Appeals Court Annuls and Affirms Subdivision Plan Rescissions in Separate Decisions

Beveridge & Diamond, P.C. - Massachusetts Environmental, Land Use & Real Estate Alert, February 2008

In two recent cases the Appeals Court addressed when a planning board may rescind constructive approval of a subdivision plan, and when such a rescission is prohibited by a good-faith mortgage of the property. In Terrill v. Planning Board of Upton, 71 Mass. App. Ct. 171 (2008), the Court affirmed the annulment of an attempted rescission because the Planning Board failed to obtain consent of the mortgagee bank. The Court reach the opposite conclusion in Dennis v. Planning Board of Winchester, 71 Mass. App. Ct. 179 (2008), however, where the property owners failed to follow the requirements of the statute necessary to secure such protection.

Under the Subdivision Control Law, a planning board may vote to rescind a subdivision plan that has been constructively approved as a result of the board’s failure to timely act. G.L. c. 41, § 81W.  However, if the lots in that subdivision have been “sold or mortgaged in good faith,” then the planning board must acquire the consent of the owners of the lots or holder of the mortgage in order to rescind the plan. This consent requirement does not apply where there has been a sale to a single grantee of the entire parcel of land shown on the plan or of all the lots in the subdivision.

In Terrill, the plaintiff filed a definitive subdivision plan and, after the Planning Board failed to file its certificate of action within the required time, secured a certificate of constructive approval. Based in part on the constructive approval, the plaintiff obtained a mortgage secured by the subdivision property. After that mortgage closed, the Planning Board attempted to rescind the constructive approval without the bank’s consent.

The Planning Board argued that the plaintiffs failed to satisfy the “good faith” requirement of Section 81W because they knew that the Board intended to disapprove the plan. The Appeals Court, however, examined the transaction between the plaintiffs and the bank, finding it to be an arm’s length transaction in which an established commercial institution relied on the certificate of constructive approval, the recorded subdivision plan, an appraisal, and other common commercial documents in approving what essentially was a construction loan for the purposes of building the subdivision shown on the plan. With no evidence of a sham or fraud transaction, the Appeals Court found Section 81W protected both the plaintiffs and the lending bank who relied on the procedures set out under the Subdivision Control Law. Even if the landowner knew the Board was undertaking an effort to undo the effects of its inaction, there was no duty to acquiesce to actions that had no legal effect.

In Dennis, the plaintiffs attempted and failed to secure the same protection against rescission as in Terrill. At the time the Winchester Planning Board voted to rescind any constructive approval of the subdivision plan, the Dennis plaintiffs had not acquired and recorded a certificate of constructive approval, and in fact there was no evidence the subdivision plan had been recorded. The Appeals Court noted that constructive approval requires recording of both the certificate and subdivision plan for securing final approval. Additionally, the Court found that there was no evidence of reliance by any bank on the constructive approval, as the mortgage did not reference in any way the subdivision but was based on the land without the constructive approval.  Based on the plaintiffs’ failure to follow the procedures of the Subdivision Control Law, the Court ruled the rescission was proper.

For more information, please contact Brian Levey at blevey@bdlaw.com or Krista Hawley at khawley@bdlaw.com.