Construction Next Door

The construction crane is, once again, the unofficial bird of New York City. As the latest building boom gains steam – with a flurry of new construction on empty lots, demolition of existing buildings to make way for new ones, plus additions to existing buildings – more and more co-op and condo boards are forced to deal with construction projects next door.

The construction of a new nine-story luxury condominium building next to a five-story, 19th-century tenement in Manhattan provides a concise case study of what boards need to do and what they need to avoid – as well as the kinds of surprises they should expect – when an adjacent lot becomes a construction site.

Burying your head in the sand is not an option.

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.

Facing a Threat to the Building’s Integrity

From an engineering standpoint, this would be a delicate, complex job. Like most tenements, this one was built on the cheap – a cellar hole was dug and rough-cut, and four- by eight-foot bluestone blocks were laid on the ground as a footing. A mortar and stone--rubble foundation was fashioned on top of them, and joists made of wooden beams were put in place to support the floors. The exterior walls are brick. In a touch common to such structures when they were first built, there was a communal latrine in the basement at the right rear corner of the building. In many 19th-century tenements, according to The Encyclopedia of New York City, “privies began to be placed in a subterranean vault where the effluvial stench became so powerful that it contributed to concerns about cholera.”

Stench and cholera were not concerns when construction began next door in the summer of 2014. Underpinning the co-op’s foundation was the issue. Since the new condo building’s basement was to be several feet deeper than the tenement’s, this presented the very real danger that excavating the condo site would compromise the integrity of the tenement’s foundation on the lot line, possibly even leading to a building collapse.

To prevent shifting or collapse, the developer agreed to build an underpinning that would extend the tenement’s foundation to the same depth as the condo’s. Beginning in the middle of the wall on the property line, crews dug out three-foot sections to the required depth, built forms, and poured concrete. Meanwhile, the co-op set up four crack gauges in the building to measure any shifting of the structure. Under the city’s building codes, a shift of more than a quarter of an inch can lead to a work stoppage and/or a re-evaluation of the construction technique.

The Building Moves

“We noticed movement – settlement of half an inch,” says Christine Hobson, a structural engineer with RAND, who joined the co-op’s team just as construction was beginning. (A different RAND engineer helped negotiate the licensing agreement.) The developer’s engineer agreed with Hobson’s suggestion that work should be stopped.

The developer’s engineer then proposed a “grout injection” system, in which holes were drilled into the dirt, and tubes were inserted in the holes and filled with grout, a substance similar to mortar. Once the grout hardened, new three-foot sections of trench were dug, forms were built, and the underpinning was poured. The co-op installed 16 more crack gauges.

One day, Salkin heard shouts coming from the construction site. For reasons that have yet to be ascertained, one of the massive pieces of bluestone in the tenement’s footing shifted, or was moved. “They kept breaking our building,” Hobson says of the construction crew.

The building now settled by an inch and a half. The effects were alarming: the brick wall on the property line bowed out at the top; cracks appeared on interior and exterior walls; some walls separated from floors; doors and windows failed to open and close properly; and four joists in the basement cracked. Work stopped again.

Adding Metal Beams

Steel “raker” beams were put in place to support the tenement’s wall, cosmetic repairs were made to exterior cracks on the street side of the building so that costly sidewalk sheds would not have to be erected, and screw jacks supported the cracked basement joists. Eventually, work resumed, and the underpinning was completed in May without further incident.

Permanent repairs – to damaged windows, doors, walls, and joists – will be addressed once the major construction work is complete. “This,” says Hobson, “is the worst scenario I’ve ever dealt with.”

Trying to Work With the Developer

Despite these major problems, there is no panic in the building as construction moves forward – because there’s a sense that the licensing agreement will protect the co-op in the end, and because the co-op worked to establish a good relationship with the developer.

“I believe we got the best deal we could get,” says Salkin. “My advice [to others in a similar situation] is to hire the best lawyer you can, try to get as much money up front as you can – and treat the developer like a human being. They’re not the enemy – but keep an eye on them. I bring coffee to the construction site manager. You want them to understand that human beings live next door.”

Meeting Once a Week

By way of keeping an eye on the developer, Hobson is on the site at least once a week and she’s always on call, ready to visit the site within 24 hours, sometimes in much less time, if there’s a serious problem. She attends board meetings and delivers status reports when requested by the board. She agrees with Salkin about the importance of establishing relationships.

“It sounds stupid,” Hobson says, “but be nice. I have a great rapport with the developer. If you’re open and honest, you’d be surprised how far that goes.”

Smith, the lawyer, says the shared goal of the co-op and the developer is that the tenement building will be returned to its original condition when construction is complete, and the co-op will not be out of pocket. “The developer doesn’t want litigation,” she says. “Damages will be repaired – either from the developer’s pocket or from his insurance.”

Turns out this board did the right thing by not sticking its head in the sand.

==HABITAT SIDEBAR++

Negotiating with Your Neighbor

When a Housing & Development Finance Corporation co-op on Manhattan’s Upper West Side learned that its next-door neighbors planned to add three stories to its building – moving not only upward but also outward – the co-op board decided to bring in some heavy artillery. The board hired both a structural engineer and C. Jaye Berger, a Manhattan lawyer who specializes in co-op and condo construction law.

Smart move.

Carmen Burgos, president of the 16-unit co-op’s board, recalls the first meeting with the developer: “That meeting was very interesting for me. I didn’t know what to expect.” Berger says the developer’s team was “very condescending. When we asked for a set of the plans and specifications,they realized they were dealing with savvy people. They thought the ladies were going to come in and just sign. Instead, Carmen showed up with a structural engineer and me.”

Careful study of the drawings revealed that the developer’s plan was more ambitious than he was letting on. He wanted to build right on the lot line, for one thing, which led the board to hire its own surveyor. The developer soon changed his plans.

In negotiations over the access agreement, which Berger calls “a very delicate dance,” the developer also agreed to erect barriers against noise and dust; install protection when work was done on or above the five-story co-op’s roof; and reimburse the building for certain professional expenses.

“My advice to boards faced with this situation,” says Burgos, “is to make sure you’ve got the right professionals. Our board’s [regular] lawyer did not have experience in construction.”

When dealing with construction adjacent to a client’s property, Berger is guided by an iron principle. “You don’t want the building to be out of pocket,” she says. “I tell developers we don’t have a budget to put up your building.”