Calculating a Cover Charge

Construction workers at the building next door to your co-op want to gain access to your property. In the past, if you did not come to terms with the builder, he would just go to court and get a license requiring that you let his workers and equipment in.

That has changed, thanks to the decision in the landmark DDG Warren LLC v. Assouline Ritz 1, LLC handed down by the state appellate court in Manhattan. The court ruled that gaining access “often warrants the award of contemporaneous license fees.”

“This is the first time an appeals court had considered the issue of awarding license fees and attorneys’ fees when a property owner is seeking access to [another] property,” says attorney Dani Schwartz, a partner with Rosenberg & Estis. “Lower courts had considered the issue and had not always had consistent results.”

How does a board put a price on access when negotiating an access agreement with a developer? In one recent case where construction workers wanted to use part of a resident’s terrace as a staging area and work site, the court estimated that the terrace was “29 percent of the total square footage of the apartment,” Schwartz notes, “and so the court did math computations of the percentage of the terrace against total monthly common charges.” From there the judge took the percentage of the terrace that would actually be affected and found that $2,000 per month was “a just and equitable license fee.”

This is not necessarily the way all such future computations will be done, but it gives you an idea of what’s possible. “Common charges are not an estimation of the value of an apartment, but simply a pro-rated apportionment of expected building expenses,” Schwartz says.

Attorney Steve Troup, a partner at Tarter Krinsky & Drogin, says you can also use comparable rental value to determine a license fee. “If the rental value of an apartment is $2,000 a month greater with the terrace than not,” Troup says, “then that’s what you should get.”

In one noteworthy access case that built on the appellate court decision, Van Dorn Holdings, LLC, v. 152 W. 58th Owners Corp. and David Fallarino, the court awarded the co-op attorneys’ fees and engineering fees, noting that the co-op “clearly had a right to have an engineer of [its] choosing present when the probing [of exterior walls] occurred to ensure that [Van Dorn’s] engineer would give an accurate estimate of how long the work would take.” The judge tacked on $500-a-day penalties if construction continued beyond an agreed-upon date.

“They wanted to use our common areas and the [shareholder’s] terrace to stage their construction without paying for it,” says Troup, whose firm represented the co-op in Van Dorn. “We thought the law firm representing the developer was far too aggressive.”

How likely is your building to experience something like this? “It happens all the time, especially in Manhattan,” says Troup. “Typically it’s either new construction or Local Law 11 work.”

And when it does happen, boards are advised to get in immediate touch with their attorneys. Cautions co-op and condo attorney C. Jaye Berger, “When the developer says to you, ‘Let’s not get lawyers involved,’ that’s a red flag.”