know who have been through this process . . . there is nothing more frustrating in the real estate development approval process than having to obtain right of way from third party property owners. Why is it frustrating? Because, as a developer, you do not have much leverage to force these property owners to grant you this required right of way, particularly when it is needed in order to complete roadway improvements that are being required by PennDOT or the municipality as part of your project.

In the past, developers would obtain right of way, in the form of a PennDOT deed, directly from the property owner to PennDOT. Now, in accordance with PennDOT’s Publication 282, the deed for the right of way must be conveyed from the third party property owner to the applicant, then a separate deed, using PennDOT’s form, from the applicant to PennDOT. In addition, no deed will be accepted without PennDOT’s review of a title search to confirm the owner of the right of way and that there are not any mortgages, judgments or other monetary liens recorded against the subject property. If there are any such monetary liens, then a release may need to be obtained from the mortgagee. Another issue faced by developers, when working to obtain the HOP from PennDOT, are easements that are required by PennDOT or the municipality beyond the right of way area. These include site distance easements (i.e., the right to remove all vegetation within the certain area of a third party property), drainage easements (the right to drain water onto the property of a third party owner), grading easements (the right to regrade the property of a third party owner), among others.

So, what happens when the property owner refuses to grant this required right of way or easement? If you are lucky, you go back to PennDOT and the municipality and explain, and they allow you to modify your plans so that you do not need this right of way or easement. If you are not so lucky, then you have to “beg and plead” either PennDOT or the municipality to condemn the property interest at issue. It is extremely unlikely that you will ever get PennDOT to proceed with this proposed condemnation, unless the proposed roadway work is part of a previously approved PennDOT plan that you are offering to do on their behalf. You have a much better chance at convincing a municipality to condemn the land but, to do so, you normally have to show the municipality that you had the property interest appraised and that you made fair offers to the third party property owner for this property interest. If you can convince the municipality to move forward to condemn the property interest, then you will likely need to enter into an indemnity agreement with the municipality to reimburse them for all costs incurred by the municipality in connection with any such taking. Many times third party property owners will file preliminary objections which can, at times, extend the time period to obtain this property interest for months, and, at times, for years. Putting a good plan in place to address and/or obtain these required third party property interests, up front, and having an open dialogue about the proposed roadway improvements with and without your ability to obtain the third party property interest, again up front, is the best way to handle issues related to obtaining these required right of ways and easements. That is, getting the municipality to “buy-in” to the roadway improvements will help you later to secure the required right of way and easements.

If you should have any questions on this topic, or should need our assistance to help you secure required right of way or easements, please contact Rob Gundlach at (215) 918-3636 or rgundlach@foxrothschild.com.


In the case of Cardinal Crossing v. Marple Township, the PA Commonwealth Court was faced with the issue of whether a developer, who spends substantial funds on a development, in reliance on statements of support from a committee formed by the Township (which included Township officials), can recover damages from the Township when the Board of Commissioners did not adopt the requested zoning amendment for the proposed project to proceed forward. The Commonwealth Court, in finding that unofficial action by Township officials cannot bind a Township to take legislative action, upheld the decision of the Court of Common Pleas and found in favor of the Township and dismissed developer’s complaint.

In this case, a developer entered into an agreement of sale with the Archdiocese to purchase property subject to developer obtaining a rezoning to allow the development of 1,100,000 square feet of commercial/office space and 375 townhomes. However, this agreement of sale provided that the sum of $5,000,000 would become non-refundable at the end of the due diligence period. The developer started meeting with representatives of the Township in August of 2014, but did not file its formal application for zoning relief until May 21, 2015; less than 30 days prior to when its $5,000,000 deposit would become non-refundable. The Township’s Planning Commission voted to recommend denial of the requested zoning relief and the Board of Commissioners then voted to deny the application for rezoning in May of 2016 (well after the deposit went non-refundable) and less than 60 days before its agreement of sale with the Archdiocese was scheduled to expire.

In the complaint, developer claimed that the Township representatives, with whom it met, repeatedly represented that the Township wanted the property developed as proposed and that the Township knew or should have known that developer would rely upon these representations; and it relied upon these representations to execute the agreement of sale, pay the deposits and prepare the application for the requested zoning relief. Evidently, the developer spent more than $7,000,000 between its soft costs and the deposit.

The Court of Common Pleas held, in ruling in favor of the Township, that no statement of these representatives could rise to the level of an inducement or promise by the Township to grant the requested zoning relief and that developer knew or should have known that the enactment of a zoning amendment was a legislative act that would be binding only upon a vote of the Board of Commissioners. The Commonwealth Court held that there was no official action by the Township that the developer alleged in its complaint that caused it to act to its detriment.

The lesson here is that developers cannot rely upon statements of support by Township representatives (even members of the governing body) outside of a public hearing and should formally file its petition for zoning relief at the earliest possible date and push that application for a decision by the governing body prior to developer’s deposit “going hard” under its agreements of sale. Developers should also insure that they have sufficient time under their agreement of sale to work with all applicable parties and hold the required hearings. If not, developers should “walk away” before they get in too deep as the developer did in this case.

For more information on the subject, please feel free to contact Rob Gundlach at (215) 918-3636 or rgundlach@foxrothschild.com.

Governor Tom Wolf signed into law, on July 20, 2017, Act 26, which amended the Pennsylvania Sewage Facilities Act concerning the use of alternate sewage systems for purposes of obtaining planning module approval from DEP for a new project. Act 26 is scheduled to take effect on or about September 18, 2017.

Many developers ask the question as to their right to use A/B sewage systems and other alternate sewage systems for purposes of obtaining planning module approval for a new project. Up until recently, DEP has taken the position that they do not have the authority to approve a planning module that uses alternate or experimental sewage systems. This position was recently confirmed in a memo issued by DEP, dated March 23, 2017[1]. In other words, DEP would not allow A/B sewage systems, and other alternative systems, to be used for purposes of planning module approval for a new project. This routinely resulted in developers obtaining less density than they could otherwise obtain by having to use conventional sewage systems for planning module approval.

Act 22 now requires DEP to accept, for the purpose of satisfying general site suitability requirements, any conventional or alternate on-lot sewage systems permitted by a sewage enforcement officer. Therefore, A/B sewage systems, and other alternate systems, should now be allowed to be used for planning purposes. Act 22 goes on to require DEP, in consultation with the sewage advisory committee and within 180 days of the effective date of the Act, to develop scientific, technical and field testing standards upon which an evaluation of each on-lot sewage system that has been classified as an alternate system shall be based. The Act also requires DEP, in consultation with the sewage advisory committee, to review the scientific, technical and field testing data for each individual on-lot sewage system and each community on-lot sewage system that is classified as an alternate on-lot sewage system and, based on this information, either reclassify the alternate sewage systems as a conventional system or remove the system’s classification as an alternate system.

I suspect that there will be more to follow on this topic. Nevertheless, to the extent that a developer has a project that can yield greater density using one or more alternate systems, then the developer should consult with its legal counsel and sewer consultant as to its viability to do so based on Act 26.

For more information on the use of alternate systems, or the approval of planning modules in general, please feel free to contact Rob Gundlach at (215) 918-3636 or rgundlach@foxrothschild.com.

[1] See prior Blog on this subject from this author.

In a recent Commonwealth Court decision, Appeal of Chester County Outdoor, LLC, No. 1761 C.D. 2016, 2017 WL 3198266 (Pa. Comm. July 28, 2017), the Court held that, after a successful validity challenge to an ordinance, the challenger must file an application for site-specific relief with the municipality prior to filing an action with the court pursuant to Section 1006-A of the Municipalities Planning Code (MPC).

Chester County Outdoor, LLC (CCO), a billboard developer, filed a challenge to the substantive validity of the East Pikeland Township Zoning Ordinance (the “Ordinance”) with the Township Zoning Hearing Board (the “ZHB”), alleging that the Ordinance unlawfully excluded billboards. CCO did not request site-specific relief from the ZHB, or submit plans for a proposed billboard with the validity challenge.

Before the ZHB made a decision as to the validity challenge, the Township Board of Supervisors adopted a resolution which declared the challenged sections of the Ordinance to be invalid.  The ZHB then issued a decision sustaining the validity challenge, and the Township subsequently adopted a curative amendment to the Ordinance.

After adoption of the curative amendment, CCO filed a declaratory judgment action with the trial court, seeking a declaration that CCO is entitled to site-specific relief to permit a billboard on the subject property, and a hearing held pursuant to 1006-A(d) of the MPC.

Section 1006-A(d) provides, in part, that upon motion by any of the parties or upon motion by the court, the judge of the court may hold a hearing or hearings to receive additional evidence or employ experts to aid the court to frame an appropriate order.

After CCO petitioned for a hearing under 1006-A(d), the Township filed a motion for the ZHB to be appointed the special hearing master under 1006-A(c).  However, after granting the Township’s motion, and reviewing the ZHB’s special master report, the trial court ruled that CCO’s request for site-specific relief did not belong before the trial court because, after prevailing on its validity challenge, CCO should have submitted plans to the Township before filing an action with the trial court.  Because CCO never applied for and been denied site-specific relief form the Township, no relief was available under Section 1006-A of the MPC.  CCO appealed the trial court’s decision to the Commonwealth Court.

The Commonwealth Court ultimately remanded the case back to the trial court and ruled that, while CCO is required to first submit its request for site-specific relief to the ZHB for consideration and determination, the trial court is the ultimate decision maker. The trial court is required under Section 1006-A of the MPC to conduct a de novo review of the evidence, and need not give deference to the ZHB’s findings.  As part of its de novo review, however, the trial court, in its discretion, is permitted to accept the ZHB’s findings as its own.  The trial court is also permitted, but not required, to hold a hearing and take additional evidence.  After conducting its de novo review, the trial court is required to grant the request for site-specific relief, unless the Township meets its burden of proving the materiality of certain “unchallenged, pre-existing, and generally applicable” provisions of the Ordinance, and that the proposed billboard is incompatible with such provisions.  When applying these unchallenged, pre-existing and generally applicable provisions to the billboard proposal, however, the trial court must be mindful to not apply these provisions in a manner that would exclude all billboards, or limit the trial court’s discretion in fashioning site-specific relief to CCO.

In addition, the Court held that the trial court is not permitted to apply the curative amendment to CCO’s request for site-specific relief because it was adopted after CCO filed its validity challenge.  In the event that the trial court concludes that CCO’s proposed billboard (i) is incompatible with any of the Ordinance’s “unchallenged, pre-existing, and generally applicable provisions,” and/or (ii) that the proposed billboard is contrary to the public health, safety and welfare, the trial court must consider alternative sites and/or alternative configurations for the proposed billboard and fashion some form of site-specific relief to CCO.

Kevin Scott writes:

In case you missed it last week, The Wall Street Journal and others reported (sub. req.) that the rate index LIBOR is going to be discontinued by the end of 2021. LIBOR has been the base index for most all variable rate loans, bonds, interest rate swaps and other instruments for many years. Various industry working groups are trying to establish an alternative index to replace LIBOR.

Globe on financial reportWhile most of the loan documents utilized over the years already have provisions that take effect if LIBOR is discontinued, it is doubtful that those provisions received much, if any, scrutiny.

For companies or individuals with LIBOR loans, please consider the following:

  1. If the loan matures prior to December 2021, there should be nothing to do. However, if the loan is a revolving line of credit, with annual renewals, even that loan will need to be reviewed.
  2. If the loan extends beyond December 2021, they should review the documents to see if there is a replacement mechanism that makes economic sense and actually works. Below are a few examples:

LIBOR: for any Interest Period for a LIBOR Loan, the per annum rate of interest (rounded up, if necessary, to the nearest 1/8th of 1%) determined by Agent at or about 11:00 a.m. (London time) two Business Days prior to such Interest Period, for a term equivalent to such period, equal to the London Interbank Offered Rate, or comparable or successor rate approved by Agent, as published on the applicable Reuters screen page (or other commercially available source designated by Agent from time to time); provided, that any such comparable or successor rate shall be applied by Agent, if administratively feasible, in a manner consistent with market practice.

If, for any reason, such rate is not available, the term LIBOR Rate shall mean, with respect to any LIBOR Rate Loan for the LIBOR Interest Period applicable thereto, the rate of interest per annum determined by Purchaser to be the average rate of interest per annum at which deposits in Dollars are offered for such LIBOR Interest Period to major banks in London, England at approximately 11:00 A.M. (London time) 2 London Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period.

As you can see, both examples rely on the lender to choose the replacement index. The first example probably works. The second, which continues the reliance on London-based banks, probably does not work, as it was manipulation of the rate index in London that caused the demise of the index in the first place.

  1. For all new loans, the successor index language should be reviewed carefully to make sure it is clearly written and commercially reasonable.

I am sure we will all be hearing a lot about this in the coming months and I suspect that banks will begin reviewing their documents and proposing amendments as required.

Kevin Scott is a partner in the firm’s Corporate Department, resident in its Philadelphia office.

In a case caption Smith v. Ivy Lee Real Estate, LLC, the Commonwealth Court of Pennsylvania was faced with the question if Section 617 of the MPC permits a private cause of action to enforce a subdivision land development ordinance (SALDO). In the case, the Smith family alleged that Ivy Lee, who was their neighbor, engaged in construction activities that constituted land development under the township’s SALDO. The Smith family requested, among other things, a permanent injunction against Ivy Lee preventing construction activities unless and until Ivy Lee obtains the required SALDO approvals. The Smith family contended that, even though the township refused to enforce the SALDO, the Smith family had a right to bring a private enforcement action under Section 617 of the MPC.

The trial court determined that Section 617 creates a private cause of action solely for zoning violations, but ruled that the Smith family does not have standing to enforce the SALDO pursuant to Section 617 of the MPC. However, the Commonwealth Court found, in reviewing the language of Section 617 of the MPC and certain case law concerning it, that the plain language of Section 617 permits a private cause of action to enforce an alleged violation of any ordinance enacted under the MPC, including a SALDO.

The net of this case is that landowners can bring a private action against another landowner for their failure to comply with ordinances enacted under the MPC, including their failure to obtain land development approval. From a practical standpoint, given the broad definition of land development in the MPC and many municipal ordinances, there may be more instances where a municipality determines that land development approval is not required (such as for a change in use), but a private party might see otherwise and now, based on this case, has a right to bring their own private action against the violating landowner.

If you have any questions concerning the subject matter contained in this blog, on land use issues in general, please contact Rob Gundlach at 215-918-3636 or RGundlach@foxrothschild.com.

In a recent Supreme Court of Pennsylvania case, captioned as Valley Forge Towers, taxpayer brought an action against the school district, as a taxing district, seeking declaratory and injunctive relief claiming that the school district violated the uniformity clause of the Pennsylvania Constitution by systematically appealing only assessments of commercial properties. The Montgomery County Court of Common Pleas sustained the school district’s policy and dismissed the complaint. The taxpayers appealed to the Commonwealth Court of Pennsylvania who affirmed the lower court’s decision. The PA Supreme Court accepted the appeal to address the question of whether the uniformity clause of the Pennsylvania Constitution permits a taxing authority to selectively appeal only the assessments of commercial properties, such as apartment complexes, while choosing not to appeal the assessments of other types of properties- most notably, single family residential homes (many of which are under assessed by a greater percentage than commercial properties). After discussing previous court precedent and the specific facts of this case (i.e., the school district’s concentration solely on the appeal of tax assessments on commercial properties), the Supreme Court found that taxpayer’s complaint set forth a valid claim that the school district’s tax assessment appeal policy violated the uniformity clause. The court reversed the order of the Commonwealth Court and remanded the matter back for further proceedings. The Supreme Court did note, however, that nothing in the opinion should be construed as suggesting that the use of a monetary threshold or some other selection criterial would violate uniformity if it was implemented without regards to the type of property in question or the residency status of its owner; noting that such other methodology was not before the court. I suspect that this decision will not be the “last word” on the subject of school district tax appeals under Section 8855 of the Consolidate County Assessment Law (giving taxing authorities the same right as taxpayers to appeal tax assessments set by the County). If we can be of assistance with your PA real estate tax appeals, or the defense of tax appeals filed by a taxing authority, please contact Rob Gundlach at (215) 918-3636, or rgundlach@foxrothschild.com.

In many cases, clients ask us if we can file a motion against the other party for filing a false or frivolous pleading. In a recent opinion, the Commonwealth Court of Pennsylvania outlined the way in which a party must file a motion for sanctions for a false pleading. In the case of Pane, et al., v. Indian Rocks Property Owners Association, a dispute occurred as to if the Panes were entitled to construct a swimming pool on their property that was in a community association. The Association objected, and the Panes filed a complaint requesting a declaratory judgment against the Association, allowing them to build their proposed swimming pool. The Association answered their complaint, but then filed a separate action seeking a preliminary injunction. In this separate action, the Association stated that it had adopted a rule prohibiting swimming pools on individual lots within the development.

The trial court granted the summary judgment motion filed by the Panes in favor of allowing them to construct their proposed swimming pool, denied the Association’s summary judgment motion to prohibit the swimming pool, and denied the Panes’ motion (which was only made orally during argument on the summary judgment motions) for sanctions against the Association.

In denying the motion for sanctions, the trial court noted that the civil rules require that motions for sanctions be made separately from other motions and that the motion include a description of the specific conduct that allegedly gives rise to the sanctions. The trial court also noted that the request for sanctions was filed under the docket number for the Panes’ case for declaratory judgment when it should have been filed in the action initiated by the Association seeking a preliminary injunction. The Commonwealth Court affirmed the trial court’s decision to deny the request for sanctions and also noted that the Panes’ motion for sanctions did not comply with the “safe harbor” requirement of the civil rules (which requires the party moving for sanctions to include a certification with their motion that they served written notice and demand on the party or counsel who verified the pleading at issue and that each false allegation be corrected or withdrawn, and that the moving party then provide the other party 28 days to withdraw the allegations or correct the record before filing the motion for sanctions). The Commonwealth Court noted that the Panes’ motion for sanction was made orally during argument on the summary judgment motions and that the Panes did not file a certification confirming that a demand was served on the Association requesting the withdrawal of the allegations or the correction of the record.

Interestingly, no party seemed to contest the fact that the Association’s pleading included an incorrect allegation as to the fact that the Association had not adopted a rule prohibiting pools on individual lots within the Indian Rocks development. Given the severity of this allegation, and how the Association’s defense was based upon it, it appears that a correctly filed motion for sanctions may have been considered by the court in this case. Although no way to know for sure, as courts normally would only grant such motions in limited circumstances; however, this case does set forth the importance of sending the proper notification to the other party as to the alleged false allegation and allowing such party an opportunity to correct it within the referenced deadline.

If you should need assistance in this area of the law, please feel free to contact Rob Gundlach at (215) 918-3636, or rgundlach@foxrothschild.com.

Obtaining financing for your development project is one of the most important aspects of moving your development plans from paper to reality. Recently, the New Jersey Economic Development Authority (the “Authority”) created a Real Estate Impact Fund (the “REIF”). The REIF supports private and public redevelopment projects on underutilized property in New Jersey by facilitating the procurement of financing for small and mid-size development projects.

Through the REIF’s private component, for-profit and non-profit developers and businesses may obtain up to $3 million in financing from the Authority. REIF funding may be used for a variety of purposes, including property acquisition and assembly; demolition and site clearance; environmental investigation and remediation; pre-development costs; on-site infrastructure; general construction and/or rehabilitation; and associated soft development expenses.

To be eligible for REIF financing, the development project must be located in a “targeted area.” Targeted areas include: Urban Aid Municipalities; projects in Fort Monmouth; and New Jersey university/college sponsored projects that promote emerging technologies or industries. The total cost of the planned development project should not exceed $15 million. In addition, the project must create or maintain one full-time job for every $65,000 in REIF financing procured.

REIF-financed projects can be either new construction or substantial rehabilitation. Potential REIF-eligible projects include: mixed-use (residential and minimum 20% commercial); retail; office; industrial; entertainment venues; associated parking garage structures; and/or land acquisition/assemblages. Residential only projects are not eligible to receive REIF financing.

Obtaining REIF financing requires the completion of an online application and compliance with other certain requirements, such as consulting with a New Jersey Business Development Officer. We can assist you in preparing your application and complying with the application process requirements.

Please contact Rob Gundlach for more information at 215-918-3636 or rgundlach@foxrothschild.com.