Pandemic Leaves Landlords in a Difficult Position

by Gary D. Vogel, Attorney, Drummond Woodsum, MEREDA President

The coronavirus pandemic is affecting everyone.  Many businesses are shut down, or are minimally operating.  The CARES Act recently adopted by Congress with over two trillion dollars of emergency funding will provide a lifeline for many businesses.   Especially important is the SBA Payroll Protection Program (PPP) loans that provide forgivable loans for an amount of up to 8 weeks payroll for qualifying businesses.   The program has proven so popular that as of April 16th, applications for the entire $349 Billion of PPP funding have been made and the SBA announced that it would not accept any more applications, unless Congress approves additional funding.    While the PPP loan program is enabling many business to survive, and to pay their staff, for many companies the PPP isn’t a good fit, because their business is too big, may not have enough payroll, compared to other essential expenses or may need more than 8 weeks of payroll covered in order for them to survive.

Left out of the discussion at Congress is the impact the shutdown is having on landlords.   MEREDA members include many residential and commercial landlords, and MEREDA has both heard from and reached out to members to be able to understand what is happening to landlords in this pandemic.    Property owners are businesses that are frankly essential to our economy, providing the real estate for businesses to operate.  Most property owners will not qualify for PPP loans, since they tend to not have employees, or if they do, the payroll cost is a very small percentage of their operating expense, when compared to taxes, mortgage payments, utility charges, insurance and the like.   The impact of the PPP loans and the ability of businesses receiving those loans to keep employees paid, as well as the impact of enhanced unemployment benefits for unemployed workers has enabled most residential tenants to pay their rent, and residential landlords in Maine in an informal survey report receiving 80 to 90% of April rent.   Commercial landlords report lesser amounts of April rent payments.   In addition, on April 16, Governor Mills issued an executive order prohibiting or limiting evictions for a period extending until 30 days after the expiration of the Covid-19  State of Emergency.     While few if any landlords will want to be evicting tenants who cannot pay rent due to disruptions caused by the coronavirus, many landlords are concerned that the prohibition on evictions may be viewed by tenants as a basis for not paying rent.    While the Governor’s executive order makes it clear that the order does not relieve tenants of their obligation to pay rent while the tenant continues to occupy the real estate, it does not address what constitutes “occupation of the real estate”  in this circumstance and leaves several questions unanswered.

What should landlords be doing when faced with nonpayment of rent by tenants?

  1. First and foremost, landlords should talk to their tenants to find out what tenants can do and what relief tenants need so that the landlord can understand what rent payments they can expect during this period.  Every situation is somewhat different, and there is typically no “one size fits all” solution.   Tenants need to understand that the rent obligation doesn’t go away just because they are unable to operate, unless the lease so provides, and that is highly unusual.   Tenants also need to understand that the rent obligation doesn’t go away during the period of time that evictions are limited.     Landlords have fixed expenses that don’t stop just because a business is temporarily closed.   If a tenant says that they are giving up and going out of business that is very different from a tenant who is just trying to weather the storm and to reopen when they are able.   If a tenant is going to close up for good, the Landlord should get the tenant to surrender the space back to the landlord, so that the landlord does not need to evict the tenant to be able to have the space available to rent to others.  This is especially important while the courts are closed to evictions.
  1. Landlords should find out what federal resources the tenants have been able to obtain, and whether the tenants plan on using some of those funds to pay rent.   Under the PPP, businesses can use 25% of the funds to pay rent, utilities, debt service payments and some other expenses while still having 100% of the loan remain forgivable.   For tenants that have not applied for PPP loans, the tenants should be alerted to do so if and when more funding is available.
  1. Once the Landlord understands the shortfalls in rent payments that the tenant anticipates, the landlord should talk to its lenders and explain the situation that the landlord is in.   Some landlords may have enough tenants who are paying rent to enable them to pay their mortgages; others may not.   Lenders understand what is happening and will work with borrowers.    Lenders will Lenders need current information in order to help.  That is part of the reason why getting good information from tenants is important.
  1. If necessary, Landlords can also apply for Loans using the SBA or FAME loan programs.    These loans are not forgivable, and landlords will not want to take on additional debt to provide support to their tenants, but for some there may be no other options.
  1. If Landlords know that Tenants will be unable to pay rent for the duration of a shutdown, the landlord may want to enter into a lease amendment with the tenant to provide when the unpaid rent will be due, which may have the unpaid rent payable over a period of months together with the rent due for those months.  For example, the deferred rent could be repayable 1/12 each month for a period of 12 Months once the shutdown ends, or 30 days after the shutdown ends, with the current rent for that month.  It is better to have an enforceable agreement that everyone can live with, rather than just leaving unpaid rent with a tenant in default.  This is better for the landlord, and it is also better for the tenant, so that the tenant can have an arrangement that is workable from a cash flow perspective.

In summary, landlords are placed in a difficult situation as a result of the impact of the coronavirus.   While more PPP funding may be available to tenants who may be able to use those funds to pay rent, the ability and willingness of tenants to use these funds for rent payments may vary widely, and landlords may not see a great deal of relief, directly or indirectly, from the CARES Act or from future federal relief.    Landlords need to work proactively with tenants and lenders to make sure that they can weather the storm.  If the coronavirus causes the real estate market to suffer greatly, that will only make recovery more difficult for everyone, including property owners.

Join MEREDA for a Virtual Event focusing on this topic on Friday, April 24, 2020 beginning at 9:00 AM.  The event is FREE of charge, but registration is required.  For more information visit our Events Page at www.mereda.org.

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Maine Home Prices – Where do we go from here?

by: Dava Davin, Principal, Portside Real Estate Group

When I presented at the 2020 MEREDA Real Estate Forecast Conference in January, I was full of good news and positivity in the residential market. I shared that 2019 represented the eighth straight year of rising home prices in Maine resulting in a record-breaking year with the median price for a single-family home topping out at $225,000. In 2019 prices rose 5.4% in Southern Maine. The highest home prices in Maine’s history!

I predicted that prices would continue to rise in 2020 at a rate of 3%-5%. I also forecasted that this spring we would see buyers battling for homes and houses selling for over the list price as a result of multiple offers. The low inventory would make home buying for first time home buyers and folks looking in the median home price range (around $300,000 and below in Southern Maine) very competitive. I spoke about the election having little effect on Maine’s real estate market. I thought we might see more price reductions this year as sellers attempt to test the market, and that overall, 2020 was poised to be another great year for sellers as well as buyers with low mortgage rates giving buyers more buying power!

And then…the world was flipped upside down in what felt like an instant as Covid-19 crept into every aspect of our lives. The Southern Maine real estate market has been, and will continue to be, adversely affected for the near future. My forecast has changed but this time I don’t have data and trends to back up the shift caused by something of this nature and magnitude.

Here is my take…

As of today, April 8th, for the most part we are seeing a real estate “pause’’. We will experience a temporary slowdown as people practice social distancing protocol and wait to see if their job situation changes over the next few weeks. This will most likely create pent up demand for when the crisis ends. People may wait now, but the need won’t go away. People will take action when things return to normal. What will help Maine’s real estate market is the trend of stock market volatility leading people to invest in real estate as they diversify their portfolios. We will also see new reasons for Mainers to list their homes and search for new ones as feelings toward their home may change (weeks of sheltering in place) and desires for home offices, home gyms, and more or less space. We are also expecting to see in-migration to Maine from more densely populated areas.

Sadly, we will also see temporary and permanent job loss or job shifts causing Mainers to list their homes. Maine has seen a tremendous amount of job losses very quickly and it could get worse, but once the crisis is over many jobs will be restored. Nationally, economists are projecting the unemployment rate to be 15% in the third quarter of 2020, flattening to single digits by the fourth quarter of this year, and then just over 6% percent by the fourth quarter of 2021. A quicker turnaround than we have seen with other financial crises.  This should benefit the housing market rebound.  We have had more buyers than sellers in Maine for several years, so this shift may create a balance in the market that has been overdue.

For cities like New York, new real estate transactions have come to a screeching halt.  In southern Maine, real estate professionals are placing all of their virtual strategies into extra high gear, in order to prevent that from happening. Real estate is deemed an essential business in Maine with most aspects able to be done virtually – negotiating, signing of contracts, video tours, etc. The showings, closings and inspections are being done with strict guidelines for safety. We have seen a significant slowdown but new properties are still hitting the market and some are still selling quickly and in multiple offers.

We are entering what is typically the busiest season for real estate, that usually lasts through the end of the summer. I am confident that the busy season will extend through the fall, and possibly through the winter.

Momentum is building: once the stay at home mandate is lifted and our world begins to shift back into normalcy, the demand will be strong. We are bracing for a tough Q2, with an improving Q3, and ending the year with a strong Q4.

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Message from MEREDA’s President

To our Members:

What a challenging time we find ourselves in!  First and foremost, I hope this email finds you, your family, loved ones and coworkers safe and healthy.   We hope that you are coping with all of the changes that have been thrust upon all of us.   We are all in this together!   Here at MEREDA, we are working remotely, taking things day by day, and hoping that things return to “normal” very soon!   I am trying to appreciate the benefits of learning to use technology better to be able to work remotely, and to transact business without putting our clients, employees and others at risk.   I am also cognizant of the tremendous hardships that the near shutdown has created for many Maine businesses and am also grateful for our healthcare workers who frankly don’t get nearly enough recognition or support for the work they do.

MEREDA has responded to the Coronavirus pandemic as most organizations have by postponing our events, at least through May.  Understanding that things could still change, in the event that the CDC lifts its restrictions by this time, we have established a new date for the 35th Anniversary Gala – June 25th, still at Ocean Gateway.  We are hopeful that we will be able to hold the 35th Anniversary Gala on June 25th, but we are prepared to push the event back again if the conditions require.  Same for our May events.  We have just rescheduled MEREDA’s May 7th Strikes for Scholars Bowl-a-Thon Fundraiser to September 16th, and MEREDA’s May 21st Annual Spring Conference, to September 3rd.

We’ve also cancelled our board and committee meetings, at least through April.  With the Maine Legislature shutting down early, our Public Policy Committee was able to wrap up its regular work.   The Legislature accelerated its session schedule and adjourned sine die on the evening of Tuesday, March 17.   Before adjourning, the Appropriations and Financial Affairs Committee, Leadership and the Governor’s office worked together to develop a supplemental budget and other emergency legislation to provide supports for individuals and businesses in the face of the challenges posed by the Coronavirus pandemic.  All legislation that did not reach final disposition has been carried over until a special session is convened.  No date for that session has been set. But we expect that it will be held in the fall.  Our Public Policy Committee will reconvene when the legislature schedules its special session but may conduct virtual meetings to address important current issues affecting our members if those matters are appropriate matters to address with lawmakers.

Behind the scenes, we are still doing advocacy, as needed or when called upon, and have participated in discussions for matters such as executive orders to establish ways to revise certain state laws to enable Mainers to transact business remotely and safely.

Lastly, as we do our best to carry on business as usual during this difficult time, MEREDA will continue to send out membership renewal packets as scheduled.  If your business has been adversely impacted by this pandemic, and you need additional time to make your payment, please contact Shelly R. Clark to discuss payment terms.  It’s helpful for us as we also plan and budget, and we are more than happy to work with you. We know that a MEREDA membership is valuable to your business, and we want to make sure that our members don’t have to give up their MEREDA membership over what we hope and expect will be a short term disruption.

We look forward to getting back to work with you in the near future!

Sincerely,
Gary D. Vogel, MEREDA President
Attorney at Drummond Woodsum

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Successful CEO’s Look Back to Prepare Forward

by George E Casey Jr., Chief Executive Officer, Stockbridge Associates, LLC

General Patton said he hated paying for the same real estate twice.   You should feel the same about paying for the same business lessons again in the future.

Right now, things seem pretty ugly from a business and economy standpoint.   That’s what bothers me.  Three months ago, they looked great, but now the world looks like it will never get back to normal.

It is when things are going well that you should actually be thinking about what to do when they start to turn.

The next best thing is that when they do start to turn, you are forced to focus and quickly.

By looking at lessons from the past, both from your own experience and from the experiences of others, a good leader can think about what to do if the operating environment changes unexpectedly

Here are some of my lessons learned from the past that might help in the future.

  • Find reality and deal with it fast. Have a source of good and dependable numbers and act on them.   Spend time walking around and talking with everyone in your company.   Talk directly to your customers.   From all of this, develop a viewpoint of the reality that is facing your business.   Then, act quickly on that information.   Those who acted quickly tended to do better than those who just waited and wished for a return to normal.
  • You can’t cut too deep too quick. It is the hardest thing a leader has to do, but restructuring people and costs to deal with the reality at hand allows you to survive as an organization and have the opportunity to bring back valued team members as the market comes back.
  • Whether it is with employees, investors, lenders, customers, vendors, or friends.   Communicate truthfully and honestly.   In tough times people most value reality and what it means to them both short term and long term.
  • Cash is King. Businesses need cash just like humans need oxygen.   If you are not managing cash and projecting cash regularly in good times and bad, you can get in danger quickly.   Forget the GAAP stuff.   If you run out of cash, you die.   A 13 week rolling cashflow, updated and re-extended every 6 weeks is the must-have tool here.
  • No Sell, No Eat. Revenues from sales give you cash.   When it gets tough, you have to focus the organization on selling and bringing cash into the business.  There are always sales to be made, even in the worst of times.   Having weak (or no) salespeople and de-motivating them is just plain stupid and ignorant.
  • Don’t be afraid to change the organization. Organizations tend to do the things they are organized to do. What needs to be done in troubled times and is critical to do is different than in good times.   To think that the old organization can just shift to the new tasks without change flies in the face of Einstein’s observation that the definition of insanity is doing the same thing over and over and expecting to get a different result.   You need different results, so you need fundamental change to make it happen.
  • Multiple perspectives are better than one. As the leader, you do not have all of the answers.   Seeking out and considering the experiences of others and using those perspectives to come to better decisions is a key to navigating a downturn.   Building the network of trusted people to provide a variety of perspectives takes a long time.   Start when times are good.
  • The only thing you can truly control each day is your attitude. The attitude that you use to approach each day and its challenges and rewards is entirely within your control.  The positive people seem to have better organizations around them, and that edge can be the difference in both good and bad times.

General Patton said he hated paying for the same real estate twice.   You should feel the same about paying for the same business lessons again in the future.

It is a smart thing to do.

George E Casey Jr, Chief Executive Officer, Stockbridge Associates, LLC, https://myvistage.force.com/sites/s/chairs?username=george.casey

 

 

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Vital Ideas – The 1031 Dominoes

by Brit Vitalius, Principal, Designated Broker, Vitalius Real Estate Group

In 2019, we saw 1031 exchanges used even more frequently than in past years. Interestingly, the variations in the transactions illustrate a number of different ways the 1031 exchange can be used to accommodate different investment transitions. The following is an example of a domino of 1031 exchanges we strung together for clients recently.

3 unit to 3 unit – A divorced couple decided to sell the jointly-held 3 unit. The husband wanted to stay invested in property, so he took his portion of the sale proceeds and purchased another 3 unit.

3 unit to 6 unit – The seller of the second 3 unit wanted to expand his portfolio and was willing to sell his 3 unit in order to do so. In addition, we helped negotiate his sale contract with an extended closing date in order to give him more runway to find a replacement. We eventually located an off-market 6 unit which he purchased.

6 unit to a new project – The seller of that 6 unit is now looking for a project. He had renovated the 6 unit, and there wasn’t much left to do other than hold it. Being a more active investor, he is looking for opportunities to find either a) something larger or b) a project that could be renovated, converted, etc. Incidentally, this property had been the 1031 exchange years ago so this investor will be highly motivated to find a replacement as he is 2 or 3 transactions deep in deferrals.

Remember, a 1031 exchange is a powerful tool, but it is only a deferral of the taxes owed. Consult with an experienced real estate broker and a Qualified Intermediary (QI) before performing one. Make sure you set up the exchange with the QI BEFORE the sale of your property. Once the transaction closes, it is too late.

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What’s Up in the Hotel Business?

by Sean Riley, President & CEO, Maine Course Hospitality Group

Great Ride for Hotels

I recall speaking at the MEREDA conference back in 2009. It was a tough year to begin my motivational speaking career.  But what a remarkable recovery this industry has had. Looking back, Occupancy was 54.6%. This past year was the tenth consecutive year of growth, up to 66.2% (a record).  Average Daily Rate (ADR) saw impressive gains as well from the $97 range in 2009 to $133 (a record) in 2019. RevPAR went from $54 to over $86, and is considered the true test of strength for hotels.  To sum it up, it was a great 10 years to be in the hotel business!

Roller Coaster Ride

For those who enjoy roller coasters, the exhilaration of climbing higher and higher is incredible.  But the fear of what happens when we reach the top of the roller coaster is scary.  Yes, we have enjoyed unprecedented growth and yes, we are a bit apprehensive of the ride back down.  But wait, the forecasters are saying it may just be a leveling off and coasting for a while. A summary of the many forecasting gurus, brands and hoteliers, suggest that 2020 and 2021 will see little, if any, growth. It’s tough to fathom this, given our ten years of growth, but its predictable and expected.  The good news is, most predict things to start climbing again in 2022 and 2023.  Hold on to your seats!

Construction Signs on the Roller Coaster

New construction has been exciting but can contribute to the dips in Occupancies and ADRs across the country. Hotel growth has increased YOY by 2 plus percent for years. One 2% increase isn’t bad, but the accumulative increase can cause some motion sickness on this roller coaster. Supply is still predicted to increase in the 2% range through 2021.  If demand decreases, as it is expected to do, and supply increases, it adds to the scariness of the ride.

The Maine Ride

Maine has also enjoyed the roller coaster, experiencing record highs. In 2019, occupancy was 58.9% with an ADR of $143.58.  But the growth slowed this year and is predicted to slow even more.  The supply growth slowed this past year, but not in the Portland area. Although downtown Portland has been on a great ride, the fear of over development is in the air. Although strong, Portland might fall the way of many great development stories like NYC, Orlando and Houston.  Not disastrous at this point, but a point of caution.

Ride Rules

Before entering the roller coaster ride, read the rules:

  1. Take care of your people
  2. Do your homework
  3. Develop relationships with local and regional banks
  4. Don’t over leverage
  5. Take care of your asset
  6. Stay Current with technology
  7. Stay current with industry trends
  8. Did I say take care of your people?
  9. Follow these rules and it will be a safe and enjoyable ride
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MEREDA Postpones its March 19 Morning Menu breakfast as well as its March 26 Anniversary Gala

In light of the situation with the Coronavirus and recommendations from the recent press conference with Governor Janet Mills, MEREDA has postponed its March 19th Morning Menu breakfast as well as its March 26th Anniversary Gala Event.

Both events will be rescheduled when the CDC lifts its recommendations to postpone all non-essential meetings and functions.

For the time being, all other MEREDA Events are still scheduled as planned, but we will continue to monitor the situation and keep you updated on any changes.

Ticket holders should contact info@mereda.org for a refund or credit towards these rescheduled events.

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Construction Trends in 2020

by Asha Echeverria, Shareholder, Bernstein Shur

Welcome to the new decade! Though we can expect trends from 2019 to continue, the focus on the new decade and the bull construction environment will force many trends to advance by leaps and bounds. Many of these trends will create opportunities for those in the construction industry, but also legal challenges related to privacy, risk allocation, and project control.  An ounce of prevention is worth a pound of cure – we hope we can be of assistance as you move into this brave new decade.

Automated and Digital Technologies: Though we may still be waiting for flying cars, advanced technologies are entering the construction site in several functions.

  • Drones continue to play an expanding role on project sites, from completing inspections in areas dangerous to workers to surveying and mapping sites.
  • Automation of highly repetitive tasks, like bricklaying and tying rebar, can improve productivity, increase safety and respond to the industry’s labor shortage.
  • Cloud technology connects job sites to make information instantaneously available to all members of a project team anywhere in the world.
  • Remote site monitoring, personnel location tracking, and wearable sensors allow contractors to track workforce and increase safety, which can support efficiency and productively while reducing costs related to liability and insurance.

Infrastructure Opportunities: With the 2020 federal budget allocating $200 billion for infrastructure priorities, this year will likely see the start of many overdue infrastructure revitalization and upgrade projects. These projects will have a significant effect on the construction industry – driving revenues and job creation. Though the federal government’s investment is significant, it falls short of the trillions needed to repair our deteriorating infrastructure, therefore projects will look to private funding, through public-private partnerships (P3s) and other innovative funding mechanisms, to keep projects in the black.

Modular & Prefabricated Construction: Modular and prefabrication construction companies continue to carve out a niche in the industry due to their ability to construct residential and commercial buildings, especially repetitive structures like hotels and apartment buildings, efficiently and cost-effectively. Modular and prefabricated construction can reduce or eliminate issues related to limited site or lay down areas, weather, and labor limitations. In line with the next point on sustainability, modular and prefabricated construction tends to create less waste and allow for the reuse and recycling of materials.

Urbanization & Sustainability: With 68% of the world population projected to live in urban areas by 2050, from today’s 55%, urban and environmental sustainability will be essential to improve urban quality of life. To support this need, efforts in areas like sustainable buildings, smart and public transportation, water efficiency and conservancy, and renewable energy are coming to the forefront, even in Maine. Sustainable construction goes beyond LED lighting and low-flow toilets, but encompasses the entire process – from design, to material sourcing, to construction, and through commissioning.

Rising Costs & Labor Shortages: Though there is much to be excited about in the new decade, increasing material costs due to increased demand and uncertainty in the political arena will likely affect contractors. In addition, as many contractors know, filling skilled worker positions and even professional-level positions is difficult given the demand all over the state, New England, and even the country for such labor. Both issues together will result in an unavoidable increase in costs in 2020 – requiring contractors to be more efficient and utilize strict project controls to make their profit margin.

Originally published on January 28, 2020 – https://www.bernsteinshur.com/what/publications/the-construction-advantage-34/ 

 

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MEREDA Celebrates 35 Years of Supporting Responsible Development in Maine

2020 is MEREDA’s 35th Anniversary and we are proud to celebrate 35 years of service to our industry and our state!

To mark this occasion, we are holding a celebratory gala event on March 26, 2020 at Ocean Gateway in Portland with drinks and hors d’oeuvres as well as some brief remarks, a program recognizing our 2019 Notable Project recipients, as well as the induction of the new class of Directors Emeritus, MEREDA’s honorary body of advisors.

We invite you to be part of the celebration! 

Thursday, March 26, 2020 Ocean Gateway Terminal Portland, ME
5:00 p.m. – 8:00 p.m. | RSVP by March 19th

Ticket Prices: MEREDA Member: $60 each ­ Non – Member: $75 each

Prices Increase by $10 after March 19th

Thank you to MEREDA’s Gold, Silver and Bronze Sponsors of the 35th Anniversary Gala Event: Gold Sponsor – NBT Bank; Silver Sponsors – Bangor Savings Bank, Partner’s Bank, People’s United Bank, Pierce Atwood The Boulos Company, Verrill; Bronze Sponsors – Bar Harbor Bank & Trust, Baystate Financial, Camden National Bank, Clark Insurance, Colliers International, Drummond Woodsum, Eaton Peabody, Hebert Construction, Landry/French Construction, MaineHousing, Maine Street Capital, Malone Commercial Brokers, NAI The Dunham Group, Norway Savings Bank, Old Republic Title, Perkins Thompson, Redstone, RE/MAX Riverside, SMRT Architects & Engineers, Wipfli

Visit www.mereda.org for more information and to register.

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The Risks and Regulations Associated with Waterfront Development in Maine

By  Gordon Smith, Verrill

Waterfront development in Maine is on the rise. While waterfront development has a big investment upside, it can pose additional regulatory challenges and risks. Whether you are building on coastal or inland waters, shorefront property is subject to an array of federal, state, and local environmental and land-use controls. Here is a look at the regulatory requirements that could be triggered by shorefront development activities, including:

  • New construction, replacement or enlargement of commercial buildings, houses, and other structures
  • Construction of docks, piers, revetments, and seawalls
  • Road building and stream crossings

Regulatory Requirements:

State-Mandated Municipal Shoreland Zoning. Any land in a municipality that is within 250 feet of the ocean, a pond, river, or large wetland, or is within 75 feet of a stream, is subject to shoreland zoning permitting and regulation. These rules are state-mandated but are administered by municipalities. Permits are issued by a town’s code enforcement officer or by its planning board, depending on the intensity of the activity. Municipalities can also enact independent and more stringent shoreland requirements beyond those imposed by the state. Within the shoreland zone:

  • All commercial structures and uses require planning board approval (and are prohibited outright in certain shoreland districts)
  • Locating a commercial enterprise on land that is currently used for any other purpose requires planning board approval, even when there is no alteration of structures
  • Maintenance and clearing of trees and other vegetation is subject to a variety of restrictions, including a 25% lot area cap on cleared openings for any purpose

Maine Department of Environmental Protection (DEP) Permitting. Any activity that takes place “in, on, over” or within 75 feet of a coastal wetland (any land touched by saltwater, including coastal sand dunes), great pond (10 acres or larger), river, stream, and some freshwater wetlands requires a Natural Resources Protection Act (NRPA) permit from the DEP. Almost any alteration in these areas requires NRPA approval, including any displacement of soil, sand, vegetation, any placement of fill, and any construction, repair or alteration of a permanent structure. To obtain a NRPA permit, an applicant must show, among other things, that:

  • There is no practicable alternative to the proposed work
  • The project will not result in an unreasonable impact
  • Compensation will be provided for loss of resource values

For certain categories of activities that trigger NRPA but are likely to result in de minimus impacts, the DEP applies a presumption that the work complies with NRPA permitting standards. For such activities a streamlined permit-by-rule process is available.

Federal Permitting. There are two types of activity in coastal and shoreland areas that could require a permit from the U.S. Army Corps of Engineers. Any structure placed either permanently or temporarily in “navigable waters” requires a permit under section 10 of the U.S. Rivers and Harbors Act (typically called a “Section 10 permit”). A navigable water is mostly what it sounds like (it’s big enough to fit a boat), and is defined by regulation as “waters that are subject to the ebb and flow of the tide, and those inland waters that are presently used, or have been used in the past, or may be susceptible for use to transport interstate or foreign commerce while the waterway is in its ordinary condition at the time of statehood.” For non-tidal waters, determining whether that general definition applies to a particular waterbody requires reference to additional regulations and case law. Examples of structures that could trigger section 10 include piers, docks, bridge abutments, transmission lines, retaining walls, and revetments located on intertidal or submerged land.

In addition, any deposit of material (usually placement of fill) in “waters of the United States” requires a permit under Section 404 of the U.S. Clean Water Act (typically called a “404 permit”). The exact definition of “waters of the United States” has been subject to decades of rulemaking and litigation, but it is quite broad and as a practical matter it includes almost all wetlands in the state.

FEMA Floodplain Permitting and Insurance. Many municipalities in Maine have adopted floodplain management ordinances in order for property owners to be eligible for subsidized flood insurance through the Federal Emergency Management Agency (FEMA). (Whether the federal government should be subsidizing construction in flood-prone areas is another question.) If your development is in such a municipality, any new work that takes place in a mapped floodplain requires a permit. FEMA is close to completing a lengthy process of updating its floodplain maps in Maine. If you are contemplating obtaining flood insurance (a matter of concern as sea level rises and storm cycles intensify), there may be an opportunity to get grandfathered into lower rates associated with previous mapping.

Prior to pursuing any coastal or shoreland development, work with an attorney to first identify what regulations you might be subject to and how best to mitigate risk in the process.

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