The pitfalls of failing to provide statutorily required public notice in the land use context were once again recently addressed by the Appellate Division in Concerned Citizens of Livingston v. Township of Livingston, (A-4171-15T3, decided June 11, 2018).  There, the Appellate Division reversed the trial court decision and found that the underlying zoning amendment, upon which a development applicant relied, was invalid due to notice deficiencies.

In Concerned Citizens, the Township of Livingston sought to amend its zoning ordinance to liberalize the conditions associated with locating an assisted living facility in its R-1 residential district.  Specifically, although an assisted living use was originally permitted as a conditional use in the zone, the amendment permitted such facilities to be of increased density that is, allowing for even more assisted living units on smaller parcels.  In conjunction with this amendment the governing body conducted the necessary hearings and ultimately amended the zoning district.

Acting on the newly adopted zoning amendment, a developer filed an application with the municipal planning board to develop an assisted living facility consistent with the requirements of the newly amended R-1 zone.  As hearings before the board commenced with respect to this assisted living project, a group of concerned citizens filed suit in the trial court seeking to overturn the adoption of the amended zoning district.  Because this action was filed beyond 45-days from the Township’s publication of the newly enacted zoning ordinance, the trial court summarily dismissed the appeal as untimely.  On appeal, the Appellate Division reversed.

Because the increase in permitted density of assisted living facilities in the R-1 district was found to be tantamount to a “change” in the “classification” of a zoning district, the Appellate Division held that the more onerous notice requirements of N.J.S.A. 40:55D-62.1, requiring personal written notice, were triggered.  Under the circumstances, the Appellate Division held that the municipality was required to provide written notice, via personal service or by regular and certified mail, to all property owners entitled to receive notice at least 10 days prior to the hearing at which time the zoning amendment was to be considered.  Specifically, that meant that such personal notice was to have been provided to all property owners located within the affected district in which the classification change was proposed, and also to all property owners located within 200 feet in all directions of the proposed boundaries of the affected district.  Instead, the municipal clerk merely provided notice by publication only, in conflict with the statutory requirements.

Citing to well-established authorities, the appellate court found that “strict compliance with statutory notice requirements is mandatory and jurisdictional, and non-conformity renders the governing body’s resultant action (adoption of the zoning amendment in question) a nullity.”  (See Rockaway Shoprite Assocs., Inc. v. City of Linden, 424 N.J. Super. 337 (App. Div. 2011); Cox & Koenig, New Jersey Land Use Administration, § 10-2.3 at 159 (2018) (citing Robert James Pacilli Homes, LLC v. Township of Woolwich, 394 N.J. Super. 319 at 333 (App. Div. 2007)).  Due to this notice defect, the zoning ordinance amending the R-1 district requirements was deemed invalid.

Consequently, although the complaint of the citizens group was originally dismissed by the trial court as being filed well beyond the typical 45-day prerogative writ action appeal period, as prescribed by Rule 4:69, the Appellate Division held that the failure to file the complaint within this time frame was excusable because of the defective notice.  Moreover, since the greater public good was involved (concerning the interests of property owners located within an entire zoning district and beyond), the relaxation of the 45-day appeal period, as expressly afforded by Rule 4:69, was also held to be appropriate in this instance.

In the end, while Concerned Citizens is unpublished, it remains persuasive as it applies well-established law concerning the requirements of public notice.  It also warrants careful consideration as the court’s holding further signals a championing of due process concerns over the strict construction of the 45-day appeal period where the interests of justice are implicated.

Published cases examining the New Jersey Construction Lien Law (“CLL”) tend to be few and far between, but recently the Appellate Division issued a decision to be published, helping to further illuminate, albeit on a fairly narrow issue, the scope of the CLL.  In NRG REMA LLC v. Creative Environmental Solutions Corp., Docket Nos. A-5432-15T3, A-0567-16T3 (N.J. Super. App. Div. April 25, 2018), the court analyzed the novel issue of whether, under the CLL, the salvage value of scrap recovered by a demolition contractor may be included in the “lien fund” available for distribution among lien-filing subcontractors and suppliers within that contractor’s chain of contracting.

In NRG REMA, the owner entered into a contract directly with a demolition contractor, pursuant to which the contractor actually agreed to pay the owner $250,000 for the right to demolish a power station but also for title to and the right to sell the resulting scrap metals and equipment (which it estimated at the time would net it millions of dollars).  While the CLL explicitly allows liens to be filed for demolition work, it does not specifically contemplate this type of payment arrangement in determining the “lien fund” – which, at the top contracting tier, is typically based on the simple calculation of the amount owed under the written contract from owner to contractor for the work performed through the date of the lien filing.  Thus, subject to certain limited exceptions, the more paid to the contractor prior to the lien filing, the less the lien fund available for distribution.

While the CLL’s lien fund provision and its lien claim form speak only in monetary terms, other relevant CLL provisions, incorporate the term “contract” whose definition refers to “price or other consideration to be paid” the contractor.  In this case, because the contract specifically required the transfer of title to the salvage materials to the contractor and “it was an essential component of the price [the owner] agreed to pay,” the court deemed such transfer non-monetary “consideration to be paid” to the contractor, and, therefore, part of the “contract price” paid by the owner to the contractor.

Following a lengthy analysis and a balancing of the interests between owner and lien claimant, the court ultimately concluded that, in this case, the lien fund calculation should be based on a contract amount that includes the value of the scrap obtained by the contractor pursuant to its contract, but reduced by the contractor’s cash payment to the owner made prior to the lien’s filing (note: where a contractor was paid for the demolition work and also received title to the salvage, the payment to the contractor would be added to the salvage value to calculate the total contract price).  The court further held that because the owner had transferred title to the scrap at the outset of contract performance, rather than incrementally, the value of the transferred scrap did not reduce the lien fund at that top tier at the time of such transfer, as the CLL provides that the lien fund is not reduced where the owner makes payment of unearned amounts to a contractor prior to a subcontractor’s lien filing.

The court, however, remanded the case back to the trial court for the difficult task of determining, for each lien claimant, both of which resided on the third-tier, the amount of the lien fund that was available at the time each such lien was filed based on the percentage of completion of the work at that time.  The court also made clear that it was solely dealing with the facts before it, and it identified a number of issues along the way, which if the facts were different may require a different analysis or outcome, and which the court made clear, it was not determining in its decision.  Thus, while instructive and useful when dealing with a project on which a contractor obtains salvage rights, the decision is fairly narrow and limited to the facts of that case.   

After the court’s extensive analysis on the lien fund issue, and an apparent victory for the lien claimants, the court found that one of those lien claimants, however, committed a critical technical error in the execution of its lien which precluded its enforcement.  The court reiterated and strictly applied the CLL’s express requirement that a signatory of a lien claim must be an authorized corporate officer pursuant to the company’s bylaws or as designated by board resolution.  The court found that one of the subject liens had been executed by an employee who was informally titled the company’s “financial director”, and had not been properly authorized to execute a lien on behalf of the company.  This case, therefore, serves as an additional warning that any company seeking to file a CLL lien must strictly adhere to its express provisions, lest it risk forfeiture of its lien claim and a potential damages claim based on an improper filing.

Update:  The property owner has appealed the Appellate Division’s decision to the New Jersey Supreme Court, so we will monitor whether the Supreme Court decides to hear the case, and if so, what decision it renders.

The ability to obtain a “Yellowstone” injunction has long been a saving grace for commercial tenants faced with a disputed default under their lease. A recent decision of the New York State Appellate Division, however, could shift the balance of power in commercial landlord/tenant relationships.

Typically, when a landlord notifies a tenant of an alleged default, the notice provides an opportunity to cure, the timeframe for which can be anywhere from a few days to a month, based on the terms of the lease. If the default is not cured prior to expiration of the relevant time period, the lease and the tenant’s rights to the property can be terminated, which cannot be undone as a matter of law.  If the tenant disputes the basis for the default and seeks a determination from the court, it is essentially impossible for the court to resolve the dispute before the cure period expires.  In addition, the timeframes provided to cure alleged defaults offer little flexibility for a tenant to investigate the facts, come to a conclusion, and take corrective action. The Yellowstone injunction, so-named for the seminal case in which one was issued, is designed to protect tenants in these circumstances.

A Yellowstone enables a tenant to toll the expiration of the default notice until a determination is made as to whether a default exists and whether it is the tenant’s responsibility to cure. The threshold for granting a Yellowstone injunction is not a stringent one; the tenant need only show (1) it is a party to a commercial lease, (2) the tenant’s landlord has provided it with a notice alleging default, which provides a timeframe for the tenant to cure, (3) the expiration of the timeframe has not passed, and (4) if it is determined that a default exists, the tenant is ready, willing and able to cure the default. 159 MP Corp. v. Redbridge Bedford, LLC, No. 2015-01523 (N.Y. App. Div. Jan. 31, 2018).

This is a lower standard than what a party must typically demonstrate to obtain injunctive relief under New York law, making the issuance of Yellowstone injunction fairly commonplace in commercial lease disputes. This lower barrier to entry demonstrates New York’s longstanding public policy against the forfeiture of property interests. Vil. Ctr. for Care v Sligo Realty and Serv. Corp., 95 AD3d 219, 222 (1st Dept 2012). As with any contractual negotiation, the parties to a commercial lease can utilize their negotiating positions to preserve or waive certain legal rights. However, courts rarely enforce waivers of a right when the right is a matter of public policy, as the preservation of property rights by a Yellowstone injunction has long been held to be by the courts.

The recently decided case, 159 MP Corp. v. Redbridge Bedford, LLC, involved a commercial lease that included a provision whereby the tenant waived its right to declarative relief, e.g. the issuance of a Yellowstone injunction. The Appellate Division, Second Department affirmed the lower court’s ruling enforcing the waiver provision, on the basis that the Legislature had not enacted any legislation prohibiting such waivers. Absent such legislation, the court stated, the notion of barring the waiver of a right based on public policy “does violence to the notion that the parties are free to negotiate and fashion their contracts with terms to which they freely and voluntarily bind themselves.” This decision marks a departure from existing case law declaring such waivers void based on public policy. See Sligo Realty.

In light of this apparent conflict between the First and Second Departments, which govern the five boroughs of New York City and surrounding counties, this issue appears ripe for appeal to New York’s highest court, the Court of Appeals. In the 159 MP Corp. case, the tenant must make a motion for leave to appeal to the Court of Appeals, and the Court can then exercise its discretion in granting or denying such a motion. The Court of Appeals may very well view the discrepancy between these neighboring courts as too divergent to remain unreconciled, and hear a further appeal. The decision on such an appeal would then provide guidance on the issue statewide.

Until then, however, New York commercial landlords should consider including provisions waiving a tenant’s right to declaratory relief in their commercial leases, whether the property is located in the Second Department (Kings (Brooklyn), Queens, Richmond (Staten  Island), Nassau, Suffolk, Westchester, Rockland, Putnam, and Orange counties) or not. Tenants, on the other hand, should take the Second Department’s decision into account when considering their negotiating positions and, if their lease contains a waiver of Yellowstone rights, determining how to respond to a notice of default. Landlords and tenants should consult with their legal counsel so as to stay abreast of such developments of the law, including the rights the courts can be relied on to protect and, more importantly, the rights they will not.

 

The New York City Building Code, Chapter 33, requires a developer to safeguard adjoining property during the conduct of all construction and demolition operations. Accordingly, a developer and an adjoining property owner may enter into a license agreement, whereby the adjoining property owner provides the developer with access to its property to install Code-required protections.  In return, oftentimes the developer, among other things, pays compensation to the adjoining property owner for such access.  If the parties cannot reach an agreement, the developer may seek to compel such access through the courts pursuant to Section 881 of the Real Property Actions and Proceedings Law.

While the Building Code does not explicitly provide a right to compensation, when these issues have been brought before them, New York courts have awarded compensation to adjoining property owners.  However, whether compensation is mandated and the amount of compensation is within the courts’ discretion.  Courts often consider the length of time for which access is necessary and the intrusiveness of the developer’s work on the use and enjoyment of the adjoining property by its owner and occupants.  Without clear guidance from the courts, a developer and an adjoining property owner need to give due consideration to the issue of compensation as illustrated below.

In her ruling released late last month, Manhattan Judge Arlene Bluth denied any license fee to the Condominium Board of the Fifth Avenue Tower, an adjoining property owner to the New York Public Library.  The Library will conduct a $200 million overhaul of its main Fifth Avenue branch.  In her decision, Judge Bluth specifically rejected the Condominium Board’s request for a $15,000 / month license fee.  It has been separately reported that the Condominium Board rejected the Library’s offer of a $3,500 / month license fee.  It appears that Judge Bluth may have denied any license fee to the Condominium Board based, at least in part, on the excessiveness of its demands.

In view of the lack of clear guidelines, developers and adjoining property owners should consult with their legal counsel and should be sure not to overplay their hands when negotiating license fees.

The New York City Council approved a bill on Thursday, November 30, that impacts thousands of small business owners located south of 96th Street in Manhattan. The bill modifies the threshold that businesses must meet in order to be exempt from paying the 3.9 percent New York City commercial rent tax, which is imposed upon businesses located south of 96th Street in Manhattan. Businesses operating in the Bronx, Queens, Brooklyn and Staten Island are not subject to the tax and are not impacted by this legislation. Though Mayor Bill de Blasio initially opposed the bill as it is projected to remove $38.6 million in revenue in fiscal year 2019, it is expected that he will sign the bill into law. The measure also had the support of Council Speaker Melissa Mark-Viverito. Once signed, it will become effective July 1, 2018.

Prior to the bill’s passage, businesses who paid more than $250,000 a year in base rent were required to pay the tax. The bill will raise this threshold, allowing businesses who make $5 million or less in annual income and pay less than $500,000 in annual rent to be exempt from the tax. The bill also provides a partial, sliding credit for (1) businesses making $5 million or less a year and paying between $500,000 and $550,000 a year in rent and (2) businesses making between $5 million and $10 million a year and paying less than $550,000 in annual rent.

The bill also provides exemptions for not-for-profit organizations and businesses located in certain areas, such as the World Trade Center area or those areas impacted by the Lower Manhattan Commercial Revitalization Program.

A credit for businesses that pay between $250,000 and $300,000 in annual rent, without consideration of annual income, is left unchanged.