At the end of last year, the New York City Council voted to approve Intro. 2033, legislation which will create a new class of certificate of occupancy: the Interim Certificate of Occupancy (“ICO”). The Department of Buildings is permitted to begin issuing ICOs as early as mid-April. Like a Temporary Certificate of Occupancy (“TCO”), an ICO will be available for portions of a project which are deemed safe for occupancy even though the remainder of the project has not been completed. Unlike TCOs, ICOs are not required to be renewed every 90 days – they expire only on issuance of a final Certificate of Occupancy by the DOB.

This new option will provide more stability for developers and building owners by providing a secure certificate that can be offered to prospective tenants without the risk of a renewal denial every 90 days and no additional required DOB interaction. It will further reduce red tape and unnecessary interactions between developers and the City.

However, not all buildings will qualify for ICO. ICOs are not available for:

  1. Residential buildings with fewer than eight stories or fewer than four dwelling units;
  2. Non-residential buildings with fewer than five stories;
  3. Mixed-use buildings with fewer than four dwelling units; and
  4. Parking structures.

Ultimately, ICOs potentially represent a significant boost to both the residential and commercial real estate industry by removing an easy to miss but essential and consequential renewal off the table and reducing the risk of unpleasant surprises for tenants.

A frequent topic of dispute in litigation involving construction projects is whether a subcontractor is entitled to payment for work it performs outside its contractual scope of work—often referred to as “extra work” or “change order work”—without obtaining a signed written change order to perform the work.  The same issue often arises in the context of change orders and directives issued from the owner to the general contractor.

In a typical scenario, the general contractor orally directs a subcontractor to perform work outside of the subcontractor’s scope and promises that a written change order will shortly follow.  The subcontractor, conscientious to keep the project moving, complies with the oral directive and completes the extra work without obtaining a signed written change order.  Its subsequent payment requisition is then denied for failure to obtain the signed change order.  Is the subcontractor legally entitled to be paid for the work that the general contractor directed it to perform, even without a signed change order?

In DeGraw Construction Group, Inc. v. HPDC2 Housing Development Fund Company, Inc., 2020 NY Slip Op 07131 (Dec. 1, 2020), the Appellate Division, First Department, reaffirmed that “oral directions to perform extra work, or the general course of conduct between the parties” may “modify or eliminate contract provisions that require written authorization.”  In that case, the subcontract itself required signed written change orders, but none were issued to the subcontractor in connection with work performed outside the subcontractor’s scope.  Nevertheless, the court held that the subcontractor was still entitled to payment for the extra work because the change orders were “directed, authorized, and performed.”

The decision in DeGraw will come as a welcome reminder to subcontractors that technical contract requirements for written change orders will not always be enforced, if the subcontractors are directed to perform the work and do perform the work without objection from the general contractor.  That said, every effort should still be made to secure signed written change orders where they are required by the contract, in order to avoid unnecessary, disruptive and costly disputes.  By the same token, general contractors and owners who do not consent to change order work should clearly object in writing to performance of the extra work.  If they do not do so, and the subcontractor proceeds with the extra work, the general contractor or owner may be found to have “authorized” the work by their silence and therefore be responsible for paying the subcontractor for such work.

What recourse does an owner (or other aggrieved party, such as a general contractor who is contractually obligated to remove sub-contractors’ mechanic’s liens) have for removing a mechanic’s lien from the property on which it was filed?

One commonly used option is to procure and file a surety bond with the appropriate County Clerk’s Office, in the amount of 110% of the amount of the lien.  The posting of a discharge bond removes the lien from the property and attaches the lien to the bond.  However, the bond does not actually extinguish the lien and the lienor may still bring a civil action to recover the amount at issue.

Lien Law 19(6) also permits a party wishing to challenge a lien to bring an expedited action seeking summary discharge of the lien, but summary discharge is only available where there is a “facial defect” in the lien, such as listing the wrong owner or failing to properly describe the property against which the lien is claimed.  The general rule is that where extrinsic proof must be considered to determine the validity of the lien, an expedited proceeding under Lien Law 19(6) is not the appropriate procedural mechanism to use.

Aside from these avenues (or, of course, securing release of the lien through payment to the lienor), challenges to a lien must generally be brought in the context of a lien foreclosure action.  This includes challenges to the amount of a lien, even if that amount appears clearly excessive.

The Appellate Division, First Department recently reinforced this principle in Pizzarotti, LLC v. FPG Maiden Lane LLC, 129 N.Y.S.3d 771 (1st Dep’t 2020).  There, the owner brought an expedited action under Lien Law 19(6) seeking reduction of a mechanic’s lien based on lien waivers provided to the owner during the project.  The trial court granted the owner’s motion and reduced the lien from $33,837,618.34 to $3,566,357.42.

The First Department reversed, holding that a “court has no inherent power to vacate, modify or discharge a notice of lien pursuant to Lien Law § 19(6) where there is no defect on the face of the lien.”  Instead, “any dispute concerning the lien’s validity must await a trial.”

The appellate court observed that there was a dispute as to whether the lien waivers were effective to release plaintiff’s claims, in light of the parties’ course of dealing during the project—suggesting that in a case with indisputable documentary evidence of release, a court could reduce the amount of a lien in the context of a summary proceeding under Lien Law 19(6).

The better reading of the Pizzarotti decision, however, is that a court simply has no power to discharge or modify a mechanic’s lien—including its amount—in the context of summary proceeding under Lien Law 19(6), in the absence of a facial defect in the lien.  Rather, disputes concerning the propriety of the amount of the lien must be resolved in the context of a lien foreclosure action brought by the lienor.

Practice Tip:  Parties faced with mechanic’s liens that they wish to challenge—but which do not appear to contain “facial defects” remediable in a Lien Law 19(6) summary proceeding—should consider serving a “Demand to Foreclose” under Lien Law 59 if the lienor has not yet commenced an action to foreclose the lien.  That statute allows the owner (or aggrieved contractor) to serve a written demand on the lienor demanding that the lienor either foreclose on its mechanic’s lien within 30 days of being served with the demand or show cause before a court why the lien should not be vacated.

*Update: On August 31, 2020, NYC Mayor Bill de Blasio signed Executive Order No. 60, which designated the NYC Department of Finance as the administering agency for the C-PACE financing program.  This exciting new development is a sign that the C-PACE program will likely be formally launched in NYC in the near future.

Property Assessed Clean Energy (“PACE”) (also sometimes referred to as C-PACE) financing is a little-known financing tool now available to commercial property owners in more than 35 states, including New York, New Jersey, and Washington D.C.  PACE financing is a flexible, long-term financing option provided to property owners for existing and proposed renewable energy and energy efficiency projects.  More specifically, all types of commercial real estate assets may be eligible for PACE financing including hotels, senior housing, student housing, office, retail, industrial, and certain types of multifamily properties.

PACE loans are a unique financing option that enable property owners – of both new constructions and existing buildings – to obtain funds from pre-qualified private lenders for certain energy efficient building improvements known as “qualified improvements.”  Common examples of qualified improvements include, but are not limited to, new HVAC equipment and systems, lighting, doors and windows, insulation, and solar panels.

In contrast to traditional financing options, PACE loans allow eligible property owners to obtain 100% financing for the cost of qualified improvements at competitive long-term fixed interest rates, without a personal guaranty, and such loans fully amortize over the average useful life of the installed qualified improvements, which typically ranges between 20 to 30 years.  Importantly, because PACE loans are secured by a special real estate assessment on the property, such loans are repaid as part of a building’s real estate tax payment and are fully assumable by any subsequent building owner.

While PACE financing has been an attractive financing option for eligible borrowers from its inception, mortgage lenders were initially hesitant about such loans because the special real estate tax assessment of the PACE financing is superior to any other debt (i.e. mortgage) on the property.  However, as PACE financing has gained popularity throughout the country and lenders have become increasingly familiar with this financing option, more institutional lenders have begun accepting PACE financing.

As states and cities around the nation, including New York City,[1] continue to pass legislation aimed at tackling the effects of climate change, PACE loans not only afford property owners with a unique and affordable financing tool to comply with such legislation, but also allow property owners to realize long-term savings in energy costs.

Feel free to contact us with any questions or if you would like additional information.

[1] For more information on the climate change legislation enacted in New York City, please take a look at one of our previous blogs on the Climate Mobilization Act:

The New York City Department of Buildings announced that starting Wednesday, July 8, 2020, it would resume issuing violations and penalties of $5,000.00 per violation with the potential for a Stop Work Order for sites which do not comply with the New York State Phase One Reopening procedures. Continued non-compliance will result if penalties of up to $10,000 for each offense and are more likely to receive a Stop Work Order. This change was previously announced, and comes from the existing policy, began June 8, 2020, when non-essential, non-emergency work was permitted to resume in New York City. Until July 8, 2020, the Department’s write-ups were strictly advisory.

The Department also specifically highlighted that it would issue a Stop Work order if the Safety Plan and State Affirmation of compliance with reopening requirements were not conspicuously displayed or if the site lacks a property handwash/hygiene station. Specifics of what is required can be found in the Construction Master Guidance, the “Dos and Don’ts”, and the What to Know documents.

Finally, while you must ensure the health of your own construction site personnel, Department inspectors are required to continuously self-monitor for COVID symptoms and must be permitted access to a site. Preventing their access will result in a Stop Work Order.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.