The Davis Cos.’ building at 35 Cambridgepark Drive has sparked a legal wrangle over affordable housing payments. (Image: The Davis Cos.)

A judge has sided with a developer that claimed Cambridge wanted to charge almost three times what was owed under the city’s incentive payment ordinance for new development. The city is appealing the decision, which might set a precedent that could affect payments from developers of commercial properties that help pay for affordable housing.

Land Court Judge Michael Vhay said inspectional services commissioner Ranjit Singanayagam had misinterpreted the ordinance and that his decision was “unreasonable and not deserving of deference” from the court. Vhay sent the case back to the Board of Zoning Appeal in December; the board discussed the case in a closed-door session Monday.

It involves a project at 35 Cambridgepark Drive in Alewife, one of the city’s hottest development areas. Boston-based The Davis Cos. modernized an existing office building of about 137,000 square feet and added a structure with 47,000 square feet after it bought the property in 2016. At issue in the case was how the city interpreted “substantially rehabilitated” commercial space that is subject to an incentive payment of $13.50 per square foot.

Singanayagam decided in July 2019 that the entire space of 184,000 square feet was subject to the payment. The Davis Cos. objected, saying it should pay only for the new section of 47,000 square feet. The city’s figure was $2.5 million; the developer’s, $637,000, for a difference of $1.9 million. It’s not known whether the developer already paid the fee demanded by the city and thus might be due a refund.

The interior of 35 Cambridgepark Drive as seen during a February 2017 tour, with items marked for demolition.

The city argued that the upgrade of the original building qualified as new development because the ordinance provides that substantial rehabilitation of existing buildings falls under the ordinance if the work changes the building’s use to one covered by the regulation; 35 Cambridgepark Drive was a Bethlehem Steel Co. factory when it was built in the 1940s, the city said. The developer countered that the space had changed to an office building in the 1980s and had remained one ever since. A sign posted by The Davis Cos. during construction advertised the building as new laboratory space, though.

The Davis Cos. also contended that the city’s interpretation would result in an “absurd” situation in which owners of affected buildings would have to make an incentive payment over and over, every time they upgraded their property. The City Council had explicitly fashioned the ordinance to avoid that when the city adopted the ordinance in 2015, the developer said.

Heading to court

A sign posted by The Davis Cos. seen during the February 2017 tour.

When The Davis Cos. appealed the ruling to the Board of Zoning Appeal in August 2019, three board members agreed with the developer and two, including chairman Constantine Alexander, didn’t. Under the board’s rules, the appeal failed because it didn’t get at least four votes. The decision was issued in November 2019.

The developer then filed suit against the board in Land Court. Shortly after, in December 2019 while the case was pending, The Davis Cos. sold the project to a California-based real estate investment trust that specializes in biotech properties for an eye-popping $332.5 million but it is still pursuing the suit. The company bought the building for $4.8 million in 2016.

Neither the city’s law department nor the attorney for The Davis Cos. returned messages left Tuesday seeking comment. After Vhay ruled in favor of the developer Dec. 3 and sent the case back to the Board of Zoning Appeal, the city asked Vhay to stay his decision pending appeal. Both sides agreed to delay carrying out the order for 45 days while they tried to negotiate a settlement.

The pause expired Feb. 26, and it’s not known whether talks continue. There was no information about the outcome of the board’s discussion Monday in closed-door session. Meanwhile, the city has continued the process to appeal the court decision.