Dec 18, 2019Litigation & Dispute ResolutionReal Estate Law
Enduring the pains of a construction project—the months (or even years) of inconvenience, noise, vibrations, debris and annoyance—is dreadful. This is especially true when the project is not yours but, rather, your neighbor’s. In today’s world of booming high-rises and the repurposing of single-family homes and neighborhoods into multi-family dwellings and mixed-use environments, it is common to see substantial construction projects within close proximity to neighboring buildings and houses (often right up to the adjoining property line). Small buildings are demolished to make room for larger ones. Sometimes during the construction, access to a neighboring property is required in order to either perform the construction or install safety measures. Such access can entail activities like installing sidewalk sheds on the neighboring property for overhead protection, possessing a portion of the neighboring property during excavation and even underpinning the neighbor’s building. If access is necessary, there are two ways a property owner may go about gaining it. The first, and most preferable method, is negotiating a license agreement with the neighbor. This method ensures that both sides’ needs are addressed and a mutually agreed upon understanding is reached. The second, and often less preferable method, is for the project owner to petition a court to compel such access pursuant to §881 of the Real Property Actions and Proceedings Law (RPAPL). This method is slower, costlier and can lead to undesirable outcomes for both sides. Nevertheless, sometimes such proceedings are unavoidable either because an agreement cannot be reached through negotiation or access is simply denied outright. Such proceedings have resulted in a body of case law that helps serve as a guide for what generally can be expected in negotiating such licenses. Understanding the range of acceptable requests and concessions helps facilitate negotiations and avoid unnecessarily escalating the matter to a judicial proceeding. The Threshold Assessment: Whether the Requested Access Is Truly Necessary. RPAPL §881 permits access for “improvements or repairs to real property” that “cannot be made by the owner or lessee without entering” a neighboring property. In petitioning a court to compel access, the petitioning neighbor must demonstrate why such access is “necessary.” As RPAPL §881 makes clear, the request for access must be truly necessary in order for a court to grant it. Indeed, there are instances where courts have denied access because the requisite necessity was not demonstrated. See, e.g., In re Tory Burch v. Moskowitz, 146 A.D.3d 528 (1st Dept. 2017) (denying petition because petitioner failed to make a showing as to the reasonableness and necessity of the access requested, including because no plans or approvals for the work had been obtained). In situations where access is not truly necessary, a neighbor from whom a license is sought will have firm grounds for not granting access if it so chooses and superior bargaining leverage in negotiating the license if it is, nevertheless, inclined to do so. On the other hand, if the request is truly necessary for construction—as opposed to a mere convenience—or is needed for safety, a court will most likely award access. See Queens College Special Projects Fund v. Newman, 154 A.D.3d 943, 944 (2d Dept. 2017) (noting courts “must apply a reasonableness standard in balancing the potential hardship to the applicant if the petition is not granted against the inconvenience to the adjoining owner if it is granted”). The same is true with how narrowly tailored the request for access is in relation to the need. A narrowly tailored request is more likely to be granted as it serves the goal of minimizing the burden on the neighboring property. See, e.g., PB 151 Grand v. 9 Crosby, 58 Misc.3d 1219(A) (Sup. Ct. N.Y. Co., 2018) (finding that the petitioner had tailored its original request sufficiently to minimize the burden on the respondent’s property and when weighed against the respondent’s claim of interruption to its hotel business, the balance tipped in the petitioner’s favor). After all, the neighboring property is not obtaining any benefit from the construction—only sustaining a burden—and that burden should be mitigated as much as possible. While Access May Be Necessary, Concessions by the Project Owner Must Be Made. RPAPL §881 provides that a “license shall be granted by the court in an appropriate case upon such terms as justice requires.” In applying the statute, courts have interpreted this sentence to mean that a neighbor compelled to grant a license should not have to bear any cost in connection with the construction and, in most cases, should be compensated by the project owner to some degree for loss of use and enjoyment of their property during the license period. See North 7-8 Investors v. Newgarden, 43 Misc.3d 623, 627 (Sup. Ct. Kings Co., 2014) (noting that “[t]he risks and costs involved in the use that a Petitioner makes of its neighbor’s property should be borne wholly by the Petitioner. Equity requires that the owner compelled to grant access should not have to bear any costs resulting from the access … ”). While the terms of a license granted pursuant to RPAPL §881 are within a court’s discretion and often dictated by the facts of each case, certain trends have emerged from the RPAPL §881 case law, which assist in setting the range of relief that can be expected should the matter be litigated. As noted above, such trends help parties negotiating a license understand the benefits and risks of a negotiated outcome versus an adjudicated one. Below are issues that are commonly negotiated. Scope of the License. Defining the scope of the license is an essential part of license negotiations. There should be a clear understanding of the access being granted and when the license terminates. The access area and the permitted activities therein should be well-defined. As noted above, a licensor will want the scope of the access limited to what is truly necessary to perform the construction so as to limit the burden upon the licensor’s property. If equipment and safety devices are to be erected within the access area, their specifications should be detailed. If such equipment is going to be affixed in some manner to the licensor’s property, the method should be disclosed so that any remediation of the access area that may be required after removal of the equipment may be addressed in the license agreement. Professional Fees and Costs. It is generally accepted that a licensor’s professional fees should be paid by the licensee. This includes attorney fees incurred to negotiate the license, address issues arising during the performance of the license and, in some instances, litigate an RPAPL §881 proceeding. See, e.g., North 7-8, 43 Misc.3d at 630-633, 982 N.Y.S.2d at 711-713 (awarding respondent attorney fees for negotiating the license and litigating the RPAPL §881 proceeding). This also includes engineering and other technical consulting fees incurred by the licensor to review the project plans, receive advice concerning the requested access and to monitor the project and performance of the license. See, e.g., Columbia Grammar & Prep. Sch. v. 10 W. W. 93rd House Dev. Fund, 2015 N.Y. Slip Op. 31519(U) (Sup. Ct., N.Y. Co., 2015) (awarding respondent engineering fees). Indemnification and Insurance. Indemnification and insurance are other common and acceptable requests in a license negotiation. See, e.g., 23-31 Astoria Blvd v. Villegas, NO. 911/18, 60 Misc.3d 1217(A) (Sup. Ct., Queens Co., 2018) (finding that, in connection with a license request, a court may order a petitioner to obtain insurance coverage, indemnify the respondent and post a bond). Since the licensor is permitting the licensee and its contractors to access its property for purposes of the neighboring construction, it is prudent and reasonable for the licensor to require that the licensee agree to indemnify it for any losses, claims and damages that it sustains as a result of the construction project. In the same vein, it is also common and reasonable for the licensor to request that the licensee add it as an additional insured to the licensee’s insurance. These requests comport with RPAPL §881’s express mandate that “[t]he licensee shall be liable to the adjoining owner or his lessee for actual damages occurring as a result of the entry.” In additional to physical property damage, such damages could potentially also include any losses sustained by the lessor’s business as a result of the access. See., e.g., PB 151 Grand v. 9 Crosby, 58 Misc.3d 1219(A) (Sup. Ct., N.Y. Co., 2018) (finding that respondent’s claim that it would suffer a loss of business income as a result of the license would be decided by a special referee upon the termination of the license so that the actual loss, if any, could be determined). Pre-Construction Survey. It is in both parties’ interest to have a survey of the licensor’s property performed prior to construction. This will help assess whether any damage occurred to the licensor’s property during the term of the license or whether such damage was preexisting. The survey is typically performed and paid for by the licensee but it is prudent for the licensor to require that its consultant be present during the survey inspection and that a copy of the survey report be provided to the licensor upon completion. License Fee. Another common element of a license under RPAPL §881 is the payment of a license fee to the licensor. See Van Dorn Holdings v. 152 W. 58th Owner’s Corp., 149 A.D. 3d 518, 149 A.D. 3d 518 (1st Dept. 2017) (noting that the grant of a license pursuant to RPAPL §881 often warrants the award of contemporaneous license fees). It is also one of the most hotly negotiated points. Such fees are typically paid by the licensee to the licensor on a monthly basis. The amount of the license fee depends upon the scope of the access (i.e., the greater the intrusion on the neighboring property, the greater the fee). Amounts awarded by courts in RPAPL §881 proceedings typically range in the vicinity of several thousand dollars per month depending on the nature of the intrusion. See, e.g., North 7-8 Investors v. Newgarden, 43 Misc.3d 623 (awarding $3,500 per month for erection of a cantilevered balcony that extended six feet onto respondent’s property over a roof deck for one year); see, e.g., Rosma Dev. v. South, 5 Misc.2d 1014 (A) (Sup. Ct., Kings Co., 2004) (awarding $2,500 per month for each of two four-story dwellings for a total of $5,000 per month for sidewalk protection abutting ten feet of sidewalk). Though, in some instances, the scope of access could conceivably be so burdensome that even greater fees may be warranted. The purpose of the license fee is twofold. On the one hand, it compensates the licensor for its loss of use and enjoyment of its property during construction. On the other hand, it serves to motivate the licensee to complete the portion of the construction project utilizing the licensor’s property quickly in order to minimize the amount of licensing fees it must pay. Often license agreements will provide that if the construction is not completed by a date-certain, then the license fee will increase. See, e.g., Columbia Grammar & Prep. Sch. v. 10 W. W. 93rd House Dev. Fund, 2015 N.Y. Slip Op. 31519(U) (Sup. Ct., N.Y. Co., 2015) (awarding a $2,500 per month license fee for 12 months with an increase to $3,500 per month if the work is not completed within one year). Providing for an increase serves as additional motivation for the licensee to complete the project quickly. Default Provisions. As with any commercial contract, the license agreement should contain a provision governing remedies if either party defaults during the performance of the license. From the licensor’s perspective, it will want a provision permitting it to promptly terminate the license and bar access to the licensed area upon an uncured default. Naturally the licensee will want to draft a flexible provision that permits adequate time to cure any default and continued access while the default is being cured or the issue of the alleged default is adjudicated. Remediation. The license agreement should specify what the parties’ respective rights and obligations are upon the termination of the license. Ideally, the licensed property will be left in the same condition as it was in prior to the commencement of the license. Unfortunately, this is not always the case. Sometimes the equipment installed in the licensed area will, itself, cause some damage to the licensor’s property. The license agreement should address when, how and by whom the damage is repaired. Again, RPAPL §881 expressly provides that the licensee shall be strictly liable for any damage resulting by reason of the access.