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A recent case from Supreme Court, New York County, brings clarity to a conflict that can arise when a building that shares a party wall is demolished and the site is redeveloped without relying on the party wall.

In 145 W. 21st Realty LLC v. First West 21st Street LLC, 653241/12, NYLJ 1202792788020 (Sup. Ct. N.Y. Co. July 26, 2017), Justice Kelly O’Neill Levy had to decide whether a new building that extends above the party wall that it had formerly shared with the adjoining building, could also be built over part of the party wall, thus preventing neighbor from ever being able to exercise its right to extend the party wall up in the future. The court followed earlier cases that favor modern construction practices, and allowed the cantilever of the new structure over the old, holding that the obligations to a party-wall neighbor do not extend to the space above the party wall.

A party wall is a single wall constructed along a property line that is used by the two adjoining buildings to provide structural support for their beams.  Typically, one half of the party wall sits on each owner’s property.  Each owner owns the half of the party wall on its property, and has an easement on the other half of the wall.  Brooks v. Curtis, 50 N.Y. 639, 642-3 (1873).

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For those in the construction industry, mechanics’ liens are sure to be a familiar occurrence. And, for those who have ever had a project of theirs liened, they will be aware of the tenacity of these legal devices. Mechanics’ liens are frustrating clouds on title and even though the party against whom the lien is filed rarely agrees with the amount purportedly owed, the liens themselves are difficult to remove One omnipresent option, is a claim for willful exaggeration of the lien. Section 39 of the Lien Law allows for vacataur of the lien if it has been “willfully exaggerated.” The ever-present question, however, is just what “willfully exaggerated” means.

The Courts have recently reiterated the standard for claims of willful exaggeration of mechanic’s liens. Hint: it’s still very high. In Blair v. Ferris, the Appellate Division of the Third Department once again dismissed a cause of action for willful exaggeration regarding a clearly inflated mechanic’s lien. 2017 WL 1712790.

As before, the Court made a point to state that if no exaggeration was intended, the inaccuracy simply does not matter. Willfulness truly is key. Essentially, this means that, unless it can be shown that the filer, at the time of the filing, had the intention to exaggerate the lien, a claim of willful exaggeration will fail. Considering that mechanic’s liens are meant to protect those who provide materials and/or labor against nonpayment, Courts appear to continue to take the view that there should be a heavy burden on the allegedly nonpaying party to rid itself of the lien. Allegedly wronged contractors and materialmen should not be deterred from filing liens because of the threat of a claim of willful exaggeration.

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General Business Law § 771 provides a host of requirements for home improvement contracts, chief among them being that such contracts must be in writing and signed by all parties. Additionally, the contract must contain the name, address, telephone number, and license number of the contractor, the dates that the work is to begin and to end, a description of the work to be performed, a list of the materials to be provided by the owner, the agreed-upon compensation due to the contractor, and a schedule of any progress payments.  The contract must also provide a series of notices to the owner advising that claims for payment may be enforced against the property by lien, that the contractor is required to deposit all payments received prior to completion in accordance with Lien Law § 71-a (4) or the contractor may post a bond, contract of indemnity, or irrevocable letter of credit, and that the owner may cancel the home improvement until midnight of the third business day after the day on which the owner signs the contract.

Despite the strict requirements of General Business Law § 771, it is not uncommon that parties engage in such home improvement projects on the basis of a hand-shake deal. While it is always advisable to put any such agreements in writing, including any changes to the work along the way, a contractor who improves a home absent a written contract is not without remedy should a dispute arise.

Courts have held that the absence of a written contract prevents recovery on a breach of contract cause of action but does not prevent a remedy on a theory of quantum meruit.  Johnson v. Robertson, 131 A.D.3d 670, 672, 15 N.Y.S.3d 457 (2d Dep’t 2015); see also Home Construction Corp. v. Beaury, No. 2014-06600, 2017 WL 1240146, at *2 (2d Dep’t Apr. 5, 2017) (“Although a contractor cannot enforce a contract that fails to comply with General Business Law § 771, a contractor may seek to recover based on the equitable theory of quantum meruit…”).

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Section 1312(a) of the Business Corporation Law, New York’s “door closing” statute, precludes foreign corporations doing business in the state without authority from maintaining an action in the state.  The purpose of this statute is to regulate foreign companies actually conducting business in the state.  As held in Special Breaks, LLC v. 201 Murray Ave., 2017 WL 987199 (Sup. Ct. Westchester Co. Mar. 10, 2017), the statute does not apply to those foreign companies that are not “doing business” within the state.

The defendant in Special Breaks moved to dismiss the complaint filed by foreign corporate plaintiff on two related grounds:

  1. That the foreign corporation was barred from maintaining an action in New York because it was not authorized to do business in the state, and
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Claims involving adjoining land owners have proliferated in the last several years as construction activities in the New York City area have continued to be especially active. One area of concern, especially for builders of town houses and other residences is how to deal with party walls.  The First Department, in Ehrenberg v. Regier, 142 A.D.3d 765, 37 N.Y.S.3d 10 (1st Dep’t 2016), addressed various issues of note regarding these structures.

A party wall is a wall between two adjoining properties which exists for the common benefit of both owners. These walls provide for the support of structures on each property and can only be altered by one owner if they do not damage the building owned by the adjacent neighbor. Each owner of a party wall owns it to the extent the wall is on his property, and each owner has an easement of use and support over the wall to the extent it is on the neighbor’s property.

In Ehrenberg, the party wall in question dated to the 1840’s. After a bulge was found in a section of the party wall the Ehrenbergs removed and replaced a portion of the wall. After this work was performed it was discovered that the party wall was damaged. The Ehrenbergs commenced a legal action alleging that the damage was the result of the Reiger’s negligent maintenance of the Reiger’s side of the party wall. Reiger counterclaimed, alleging that the reconstruction and repair to the party wall undertaken by the Ehrenbergs had caused the damage.

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Courts are increasingly being called upon to decide disputes over access to a neighboring property during construction, and their guide is RPAPL § 881, titled “Access to adjoining property to make improvements or repairs.”  However, because the statue is vague, a body of cases interpreting RPAPL § 881 has developed that has expanded on concepts only implied in the statute.  A recent Appellate Division case confirms that the application of RPAPL § 881 can only be understood in light of the cases interpreting the statute.

A property owner who is renovating or constructing a new building often needs access to its neighbor’s property for a variety of reasons, including protecting it from falling debris or strengthening its foundation, as required by the building code.  The neighbor does not always agree to allow access, sometimes because of concerns that the planned construction could harm its building or inconvenience its occupants.  RPAPL § 881 provides relief for the party performing the construction—if it can meet certain conditions—by allowing a court to order access.   The statute requires that:  

The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires.

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A New York court recently recognized the importance of the public’s access to government records. On December 13, 2016, Justice Robert J. Muller granted Petitioners access under the Freedom of Information Law (“FOIL”) to a hearing officer’s report and recommendation that was considered by the City of Glens Falls Common Council (the “Council”) in the termination of a City of Glens Falls (the “City”) employee.

Petitioner’s sought a copy of the hearing officer’s report and recommendation regarding Lauren M. Stack, the City’s assessor, after she pled guilty in August 2016 to, among other things, driving while ability impaired. The City brought disciplinary charges against her and the Council ultimately terminated her employment on the recommendation of the hearing officer.

Petitioner Maury Thompson, a reporter for The Post-Star and Petitioner Kathy Barrans, a television producer at WNYT-TV, submitted separate FOIL requests to the City’s records officer, who denied their requests. This determination was upheld on administrative appeal by the records appeal officer and an Article 78 proceeding ensued.

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The Second Department recently held in New York Military Academy v. NewOpen Group, 142 A.D.3d 489, 36 N.Y.S.3d 199 (2d Dep’t 2016), that a letter of intent (“LOI”) is unenforceable if it merely constitutes an agreement to agree. There is nothing especially new about that, but this decision serves as a reminder that parties must clearly and explicitly indicate the enforceability of a LOI within the instrument, if parties, in fact, intend it to be binding.

In Military Academy, the plaintiff brought an action to recover damages for breach of contract based on an LOI. The LOI in question provided that parties “shall negotiate to arrive at mutually acceptable Definitive Agreements” regarding a potential joint venture and loan, and further allowed for either party to withdraw from the negotiations at any time. Defendants moved to dismiss and the Supreme Court, Orange County denied that motion, presumably finding that there was at least a question of fact as to the LOI’s enforceability. Defendants appealed.

The Appellate Division, considering the language of the LOI, and omission of any terms specifying that any certain provisions were enforceable, reversed the lower court’s decision. The Appellate Division cited to well-settled New York precedent to reiterate that an agreement to agree, including a material term which allows for future negotiations, is unenforceable. In this case, the court explained that “in light of the language of the letter of intent, any reliance on the defendants’ alleged promises and representations would, as a matter of law, have been unreasonable.”

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“Shadow docketing” is the practice of filing a foreclosure action but waiting years to file an RJI, thus delaying court involvement that would otherwise move the case forward.  Because of the priority structure in New York foreclosure proceedings (explained below), and because bank lenders recover not just the full outstanding amount of the first lien, but also any accrued interest, banks are incentivized to delay the prosecution and ultimately the sale of the unit to allow elevated default interest rates to accumulate.  Shadow docketing, however, creates a substantial conflict where a condominium board also seeks to recover unpaid common charges.

In a New York foreclosure proceeding, normally the priority of liens is determined by the chronology of recording.  However, the New York Condominium Act provides that a condominium board’s lien for unpaid common charges has priority over all other liens, except for a first mortgage of record that predates the common charge lien.[1]  In the event of a foreclosure sale, the bank holding the first mortgage, as senior lien holder, recovers first.  Bank lenders also receive all interest that has accrued on the mortgage before other lienors or creditors are paid.  If there are excess proceeds after the first mortgage is satisfied, the condominium association retains a prior lien against such proceeds.  If there are no excess proceeds, the condominium’s subordinate lien is extinguished.  Unfortunately, foreclosure proceeds are frequently insufficient to cover the amounts owing to both the bank and the condominium association.  Shadow docketing further decreases the likelihood that a condominium association will recover on its common charge lien because substantial interest is allowed to accrue on the mortgage while the case remains dormant.

This practice has been the subject of several recent court decisions.  Most recently, the New York Supreme Court reduced the accrued interest owed to a lender because of the lender’s extensive and unexplained delays.  In Citimortgage, Inc. v. Gueye, 52 Misc.3d 1203(A), 2016 WL 3450850 (Sup. Ct. N.Y. Co. 2016), the bank commenced a foreclosure action, but then waited more than three and one half years to file an RJI.  In fact, the Court noted that the action “dragged on for over seven years despite the fact that the borrower has never appeared.”  Id. at *1.  After the bank made an unopposed motion seeking a judgment of foreclosure and sale, the condominium board of managers cross-moved seeking to reduce and/or extinguish the accrued interest on the mortgage.  The condominium argued that the bank’s seven year delay in prosecuting the foreclosure action should preclude it from recovering interest.  This delay, the condominium argued, prejudice it by reducing the chances that it might recover the outstanding common charges.  Id.

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The sponsor of a condominium complex attempted to hold a subcontractor responsible for various construction defects in 610 West Realty, LLC v. Riverview West Contracting, LLC (N.Y. Sup. Ct. Co. Index No. 15537/2013).  The Court, in a decision dated May 24, 2016, upheld the concept of privity in granting the subcontractor’s motion for summary judgment.

The sponsor had hired BFC Construction, which in turn hired A-1 Testing Laboratories Inc., to provide fire proofing inspection for the building.  The sponsor alleged that A-1 had failed to detect and report certain defective work performed by another subcontractor and thus was liable to the sponsor in contract and for negligence.   The sponsor also made a fraudulent conveyance claim against A-1.

A-1 moved for summary judgment, arguing that it could not be liable for breach of contract to the sponsor because there was no privity between it and the sponsor, and the sponsor was not a third party beneficiary of A-1’s contract with BFC.  It also argued that it could not be liable to the sponsor for negligence because the sponsor’s claims were solely founded upon economic loss.  Lastly, A-1 alleged that the sponsor’s claims were barred by the statute of limitations.

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