Establishing a Legal Nonconforming Use

The key to a legal nonconforming use is establishing that the use was previously permitted. The Utah Court of Appeals recently reiterated this statutory requirement in LJ Mascaro v. Herriman City, 2018 UT App 127, where it stated a land owner must “provide substantial evidence to support a prior legal use,” in order to gain protected legal nonconforming use status.  In Mascaro, the court held that the land owner had failed to provide evidence that its use was ever legally permitted and therefore upheld a denial of nonconforming use status.

To establish a legal nonconforming use, the use must have “legally existed before its current land use designation,” must be “maintained continuously” following a change in the applicable land use regulations, and now fails to comply with those regulations. Utah Code Ann. § 10-9a-103(37).  In Mascaro the court easily found the use had continuously existed and was now not permitted, but it did not find sufficient evidence that such use was ever legally permitted.

The factual nuances in Mascaro stem from an attempted annexation of the land owner’s property from Salt Lake County into Riverton City in 1978, which was found null and void in 1981, and then a successful 2009 annexation into, and zoning by, Herriman City.  In 2013 the land owner requested that the use of topsoil manufacturing and screening be considered a legal nonconforming use by Herriman City, rather than require a conditional use permit pursuant to the new zoning.  The Herriman City Planning Commission considered the evidence but found that it did not support the establishment of a legal nonconforming use by Salt Lake County prior to the annexation and found the lack of zoning for the short period the property was subject to the Riverton City annexation inapplicable, and therefore it denied the request for nonconforming use status.

The Mascaro court agreed with the city’s conclusion, stating that the land owner had not provided evidence of land use approvals, business licenses, or other permits from Salt Lake County establishing the use as legal.  The court also found that the land owner had not provided evidence that the use existed prior to Salt Lake County adopting zoning ordinances prohibiting the use.  The court did not address whether the annexation into Riverton City and lack of applicable zoning until the annexation was voided could have established the use as permitted, because the court found the land owner had failed to preserve the issue for appeal.  The court therefore held that the denial of nonconforming use status was not illegal or arbitrary and capricious.

California Court Finds Coverage When “Property Damage” Doesn’t Require Physical Injury By Definition

Although it may seem strange at first, the recent ruling by the California Fourth Appellate District Court in Thee Sombrero, Inc. v. Scottsdale Co., (2018 EL 5292072), holding that an insurer must pay for a claim where there was no actual physical property damage, is not as odd as it may seem to non-insurance coverage lawyers.  The reason?  It all depends on the policy language and the definition of “Property Damage” where there is an “occurrence.”

The underlying facts are noteworthy in that there was no dispute that the plaintiff-claimant, Thee Sombrero, Inc. (Sombrero), lost revenue and the value of its real estate (diminished value) when the security company it hired to provide security guards failed to keep guns out of Sombrero’s nightclub.  A fatal shooting due to that alleged negligence (“an occurrence”) resulted in a lost ability by Sombrero to operate its property as a nightclub.  That specific loss of use totaled almost a million dollars in diminished value of the Sombrero property.  Sombrero sued the security company for the lost value, and the security company defaulted.  Sombrero then pursued the security company’s insurer, Scottsdale, under California Insurance Code section 11580, which allows a prevailing claimant to file a direct action against the insurer for coverage under the applicable insurance policy.

Scottsdale filed a motion for summary judgment not long after the section 11580 action was filed against it, arguing that the loss of the “use permit” for a nightclub was not lost use of tangible property, but merely the loss of an intangible right to use property in a certain way, and really economic loss that is not covered as property damage under the policy. The trial court agreed.  Sombrero appealed and argued in essence that “[t]he loss of the ability to use the property as a nightclub is, by definition, a ‘loss of use’ of ‘tangible property.’” To which the appellate court commented, “It defies common sense to argue otherwise.”  At the same time, however, the appellate court identified contrary authority involving Scottsdale (albeit in Washington State) that was “strikingly similar” to the present case, yet distinguished the prior Scottsdale decision on three grounds:  1) the focus should be on the loss of use of the tangible property that results from the loss of the entitlement, not just the entitlement, 2) the loss is not defined in the policy as requiring a “total loss” and therefore under normal interpretation standards “any significant use” lost would be within the reasonable expectation of the insured for coverage, and 3) acknowledging that a leasehold of a specific type of property is an actual property right, and the loss of such use of a property right is therefore a loss of use of tangible property.   In stating the “correct principal,” the appellate court held that “losses that are exclusively economic, without any accompanying physical damage or loss of use of tangible property, do not constitute property damage.”  Here, because the Scottsdale policy “expressly defined property damage as including” ‘[l]oss of use of tangible property that is not physically injured,” the appellate court disregarded the distinguishable California cases with differing policy language under consideration.

While this case did not arise out of a construction defect dispute, the points of insurance coverage may be applicable in a future construction defect context where there has been an “occurrence” but no physical injury to the property, only a valuable loss of use of that property.  Of course, it will always depend on the specific language of the insurance policy, which is why it is so important to understand the insurance policies and potential for coverage in any dispute.

Dispute Resolution for Developers

The nearly 60 cranes towering over Seattle’s skyline may be a sign of the building boom in the city, but they also could portend a flood of construction claims arising from the projects they help build. Despite the frequency of construction claims, many developers are not familiar with the dispute resolution methods available to them and the impact they have on the outcomes of their construction claims, projects, and businesses. In my latest article for the Seattle Daily Journal of Commerce, I look at the most popular dispute resolution methods and provide developers with a guide to selecting the best dispute resolution method(s) for their construction contracts so they have a blueprint for how to handle construction claims when they arise. Read the full article here.

Originally published as “Dispute resolution tips for developers to use in handling construction claims” on November 1, 2018, by the Seattle Daily Journal of Commerce.

Cross-Laminated Timber Projects: The Pacific Northwest’s Next Big Timber Development

Cross-laminated timber (“CLT”) is a leading building technology that has been employed by European developers for decades, but the product’s use in the United States only recently took hold after its adoption by the 2015 International Building Code. A type of structural timber product composed of dimensional timber layers bonded together with structural adhesives, CLT can have the structural integrity of steel, and its use can reduce construction schedules by as much as half. In my latest article for the Seattle Daily Journal of Commerce, I look at several steps the owner of a project should consider before starting any project utilizing innovative and developing technologies like CLT.   Read the full article here.

Originally published as “Thinking of building with CLT? Here are some things to consider before starting” on October 4, 2018, by the Seattle Daily Journal of Commerce.

“Is Mike M. Johnson Here to Stay?”—Recent Washington Supreme Court Case Upholds Contractual Waiver of Claims Provision

In Nova Contracting, Inc. v. City of Olympia, No. 94711-2 (Wash. Sept. 29, 2018), the Washington Supreme Court, sitting en banc, ruled in favor of a municipality on the issue of whether the general contractor complied with a contract’s notice of claim provision.  Relying on Mike M. Johnson, Inc. v. Spokane County, 150 Wn.2d 375, 78 P.3d 161 (2003), the court in Nova Contracting held that a broad notice of claim provision (waiving “any claims” for noncompliance) (a) mandates written, rather than actual, notice of claims and (b) applies not only to claims for cost of work performed, but also to claims for (i) expectancy and consequential damages and (ii) breach of the covenant of good faith and fair dealing.  Slip op. at 2-3, 15.

The case arose from certain disputes between the City of Olympia (the “City”) and a contractor (“NOVA”) in connection with a public works contract in which the contractor agreed to replace an aging cement culvert. The contract contained a “notice of protest” provision from the Washington State Department of Transportation’s standard specifications.  This provision required the contractor to “‘give a signed written notice of protest’ ‘[i]mmediately’ if it ‘disagree[d] with anything required in a change order, another written order, or an oral order from the [City] Engineer, including any direction, instruction, interpretation, or determination by the Engineer.’” Id. at 1-2. Continue Reading

California Labor Commissioner Issues $1.9 Million Citation to Contractor for Wage Theft

Continuing its aggressive enforcement of California wage and hour laws, the Labor Commission issued wage theft citations of $1.9 million to Fullerton Pacific Interiors, Inc. for failing to pay minimum wage and overtime and failing to provide rest periods to 472 workers on 26 construction projects throughout Southern California.

Fullerton Pacific Interiors provided drywall work at commercial projects throughout southern California.  The company paid its taping and drywall installation crew a flat daily rate.  Thus, regardless of the number of hours actually worked, employees received the same daily pay.  Workers were permitted the legally required 30-minute meal period, but did not receive mandated rest breaks. On July 9, 2018, the Labor Commissioner also determined that the company failed to provide employees accurate itemized wage statements as required by law. The $1,964,679 citation includes $1,892,279 payable to the workers for owed wages, liquidated damages and waiting time penalties, as well as $72,400 in civil penalties.

Since being appointed Labor Commissioner by Governor Brown in 2011, Julie A. Sue has been very public about her intention to dramatically increase enforcement of California’s Wage Theft Protection Act that went into effect in January 2012.  “Wage theft” is defined as any instance when an employer fails to provide an employee full pay for all hours worked, including paying less than minimum wage, failing to provide overtime pay, requiring workers to perform off-the-clock work, and failing to provide meal and rest breaks. The Act and subsequent legislation have given the Labor Commissioner more legal tools and financial resources to enforce California’s myriad wage and hour laws. Under Su’s leadership, the California Division of Labor Standards Enforcement has focused its enforcement efforts on low wage workers, particularly those in the construction industry.

Takeaway for Employers:

This citation should be a wake-up call for California employers that failing to comply with California wage and hour laws can be extremely costly.   These laws are notoriously complex and counter-intuitive.  To ensure compliance, an employer may wish to conduct a self-audit under the direction of legal counsel.

A New Architectural Icon Opens in Seattle

The dramatic “Spheres” at the new Amazon headquarters in downtown Seattle have joined the Space Needle, downtown Seattle Library, Smith Tower, and Pacific Science Center as architectural icons of the city. The project includes meeting spaces for Amazon employees and a botanical garden with over 40,000 plants.  Information about the building and its contents can be obtained at the “SeattleSpheres” website.

A partial list of firms involved in creating the Spheres follows: NBBJ (architectural design); Magnusson Klemencic Associates (structural design); Sellen Construction (general contractor); Front, Inc. (structural details and analysis); Canron Western Constructors/Supreme Steel (steel fabricator and erector); Mohawk Metal (steel fabricator); Albina Co. (steel bending and rolling); Enclos (glazing contractor); Northwestern Industries, Inc. (glass fabricator); and Vitro Architectural Glass (glass supplier).  Further information about the design and construction challenges overcome on the project can be found on these firms’ websites.

The Spheres are open to the public two Saturdays a month by reservation only. A display area on the ground floor, called Spheres Discovery at Understory, is open to the public daily.

Developers and Builders Gain Time from Permit Expiration in California with AB 2913

After decades of dealing with a hodgepodge of local adoption (or not) of administrative codes relating to building permit extensions, California Governor Brown’s September 21, 2018 signature on AB 2913 is a welcome addition of at least six months to the existing statutory commencement of work period. AB 2913 allows a uniform 12-month period across the entire state for commencement of work after permit issuance, doubling the prior period. 

Because of the confluence of market demand and significant labor shortages in construction, the previously existing six-month expiration of building permits caused further hardship to developers and builders in their efforts to bring projects to market.  Since state law mandates that a permit require all projects to be built according to the code in existence at the time of the first permit issuance, this hardship was particularly acute where a building code change was adopted after the original permit date, and the permit then expired. In this market, the cost of code changes (and any redesign, cost of compliance, and rebidding potentially) could significantly impact the project cost and timeline. 

There is a further benefit to the amended statute: it expressly provides “good cause” for an additional six-month extension (which would be in addition to the 12 months for new permits) by local jurisdictions, something not previously adopted by all local jurisdictions or clearly available to developers and builders before. 

The amendment applies prospectively, not retroactively; only permits issued after September 21, 2018 will benefit from the new 12-month period.

Managing Risk from Gaps in Your Construction Project

Experienced project developers know that managing risk on a major project involves initial planning, design, construction, and commissioning. These tasks call for different skill sets — making it tempting to think of them as separate — but they need to be coordinated to prevent the creation of troublesome gaps in areas of responsibility. In my latest article for the Daily Journal of Commerce, I examine where these gaps may occur — in planning for code compliance, assigning scopes of work, procuring construction materials and other areas — and I look at ways to manage the risk presented by such gaps. Read the full article here.

“Teamwork is needed during each stage of a project: supply, delivery, installation, testing” was originally published by the Seattle Daily Journal of Commerce on September 6, 2018.

The Owner’s Guide to Negotiating Construction Contracts During Volatile Trade Negotiations

President Trump’s new tariffs and ongoing trade negotiations concerning building commodities like steel, aluminum, and lumber have resulted in uncertain market conditions for those in the construction industry, making it nearly impossible for owners, developers, contractors, and suppliers to accurately analyze and allocate risks during construction contract negotiations. In my latest article for the Daily Journal of Commerce, I provide owners and developers with an overview of the new tariffs on building materials and the key contract provisions they should review and revise to hedge against the risks associated with the uncertain market conditions. Read the full article here.

Originally published as “New tariffs on building materials have owners revising construction contracts” on August 23, 2018, by the Seattle Daily Journal of Commerce.