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July 13, 2018

Legal Update
Dylan Sanders

Appeals Court: Trust cannot be ignored to accomplish merger of a nonconforming lot

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The Massachusetts Appeals Court has ruled that a non-conforming lot, owned by a trustee in her capacity as trustee, did not automatically merge with an adjacent lot owned by the trustee in her personal capacity simply by virtue of the trustee’s extremely broad powers over the trust’s assets, which include the nonconforming lot.  Rather, the Appeals Court held, the question of whether the lots merged, such that the nonconforming lot lost its protection from zoning requirements enacted after the creation of the lot, is a fact intensive exercise to determine whether the form of the trust is being used to defeat the law of merger or if there are other reasons to disregard the form of the trust.  The decision, Kneer v. Zoning Board of Appeals of Norfolk, has interesting implications for zoning, probate, and estate planning law.

Merger and Grandfathering

The case illustrates the interplay between two important related doctrines of zoning law:  “grandfathering” and “merger.”  Under the concept of grandfathering, existing lots enjoy a measure of protection from new zoning enactments enacted after the creation of the lot. (The rule is codified at Mass. Gen. L. ch. 40A, § 6.) Thus, for example, a once buildable lot that does not conform to a newly enacted requirement for minimum lot size remains a buildable lot.

The law, however, encourages the creation of conforming lots and the gradual elimination of nonconformities over time.  Under the doctrine of “merger,” adjacent lots that are owned in common will be treated as a single lot, if doing so will minimize or eliminate nonconformities. And once a merger occurs, the merger is permanent; the old non-conforming lot cannot be separated anew with grandfather protection from zoning requirements.

The Kneer Decision

At issue in Kneer was an undeveloped 7,650 square foot lot in the Town of Norfolk which had been created in 1945, before the 1953 enactment of zoning in the town establishing a minimum lot size of 15,000 square feet in the district (since increased to 43,500 square feet). Thus, the lot was a nonconforming lot that nevertheless enjoyed grandfather protection from the subsequently enacted minimum lot requirements.

As part of estate planning, Kneer and her husband created a trust, designating Kneer and her daughter Mead as co-trustees, with Kneer the beneficiary.  Each trustee had broad powers over the disposition of the trust’s assets, and could act independently of the other trustee. In 2012, the trust purchased the nonconforming lot; thus, Kneer and Mead became the owner of the nonconforming lot in their capacities as trustees, with Kneer being the beneficiary.

The nonconforming lot, however, bordered a lot already owned by Mead, in her personal capacity, where Mead lived.  When the trust attempted to develop the nonconforming lot by construction of a house, the town building inspector denied the request to issue a building permit on the grounds, among others, that when the trustees purchased the lot in 2012 it thereupon merged with the adjacent lot that Mead already owned in her personal capacity.

When the town’s zoning board of appeals agreed with the building inspector’s decision, Kneer (in her capacity as trustee) appealed to Land Court.  Following a two-day trial, the Land Court sustained the decision of the zoning board of appeals, finding that Mead’s broad powers over trust assets gave her sufficient control over the nonconforming lot such that it should be treated as being held in common with, and hence merged into, Mead’s lot. The Land Court acknowledged that the owners of the properties at issue are nominally different, but said “that the relevant question was whether the landowner [Mead] had it within her power to use the adjoining land so as to reduce the nonconformity.” The Land Court decision rested primarily on settled case law that held that a party may not avoid merger, and maintain nonconforming lots, simply by manipulating the form of ownership, where the party retains actual control over the lots such that she could, in fact, eliminate or reduce the nonconformity.

The Appeals Court, however, ruled that the question of merger could not be decided simply on the basis of Mead’s broad power to dispose of the trust’s assets, because doing so ignored the critical legal fact that Mead’s power to dispose of the lot was subject to her fiduciary obligations as a trustee. “Mead was not in a position in which she lawfully could have appropriated the parcel as her own; indeed, such conduct would have amounted to an obvious breach of her fiduciary obligations,” said the Appeals Court. “Accordingly, despite the breadth of the authority that Mead possessed as cotrustee, she still could not lawfully use the parcel to lessen the nonconformity . . . with the minimum lot size requirement.”

The key point is that the daughter’s powers as trustee, standing alone, did not mean that the two lots should be viewed as one.  The Appeals Court said that factors other than her trustee powers could be considered, in determining whether the daughter, in fact, was the true owner of both lots, such that the form of the trust should be disregarded the two lots should be deemed to have merged.  It remanded the case to the Land Court for further findings in that light.  And future cases, too, will hinge not merely on the formal form of ownership of nonconforming lots, but on whether there are underlying facts that should lead a court to find that the form of ownership should be “pierced” or disregarded.