Courts Uphold Condo's Demand for $1 Million Bond in Licensing Agreement

New York is a city where thousands of buildings must, by law, undergo costly facade repairs every five years. It’s a city where new buildings are constantly being shoe-horned into vacant lots, and where old buildings are constantly being razed so new ones can be put up. As a result, it’s a city where neighbors must cooperate and compromise so this incessant churn can be achieved with a minimum of danger, disruption and inconvenience.

That explains the existence of access agreements, also known as licensing agreements, negotiated documents that allow crews working on one building to gain access to the interior and exterior of a neighboring building. There’s even a law — Section 881 of the Real Property and Proceedings Law — that establishes the right to such access. Historically, the negotiations over access agreements have been tough but somewhat neighborly. Lately, not so much.

In one recent case, the state Supreme Court’s Appellate Division, First Department upheld a license agreement’s demand that a contractor put up a $1 million bond. The bond was an added layer of protection for unit-owners in the six-unit condominium at 29 W. 19th St. in Manhattan, whose next-door neighbor was embarking on a three-year project to add two stories of commercial office space atop the six-story building. The licensing agreement also required the developer to pay escalating fees to unit-owners who lost use of their terraces, plus the condo’s attorney and engineering fees, and to provide proof that the condominium was named an additional insured. Those elements of the agreement were standard; the bond was not.

“This is fairly unique,” says Michael Finder, a partner at the law firm Finder Novick Kerrigan, who was not involved in the litigation. “I don’t remember ever seeing a bond issued in this context. It’ll be interesting to see if it becomes a trend.”

Actually, according to a review of recent court decisions, there have been a handful of license agreements that demanded — and won — the filing of bonds, ranging from $10,000 to $2 million. But they’re the exceptions that prove the rule.

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“When two neighbors have to do mandatory facade repairs, there’s no sense in demanding a license fee,” Finder says. “When it’s new construction, we’ve been able to get the developer to open an escrow account to protect my client in the event of non-payment of license fees, or damage to my client’s property that wasn’t reimbursed by the contractor or the insurer.”

Over-reaching can backfire. Though the court upheld 29 W. 19th St.’s demand for a $1 million bond, the presiding justice, Rolando Acosta, rejected the demand for an escalating license fee. Under the original agreement, the owners of the 1,730-square-foot rooftop terrace were to be paid the following sums for their loss of use of the amenity: $3,000 a month during the first year; $4,000 a month during the second year; and $7,000 a month after 24 months. “Insofar as the purpose of a license fee is to compensate for loss of enjoyment and diminution in value due to loss of use,” Acosta wrote, “the license fee escalations imposed on petitioner appear to be punitive and, therefore, unwarranted.”

The court also ruled that the condo’s demand for $10,000 in attorney’s fees and $3,500 in engineering fees was “unreasonable,” and that the condo will be reimbursed for fees it actually incurs, “in an amount to be determined.”

What this case teaches, in the end, is the importance of collegiality when parties negotiate a licensing agreement. As Kathleen Needham-Inocco, a principal at Midtown Preservation Architecture & Engineering, wrote recently in Habitat: “The terms for access are negotiable, and it's very important to be reasonable when entering into these negotiations. Developers have the right to come on your property to install protection, and a judge will enforce that right. So better to negotiate something that is fair to you from the beginning than to have that adversarial relationship later on.”