February 23, 2023

Proposed Changes To RPAPL §881 Could Have A Significant Impact On New York's Construction Industry

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Developers, contractors, industry professionals and many members of the public in New York City are familiar with the negotiations and disputes relating to a project owner's need to access adjacent properties to protect them and to develop the owner's construction project. The combination of legal requirements and high density has made these negotiations very common, and the success of a construction project is often dependent upon the parties involved reaching an agreement in a timely fashion. With several industry professionals predicting a continued steady flow of construction, and given the current economic and political climate focused on infrastructure development and resolving the housing shortage, these negotiations are bound to continue to be extremely relevant in the near future.

While most negotiations for access are handled privately, when the parties reach an impasse, project owners resort to the court system to compel adjacent owners to grant access to their properties. Section 881 of the Real Property Actions and Proceedings Law ("RPAPL"), passed in 1968, governs the court's authority to order an adjacent owner to give a license in favor of a project owner in order to allow such owner to carry out its improvements. However, the current version of Section 881 does not explicitly address the terms of the license, and it simply states in broad terms that the court may grant the license upon "such terms as justice requires." This broad language has resulted in several courts issuing varying decisions on key issues, such as compensation to the adjacent owner (including license fees, reimbursement of design professional fees, and reimbursement of attorneys' fees), safeguards for the adjacent owners (such as insurance, indemnity, and escrow requirements), and even the scope and constitutionality of the court's authority.

In early 2022, the New York State Legislature, with the goal of "creat[ing] a more predictable framework," proposed a new law amending Section 881 of the RPAPL. The new law (Senate Bill S8430A) has been approved in the Senate with a 62-1 vote. While some of the provisions of the new law attempt to summarize the general consensus of some of the cases, the law also makes some significant changes to the current legal landscape.

For instance, the new law lists the purposes for which a project owner may seek access to adjoining property, such as pre-construction surveys, monitoring, temporary protections, weatherproofing, temporary airspace access, as well as "the undertaking of such other measures as may be required by applicable law or good construction practice." Perhaps most significantly, the new law would now allow developers and project owners to compel access to an adjoining land for permanent encroachments, "including, without limitation, wall ties, tiebacks, anchors, straps and underpinning." This is a marked shift from the majority of cases interpreting RPAPL 881, which have limited the court's power to granting temporary licenses, subject to very limited exceptions. Developers are expected to appreciate this amendment, given the current difficulties involved with obtaining access for these permanent encroachments in court and in private negotiations.

The law also includes some specific license conditions for the benefit of adjacent owners, such as: (i) a requirement of reasonable prior notice to adjacent owner, (ii) a requirement that the developer provide a good faith estimate of the dates and duration of access (and a commitment to make "diligent efforts" to agree to this schedule), (iii) a requirement that copies of relevant documents, such as plans, specifications, surveys, or engineering reports be provided where appropriate, and (iv) a requirement that the developer and any contractor, consultant or agent accessing the adjoining property procure and maintain commercial general liability insurance for damage to persons or property, naming the owner as additional insureds.

With respect to the reimbursement of professional fees, the proposed statute provides that adjacent owners should be reimbursed for reasonable architect or engineering fees incurred for reviewing and commenting upon the developer plans. As for attorneys' fees, however, the proposed amendment provides that a court may award reasonable attorneys' fees to either party upon a finding that the other party "acted in bad faith or engaged in willful misconduct in seeking, denying, or conditioning" the license. The proposed law does not account for the more common scenario, i.e., where the parties come to an impasse - not because of bad faith, but rather because of genuine disagreements about the license terms - and resort to the court to resolve their good faith dispute. Current case law provides that where the adjacent owner has not refused access, but rather seeks reasonable terms for access, the adjacent owner is entitled to reimbursement of reasonable attorneys' fees in opposing an RPAPL §881 proceeding. This in turn makes reimbursement of reasonable attorneys' fees a common concession from developers in negotiated license agreement. It is unclear whether the new law would alter this case law and, consequently, the negotiations of license agreements.

As is evident, while some of the changes may indeed bring more predictability, others may lead to increased litigation and uncertainty, as is sometimes the case when new legislation is passed. What is certain, however, is that the new law could significantly impact negotiations and court proceedings between project owners and their neighbors. As practitioners closely familiar with these issues, we will continue to monitor the status of this amendment. If you have any questions about the impact of this legislation (or its current version), please do not hesitate to reach out to us.

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