What Happens When You Face Construction Next Door?

The Threat of New Construction

Allen Salkin, a freelance writer, moved into the five-story walk-up tenement 18 years ago and has served on the co-op's board of directors for the past 15 years. Now vice president, he's knowledgeable about the building's history — its original construction in the late 19th century to help house the flood of European immigrants, plus an addition that was built in the early 20th century. For years, the vacant lot next door served as a playground for the neighboring Catholic school. When the school was sold, Salkin figured it was only a matter of time before construction crews showed up. When the school was torn down, he braced for the inevitable.

Salkin knew, thanks to a board member with previous experience in these matters, that the board's first challenge would be to negotiate an advantageous "licensing agreement" — the document that defines the relationship between a developer and all the buildings that abut the site where he plans to build.

"We were approached by the developer saying they were interested in coming to a licensing agreement with us because they were going to build right up against us," Salkin says.

At this point, the board members made a crucial decision. Rather than dig in their heels and try to fight the inevitable, they set out to establish an amicable working relationship with the developer, figuring honey would be more effective than vinegar in the long run.

"We did not look at this as oppositional," Salkin says. "They were going to build, and we could cooperate or not. The main issue for us is that we have an old pile of bricks here, and we were extra concerned that one good shake could knock us down. We were all nervous that our building was going to collapse, and we wanted the developer to understand our fear."

To help get their anxiety across — and to help them negotiate the best possible deal — in early 2014 the board hired Lisa Smith, a real estate attorney who specializes in co-ops and condos and has extensive experience negotiating licensing agreements from both sides of the lot line. Her first priority was to negotiate with the developer rather than wind up in state Supreme Court, where legal fees tend to rise and where the relevant statute — Section 881 of the Real Property and Proceedings Law — tends to favor developers' right to access. This is New York City. People have been putting up buildings here for four centuries.

Smith organized a "kickoff meeting," bringing the developer, board members, and the lawyers, architects, and engineers for both sides together in a room. Two months of negotiations followed.

"Your board is better off trying to work out your own deal," says Smith, a partner in the firm of Smith, Gambrell & Russell. "You can negotiate such things as insurance, licensing fees, reimbursement of your lawyer's, architect's, and engineer's fees. You can get the developer to put a security deposit in escrow, and you can set construction deadlines and fines if there are overruns."

In her negotiations, Smith was guided by two principles: making sure the client's building was physically protected, and making sure the co-op didn't incur any financial burden because of the construction. Among the things Smith successfully negotiated were: a fee for giving the developer access to the co-op's building, to be paid at specified intervals over the duration of the job; evidence of the developer's insurance (and proof that it named the co-op as an additional insured); reimbursement of the co-op's professionals' fees; the right of the co-op's engineer, RAND Engineering & Architecture, to "inspect and approve" the developer's engineering decisions; and a "security fund" for minor repairs.

"In this case," Smith says, "the developer was very cooperative — they actually welcomed RAND's input." The negotiations, she adds, were not about lining the co-op's pockets. "The access fee is not a windfall," Smith says, "and the security fund is not huge. I would rather have better insurance and a large licensing fee than a big security fund in escrow. Once the agreement is negotiated, you get involved only if something goes wrong. The licensing agreement should be self-executing."

That doesn't mean the board's work was done. It had just begun.

Photo by Jennifer Wu