New York Clarifies “Emergency” and “Essential” Construction

Following Governor Cuomo’s order and the Empire State Development (ESD) guidance on March 27, 2020, which provided that all “non-essential construction” except “emergency construction” must shut down, this week the Commissioner of the New York City Department of Buildings issued clarification about the terms “emergency” and “essential” construction (the “Bulletin”). Continue Reading

New York Construction Building Owners Assume New Roles and Responsibilities in Wake of Construction Shutdowns

With many New York City construction projects deemed non-essential, owners find themselves with partially completed work coupled with legal obligations to maintain the safety of the property. The temporary shutdown shifts responsibilities (and liability) for maintaining the safety of the property and the public to the owner. From maintaining permits to weekly inspections and weather protection, owners are now tasked with numerous roles and responsibilities more typical of those of a general contractor. Failure to understand and address these requirements places the owner at risk of noncompliance and potential delays when work is ready to resume if for example, permits have lapsed or areas of the site are no longer code compliant. The full New York City Building Department bulletin (the Bulletin) issued last week provides guidance to owners and contractors regarding the minimum requirements for maintaining construction and demolition sites when operations are suspended. Continue Reading

Government Approval: When It’s Not a Sure Bet

Excerpt of a contributed article published in the New York Law Journal on March 31, 2020.

Last month’s court decision ordering the removal of potentially as many as 20 floors of a high-rise building (The Committee For Environmentally Sound Development v. Amsterdam Avenue Redevelopment Associates, Sup. Ct., N.Y. Co., Index No. 157273/2019) shook the local development community. How can the issuance of a construction permit by one branch of government be invalidated because of community opposition? And when can a developer rely upon final determinations of the Board of Standards and Appeals (BSA)?

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Much of New York Construction is Now Also “on PAUSE”

Although Governor Cuomo put “New York State on PAUSE” a week ago, at that time, “construction” was not specifically exempted from his Executive Order and the Empire State Development’s (ESD) guidance on what businesses were subject to the 100 percent workforce reduction. Yet, pursuant to a further directive from the Governor, on March 27, 2020, the ESD updated its guidance to explicitly state that “[a]ll non-essential construction must shut down except emergency construction, (e.g. a project necessary to protect health and safety of the occupants, or to continue a project if it would be unsafe to allow to remain undone until it is safe to shut the site).” (Emphasis added.) See: https://esd.ny.gov/guidance-executive-order-2026.

The ESC provides several examples of “[e]ssential construction,” and advises that for project sites falling within that category, or for sites qualifying as “emergency non-essential construction,” the Executive Order’s 10-point policy requires, as explained in the ESC guidance, “maintaining social distance, including for purposes of elevators/meals/entry and exit.” (See also 10 Point Plan.) The ESC warns that “[s]ites that cannot maintain distance and safety best practices must close and enforcement will be provided by the state in coordination with the city/local governments. This will include fines of up to $10,000 per violation.”

The ESC guidance excludes from the definition of “construction work” “a single worker, who is the sole employee/worker on a job site.”

The Federal Reserve’s Powers to Pave the Way for Continued Development and Construction Through COVID-19

As the Coronavirus has encapsulated the world, government go-aheads to construction firms are welcome relief to the industry. Lenders’ collective reaction to the current economic concerns is another matter. Future financing is always imperative to ensure ongoing construction as well as new projects.

Government responses are changing by the day, but the Federal Reserve (the Fed) has acted decisively and thoroughly in response to the economic threats following the Coronavirus outbreak. Staying true to its Congressional mandate to “promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system,” the Fed has devised numerous strategies to meet the persistent demand for redemptions and infuse money into the market. It has cut interest rates to zero, coordinated with other central banks to encourage purchases of the U.S. dollar, committed to purchasing an unlimited amount of U.S. Treasury’s and mortgage-backed securities, and explicitly encouraged banks to reduce their reserves held against demand deposits (by eliminating entirely reserve requirements). Continue Reading

Potential Impacts of the Coronavirus Pandemic on Construction Projects

As the coronavirus/COVID-19 pandemic continues to spread and the governmental and private sectors formulate their responses, it has become apparent that the associated economic impacts will be significant and affect all sectors of the economy, including construction. Robinson+Cole’s Construction Group has been monitoring these developments and is already seeing preliminary notices being sent out by contractors and owners warning of potential work stoppages, schedule impacts, and cost increases resulting from the pandemic.

Supply chain disruptions, workforce shortages due to illness and preventive quarantines, and work stoppages due to measures imposed by governmental authorities in an attempt to slow the spread of the virus appear all but inevitable. Project owners and developers are considering reductions in workforce and other site supervision and general conditions costs, to help mitigate extended or added costs that may be incurred due to project slowdowns or suspensions. If necessary, some owners may exercise their contractual rights to terminate or suspend projects (partially or fully) in light of these issues in order to mitigate the near-certain adverse economic impacts. Similarly, contractors and subcontractors are reserving their rights to adjust for added costs and time, and to the extent that they are beginning to incur costs or lose time, asserting preliminary claims for increased time for performance or added costs as a result of the same anticipated issues under force majeure and other claim-related provisions of their project agreements.

The full impacts of the coronavirus pandemic remain to be seen, but some are already manifesting themselves. For example, major news outlets are reporting that, beginning on March 17th, Boston Mayor Marty Walsh ordered all construction projects in the city to shut down for at least two weeks, with the exception of emergency projects such as roadwork and gas hookups. The extent that this ban will be enforced and complied with is unclear, but it is certainly a cause for concern among those with ongoing projects. We will provide further updates as the situation unfolds.

Caution When Approaching Artistry

A $6.75 million judgment was upheld by the United States Court of Appeals, Second Circuit, against a developer that whitewashed 45 spray-painted artworks on its site — several months before the demolition permits were issued. See Castillo v. G&M Realty L.P., — F.3d —-2020 WL 826392 (February 20, 2020). The trial court had issued the maximum statutory damages ($150,000 per destroyed work) pursuant to the “Visual Artists Rights Act,” holding that the developer’s destruction of the murals at “5Pointzb” – a Queens, NY, curated warehouse where aerosol artists were once given legal permission to add their creations both inside and on the building’s exterior – was a violation of the artists’ rights. Much of the appeals court’s affirmance of the trial court’s calculation of damages was based not on a proven market for the works, however. Rather, the trial court’s reasoning included the developer’s “refusal to afford the artists the 90-day opportunity provided by the statute to salvage their artwork, some of which was removable,” having acted out of “pure pique and revenge for the nerve of the plaintiffs to sue to attempt to prevent the destruction of their art.” The developer’s false misrepresentations during early preliminary injunction proceedings and perceived “insolence” did not help. These facts fulfilled the statute’s elements in determining appropriate damages, the first of which is “the infringer’s state of mind,” which weighed heavily against the developer.

Photo courtesy of Ezmosis via Wikimedia Commons

Will Claims Against Closely-Held Condominium Developers Be Thwarted by New York’s Newly-Adopted Uniform Voidable Transactions Act?

Property development companies regularly create single-purpose entities (SPE) to acquire new real estate for development, construction or renovations. SPEs are often comprised of only a few members, and no assets beyond the property itself, and are considered “closely-held” companies.

There has been a growing trend in New York construction defect lawsuits in which boards of managers of newly-constructed condominiums that have sued the sponsor-developer-SPEs also name the SPE’s individual members as defendants. The plaintiffs rely on New York’s Debtor & Creditor statute Article 10, referred to as the “Uniform Fraudulent Conveyances Act” (UFCA). The UFCA authorizes “claw-backs” of money and other asset transfers as a remedy for some creditors.

Effective April 2020 in New York, after 95 years, the Uniform Voidable Transactions Act (UVTA) will replace the UFCA. The new statute will contain modified definitions and clearer criteria for which transactions may be unraveled. The question is whether this will reshape the courts’ understanding of sponsor-developer-SPEs’ equity financing arrangements, which by their nature have created a conflict with the UFCA. Continue Reading

NYC Amends Its Façade Inspection and Safety Program to Push Building Owners into Action

In the wake of the tragic death of architect Erica Tishman, who was killed by falling debris from a brick tower in midtown Manhattan in December 2019 , the New York Department of Buildings (DOB) amended its rules governing exterior wall inspections and repairs. The new rules went into effect on February 20, 2020. Known as the Local Law 11 inspections, the Façade Inspection & Safety Program (FISP) has undergone extensive amendments in an effort to address the increasing number of dangerous façade conditions including corroded masonry and fractured terra cotta which in addition to causing structural problems, can loosen and fall to the ground causing bodily harm or property damage.

This issue is a growing concern. During the past six years, more than 4,790 Environmental Control Board violations related to facades were issued of which more than half remain active.[i] The DOB reported more than 22,000 violations related to facades since 2014.[ii] Continue Reading

An Unfounded Lien: What’s an Owner to Do? And Can it Recover its Attorneys’ Fees?

A subcontractor has liened the property even though the owner has paid in full for its work. The general contractor has disappeared. What should an owner do next? And will its attorneys’ fees be recoverable?

In New York, a mechanic’s lien, although filed in the county clerk’s office on the project owner’s land record, secures only to funds:

  • owed to the party directly above the lienor: each tier of subcontractors, materialmen, and laborers has its own “lien fund,” and pursuit of that is its only recourse; and
  • that have been approved for payment: if the owner did not by contract or change order consent to the payment sought, that dollar amount is not included in the “lien fund.”

Thus, if at the time the subcontractor filed the notice of mechanic’s lien, the owner did not owe the general contractor money for work performed, there is no fund to which the subcontractor’s lien can attach, and the lien is void. In such a case, the owner has several options under the Lien Law.  It should determine whether the lien is “facially valid,” i.e., without knowing any facts, the lien, on its face, complies with the statutory requirements. If so, the owner may serve the lienor with a “Demand for Verified Statement,” which seeks detailed information about the items of labor and materials furnished and the terms of the subcontract under which they were furnished. If the lienor fails to provide a responsive statement within five days, the statute sets up a path by which the owner can seek cancellation of the lien in a summary proceeding. If the lienor does timely respond, then with the information provided by the subcontractor, an owner can verify the lienor’s claim. Continue Reading

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