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To Tell or Not to Tell

We noted a decision in the New York Law Journal on Oct. 16 by Justice Miller 1A Part 18, New York County Supreme Court, in Van Wagner Advertising Corp. v. S & M Enterprises which struck a responsive chord. There, as we read the decision, the parties, a landlord and his tenant, had stipulated a settlement of a dispute between them, which the tenant was seeking to set aside on the grounds that the landlord was obligated to advise the tenant that at the time the stipulation was being entered into he knew that the postal service was preparing to condemn the property and he did not do so. As a result, the tenant entered into the stipulation, allegedly giving up valuable rights in exchange for an alleged illusory benefit of continued possession under a lease.

The Court set aside the stipulation based upon the fact that “even if defendants’ actions do not rise to the level of intentional fraud or misrepresentation, setting aside the stipulation of settlement is warranted in this instance. Relief from stipulations will be granted based on general equitable considerations, particularly where, due to circumstances beyond the control of the parties, the purposes of stipulation are being frustrated or contingencies of settlement fail to occur . . .”

Common Problem

It is not our intention to comment upon this decision as it will possibly be resolved in an appellate court, but merely use it to highlight a not too uncommon problem. We often get calls from property owners whose properties are within an area considered for condemnation who are having problems renting because of it and who seek to lease to potential tenants and want to know whether they are obligated to advise them of the pending condemnation. Or we get a telephone call from a property owner who hears his property is in a potential condemnation area and is ready to enter into a contract of sale and should he advise the buyer or even where he is about to close a mortgage.

The question, of course, is loaded with ethical and economic considerations, if not legal ones. There are few reported decisions that we can find on the subject. These are part of the larger question of an owner’s rights with respect to a property which is being considered for condemnation.

To start with, from the very earliest cases it is clear that until there is actually a passage of title to a condemnor in a condemnation proceeding an owner has the absolute right to do with his property as he sees fit despite his supposed knowledge of a pending condemnation proceeding (Mayor v. Mapes, etc. 6 Johns Ch. 46 (1822); In re Wall Street, 17 Barb 617 (1854); Vitale v. State of N.Y., 33 AD 2d 977, mot. for lve. to app. dism. 26 NY 2d 801; Matter of City of N.Y. (Briggs Ave.), 196 N.Y. 255, same case 118 App. Div. 224; Frontier Town Properties, Inc. v. State of N.Y., 58 Misc. 2d 388; Matter of City of N.Y. (Two Bridges U.R.,) Sup. Ct. N.Y. Co., Index No. 41385/69 Opin of June 16, 1972, per Chimera, J., unreported; Matter of City of N.Y. (West 172d St.), 167 App. Div. 807).

An Exception

The exception to this is where an owner, in bad faith, solely for the purpose of enhancing an award makes additions or improvements to his property, the so called “house planting” cases. (Matter of City of N.Y. (Briggs Ave.), supra; Matter of the Mayor, 24 App. Div. 7; In re Waterfront and Harbor of City of N.Y., 37 NYS 2d 217, 218 (1942); In re: Northern Blvd. 258 N.Y. 136, 151; People v. Dickey,148 App. Div. 662, 113 NYS 221, 223).

While this is clearly the law in this state, yet a perusal of the cases makes clear that a condemnee who goes out and makes major improvements to his property in the face of a pending proceeding may not be treated as sympathetically by the Courts (see Matter of City of N.Y.( G & C Amusements), 55 NY 2d 353, 449 NYS 2d 671 (1982) as one who stops his plans for such an improvement (see Matter of City of N.Y. (Staten Island Industrial Park-Jomar Real Estate Corp.), 89 AD 2d 724, 462 NYS 2d 260, aff’d 61 NY 2d 843 (1984)).

Despite this, the thrust of the law in the whole series of cases decided under the rubric of “condemnation blight” in dealing with the owner who, because he is unable to keep his property up and in repair, who loses tenants and financing because of long drawn-out planning for a public improvement suffers economic losses and property devaluation rests on the proposition that there is a life to real property despite the planning for a condemnation (City of Buffalo v. J.W. Clement Co., 28 NY 2d 241 (1971); City of Buffalo v. Geo. Irish Paper Co., 31 AD 2d 470, 299 NYS 2d 85, aff’d 26 NY 2d 869). Also particularly where unsuccessful petitioners in such circumstances were assured that when the trial came they would receive compensation for their losses caused by that condemnation planning (In re 76 Crown Street Corp. v. City of N.Y., 35 AD 2d 1005, 317 NYS 2d 978 (1971); Cinco v. City of N.Y., 58 Misc. 2d 828, 296 NYS 2d 26 (1968).

Resting on the same assumption are cases where, because of pending condemnation proceedings, various approvals under the police power having been denied or withheld, are set aside by the courts (Jensen v. City of N.Y., 42 NY 2d 1079 (1977); In re St. Morris Assocs. V. McMorran, 35 AD 2d 997, 318 NYS 2d 121 (1970); Corrado v. Wolf, 37 Misc. 2d 89, 235 NYS 2d 336; Matter of City of N.Y. (John F. Kennedy H.S.) NYLJ, 7-24-76, p. 10, co 3 (Sup. Ct., Bronx Co., Brust, J.); Matter of Kemp, 80 AD 2d 897 (1981); Rockaway Peninsula Corp. v. State of N.Y., 262 NYS 2d 670, 677, rev’d on other grounds 29 AD 2d 997, 289 NYS 2d 506 (1965)).

End to Lease Sought

Getting closer to the case which triggered this column is the case where a tenant, hearing about a proposed condemnation, unsuccessfully sought to end his lease obligation to avoid having to fixture his premises as a supermarket, the court holding that a planned condemnation and short of actual condemnation is not sufficient to be deemed a frustration of the lease (2811 Food Corp v. Hub Bar Building Corp., 35 AD 2d 277, 315 NYS 2d 277 (1970).

Then there is Creative Living Inc. v. Steinhauser, 78 Misc. 2d 29, 355 NYS 2d 897, aff’d 47 AD 2d 598 (1st Dept. 1975) where despite the fact that the Board of Estimate had authorized condemnation of the property the failure to close on a contract of sale because of the proposed condemnation of the property was deemed a default with a forfeiture of the deposit.

Of course, all of this begs what is a basic underlying problem in many of these cases. When is one supposed to know that a condemnation proceeding is pending so as to be obligated to advise a tenant or lender or purchaser if, indeed, there is such an obligation? Is it when it is talked about, when something official is done, after a public hearing, when a project has been authorized or when? The problem is that, in fact, until a project is actually in the taking format, when proceedings have actually started, you cannot know that it is really a fact.

We know of many horror stories of property owners who were advised their property was to be taken and took irrevocable steps to their severe economic detriment. We’ve seen an owner’s building plans changed so that the building was not to be built within the lines of a proposed highway, building on only part of his lot, and then the highway line was changed. We have seen the Lower Manhattan Expressway abandoned after twenty years of talk and actual condemnation approval.

A major New York newspaper built an entire new warehouse facility to replace one on Buttermilk Channel which was planned to be taken for the Red Hood Container Port and ended up with both because of a change in the plan. We have seen tenants move out of buildings to be condemned leaving the landlord with vacancies and severe economic losses only to see plans for the project abandoned. The West Side Highway should be fresh in everyone’s mind and there the State actually appropriated all of the city’s piers, and the project has been abandoned. The fact is that when asked all we ever can do is talk about plans but we never can assure anyone thee is going to be a condemnation until it actually happens.

The question then is what is the duty of a property owner to advise anyone about these “plans.” And at what stage of planning does such a duty, if there be one, arise. The cited case does not really tell us, it does not rest upon a duty, but only equitable considerations. Perhaps some day we will find out.

Reprinted with permission from the November 18, 1987 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.