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When is a Restrictive Covenant Not Enforceable

Written by Alan Singer on . Posted in Legal Alerts.

It has been common practice, especially in the first half of the twentieth century, for owners of residential subdivisions (hereinafter referred to as “grantors”) to include in the deeds to individual lots various restrictions on development. These could include minimum or maximum home sizes, type of homes which could be built, roofing material to be used (usually slate) or restrictions on use such as prohibition against farm animals, storing of recreational vehicles or prohibitions against commercial usages. Often approval of building plans would be reserved to the grantor, which created a problem when that person or entity was no longer in existence.

More recently, these restrictions have taken the form of recorded Declarations of Restrictive Covenants which are binding on “heirs, successors and assigns”, in other words, all future owners. As often happens, some of the provisions of the restrictions become obsolete over time or are simply ignored by future owners and the ancient deed restrictions may not be included in later transactions. If there is no interested entity insuring compliance with the original restrictions they may be frequently ignored by later generations.

When there is no enforcement of the restrictions by a grantor or successor in interest to the grantor the question arises as to whether an owner in the chain of title can enforce the restriction against a neighbor who has or is threatening to violate it. The answer, as in most legal issues, is a definite maybe. A recent case in which we represented a defendant (Shehan v. Commisso and Cassano, Supreme Court, Suffolk County) explores that issue. The issue was whether a neighbor (Shehan) could enforce a 1929 deed restriction purportedly prohibiting further subdivision of a lot owned by the defendants, as to which the Planning Board had approved a subdivision of a lot into two building lots.

The Court ruled that he could not and dismissed his suit. In so doing the Court relied on existing law which allows a neighbor to seek enforcement of a deed restriction only if that neighbor can prove that the restriction was part of a common scheme or plan throughout the subdivision intending to benefit all owners. In this case there was ample evidence that no such common scheme existed. First, not all of the lots in the subdivision contained the same original deed restriction, and some of them had restrictions which expired by their terms in 1933. Additionally, the grantor had retained the right to impose other or different restrictions in future deeds. Also, the original 28 residential lots, through various re-subdivisions, had now grown to over 40, with three of them improved by a school.

Thus it was found that despite the deed restrictions being said to “run with the land” and inuring to the benefit of subsequent owners, they were not part of a common scheme or plan, so could not be enforced by one owner against another. It may also have been significant that the deeds for both plaintiff’s and defendants’ properties, going back to at least 1950 did not contain any reference to the original restrictions.

The lesson here is that when dealing with ancient deed restrictions, especially ones which seem to make no sense in contemporary times, it is important to consult with an attorney and thoroughly research the history of and current conditions within the subdivision.

Corporate Officers are not Directly Personally Liable for the Company’s Failure to Comply with New Jersey’s Prevailing Wage Act

Written by WB&G on . Posted in Legal Alerts.

In the case of Joseph Palmisano, et al. v. CrowderGulf, LLC, et al., the United States District Court for the District Court of New Jersey held that corporate officers are not individually liable for a failure to pay prevailing wages under New Jersey’s Prevailing Wage Act (the “PWA”).

In January 2013 Defendant CrowderGulf, LLC (“Contractor”) contracted with the State of New Jersey to perform “waterway debris removal services” from damage caused by Hurricane Sandy (the “Project”). In turn, Contractor subcontracted certain portions of the work to, among others, Defendant Bil-Jim Construction Co., Inc. (“Subcontractor”).

The Plaintiffs in the action brought suit individually and on behalf of others similarly situated, alleging that Contractor and Subcontractor failed to pay the prevailing wage for work performed on public projects, including without limitation full prevailing wages, shift differentials, overtime, and double-time for work performed on Sundays and Holidays. Importantly, Plaintiffs also named Subcontractor’s President, Vice President and Secretary/Treasurer (the “Individual Defendants”) in the action, claiming that, as “officers, principals, directors, supervisors, or managers”, the Individual Defendants are personally liable for Subcontractor’s failure to comply with the PWA. The Individual Defendants moved to dismiss the Complaint for failure to state a claim, contending that the PWA does not impute personal liability to corporate officers.

When considering a motion to dismiss, the Court is required to accept as true all allegations in the Complaint, and to view the same in the light most favorable to the non-moving party. Ultimately, a complaint should be dismissed only if the well-pleaded alleged facts, taken as true, fail to state a claim. While applying this legal standard, the Court granted the motion of the Individual Defendants, thereby dismissing the claims against them.

Plaintiffs argue that the PWA applies the New Jersey Wage Payment Law’s (“WPL”) definition of “employer”, which would result in the Individual Defendants being held personally liable. Plaintiff asks the Court to invoke the doctrine of in pari materia1. The Court, however, disagreed with Plaintiff, stating “the doctrine is not invoked to engraft the terms of one statute onto another merely because the general subject matters of the two enactments are similar.” The Court further noted that, unlike the Fair Labor Standards Act and the WPL, both of which impose individual liability on officers of a corporation, the PWA “employs the narrowest definition of employer, providing for no individual liability”. In further support of its holding, the Court noted the purpose of the PWA is “to establish a prevailing wage level for workmen engaged in public works in order to safeguard their efficiency and general well-being and to protect them as well as their employers from the effects of serious and unfair competition resulting from wage levels detrimental to efficiency and well-being”.

Conclusion:

New Jersey’s PWA does not impute personal liability on principal officers of a corporation for a failure to pay prevailing wages. Though the PWA does not specifically define “employer”, the regulations promulgated under the authority of the PWA define “employer” as any natural person, company, firm, subcontractor or other entity engaged in public work”. Under this definition, an “employer” under the PWA is limited to the entity or individual that obtains and performs work under the contract, which is the actual contracting entity and not its individual officers.

In the event an employee of your corporation brings an action under the PWA and individually names the corporate officers as defendants, thereby seeking to impose personal liability upon them, such action should be immediately met with a motion to dismiss on behalf of the individually named defendants.

Note that, notwithstanding the case law discussed herein, there may be indirect personal liability pursuant to an indemnity agreement entered into in connection with the issuance of a payment bond on a public project, provided a successful claim is made against any such bond.

1The general principle of in pari materia, a rule of statutory interpretation, says that laws of the same matter and on the same subject must be construed with reference to each other. The intent behind applying this principle is to promote uniformity and predictability in the law.

What Contractors Need to Know About Prevailing Wage Rules Under the “New 421-a” Program

Written by WB&G on . Posted in Legal Alerts.

If you work in the New York City construction industry, you have probably heard about the “421-a” tax benefit program for real estate developers. However, what most people don’t know is that the policy now includes prevailing wage standards for construction contractors. Even though you might never be the one applying for 421-a tax benefits, construction contractors need to know whether the prevailing wage standard applies to them, and if so, how to comply with the rules.

Developers may claim tax exemptions for properties in New York City used for new construction of residential housing with at least some portion of the units reserved for below-market rate housing for eligible middle-to-low income households (“Affordable Housing”). This tax policy was based on Section 421-a of the Real Property Tax Law.

Section 421-a was enacted in 1971 to subsidize the New York construction industry during a period when the city’s population was declining by 85,000 people a year and residential construction was at an all-time low. Over the years, the legislature added Affordable Housing requirements for the 421-a tax benefits. “The Old 421-a” expired in January 2016, and the New York legislature codified a revised version of Real Property Tax Law § 421-which the administration calls the “Affordable New York Housing Program”, or unofficially, “The New 421-a”.

According to the New 421-a, the New York City Department of Finance (“DOF”) grants tax exemptions to developers. Developers can generally apply for a “20 Year Benefit” or a “35 Year Benefit” of property tax exemptions, depending on a number of factors including what percentage of their units are rented at below market rate, how many percentage points rents for those units are below market rate, etc.

If a project both (1) contains 300 or more units; and (2) is located in the “Enhanced Affordability Area”, the project can be an “Enhanced New Eligible Site” and the developer can apply to DOF for an “Enhanced 35 Year Benefit” – which is a very desirable exemption. If a developer receives an “Enhanced 35 Year Benefit”, then the developer can receive a 100% property tax exemption for the construction period plus an additional 35 years.

In Manhattan, the Enhanced Affordability Area includes all residential construction south of 96th Street. In Brooklyn and Queens, the Enhanced Affordability Area generally includes neighborhoods within one mile of the East River waterfront: Brooklyn Heights, Downtown Brooklyn, Vinegar Hill, Dumbo, Navy Yard, Boerum Hill, Williamsburg, Greenpoint, Long Island City, and Astoria.

If the construction is for a building with 300 or more units in the designated “Enhanced Affordability Area”, then the contractors must comply with the “Prevailing Wage”1 standards. In its first year of implementation after enactment in 2015, the Prevailing Wage for the Manhattan Enhanced Affordability Area was an average of $60 an hour, and the Prevailing Wage for the Brooklyn and Queens Enhanced Affordability Area was an average of $45 per hour. However, the Prevailing Wage is set to gradually increase in increments of 5% as of April 2020, and every three years thereafter.

The New 421-a also establishes a few exceptions to the Prevailing Wage for otherwise covered tax exemption applicants. The Prevailing Wage does not apply to (1) projects subject to a project labor agreement; (2) condominiums and cooperatives; (3) multiple family housing where at least 50% of the dwelling units are affordable housing restricted to residents with no more than 125% of Area Median Income.

Even if a given project is not bound by the Prevailing Wage because it is not in the Enhanced Affordability Area, but it has 300 or more units, a developer could still elect to comply with the 421-a Prevailing Wage in order to receive New 421-a benefits.  

Compliance with the New 421-a Prevailing Wage Mandate

In order to receive tax exemptions under the New 421-a, developers must hire an “Independent Monitor” (a licensed accountant) to submit a “Project-Wide Certified Payroll Report” to the Comptroller within one year of the completion date of the construction project, to certify that construction workers were paid appropriately, and that construction workers were paid the Prevailing Wage where it applies. If the developer was required to pay construction workers the Prevailing Wage but failed to do so, the Project-Wide Certified Payroll Report must state the aggregate amount of the deficiency. If the Project-Wide Certified Payroll Report is not submitted to the Comptroller on time, the developer will be subject to a fine of $1,000 per week, with a maximum fine of $75,000.

In addition to the payroll report obligations of the developer, each contractor and subcontractor to a developer receiving New 421-a tax benefits must submit a “Contractor Certified Payroll Report” to the Independent Monitor no less than 90 days after the completion of their own work.2 If the contractor or subcontractor does not submit the Contractor Certified Payroll Report within 90 days, the Comptroller can fine the contractor or subcontractor $1,000 per week, with a maximum fine of $75,000.

Though a contractor may not have paid its construction workers the full Prevailing Wage, the statute contains mechanisms for contractors and developers to rectify the deficiency without having to incur any fines. If the construction workers were still paid an average hourly wage within 15% of the Prevailing Wage, the developer must pay to the “Fund Administrator” the difference between the Prevailing Wage and the wage actually paid to the construction workers (the “Deficiency Payment”). The Deficiency Payment must be made within 120 days from the developer’s submission of the Project-Wide Certified Payroll Report to the Independent Monitor. The Comptroller will then distribute the deficiency payment to the construction workers.

However, if the construction workers were paid an average hourly wage more than 15% below the Prevailing Wage, the developer will not only have to rectify the deficiency, but will also be subject to fines and civil penalties. In such cases, the developer will be subject to a fine of $1,000 per week, with a maximum fine of $75,000, until the deficiency is cured. The developer must pay the Deficiency Payment within 120 days from the date of the submission of the Project-Wide Certified Payroll Report to the Independent Monitor. The Comptroller can then distribute the deficiency payment to the construction workers and impose a civil penalty on the developer equal to 25% of the amount of the deficiency (unless the building was “the subject of a job action which results in a work delay”).

If construction workers were paid less than the Prevailing Wage, the developer applicant for the New 421-a tax benefits is generally obligated to pay for deficiencies in the payments to the workers, fines, and penalties. However, there is an exception in the case that the developer was the victim of the contractor’s (1) “fraud, mistake or negligence”; (2) “fraudulent or inaccurate contractor certified payroll reports”; or (3) “fraudulent or inaccurate project-wide certified payroll reports”. In such case, the developer can still be eligible for the New 421-a tax benefits so long as (1) the contractor or subcontractor must still cure the underpayment of the construction workers, and (2) the Comptroller determines “that the underpayment was the result of, or caused by, contractor fraud, mistake, negligence and/or for fraudulent or inaccurate contractor certified payroll reports and/or project-wide certified payroll reports.”

In Practice:

If you are a contractor or a subcontractor on a residential building project in the five boroughs, you need to know whether the Prevailing Wage Mandate applies to you. A smart owner would put this explicitly in the contract documents, but you cannot rely on the owner to inform you of your legal obligations. You should consult with an attorney to determine whether the Prevailing Wage Mandate applies to you on any new project. 

Even though it is the owner/developer who applies for the tax exemptions, some of the obligations under the New 421-a law apply directly on the contractor or subcontractor. If the law applies, you may need to submit a Contractor Certified Payroll Report to the Independent Monitor within 90 days of completion of the project.

1 Note that in the context of this legal alert, the Prevailing Wage Mandate only refers to the wage standards set by the “New 421-a” – and does not refer to prevailing wages as defined by the New York Department of Labor.

2 Note that the Contractor Certified Payroll Report submitted by the contractor and the Project-Wide Certified Payroll Report submitted by the developer are two very different things; the latter is not just a summary of the former.

Are contractually shortened limitations periods to commence an action for breach of contract enforceable?

Written by Thomas S. Tripodianos on . Posted in Legal Alerts.

At least in New York’s First and Second Departments; maybe not.  In recent cases on the subject, General Contractor, hired Subcontractor to provide security services at several different construction sites, pursuant to separate subcontracts. Each subcontract involved a public construction project. The subcontracts were identical, and contained the following relevant provision:

“Article 33 – CLAIMS AND DISPUTE RESOLUTION
Paragraph 33.5 Limitation on Suit
“No claim or action by [Subcontractor] arising out of or related to th[e] [contract] shall lie or be maintained against [General Contractor ] unless such action is commenced no later than six (6) months after either: [a] the cause of action accrued, [b] the termination or conclusion of th[e] [contract], or [c] the last day [Subcontractor] performed any physical work at the [project site], whichever of the proceeding [sic] events shall occur first.”

Both the Subcontractor and General Contractor were named as defendants in a class action under New York’s prevailing wage statute commenced by present and former employees of Subcontractor (the Wage Action). In a letter, counsel for Subcontractor informed counsel for General Contractor that it considered the Wage Action to be frivolous, and that Subcontractor intended to move for summary judgment dismissing it. In the same letter, however, Subcontractor asserted that $232,213.13 was due and owing to it for its work under the subcontracts, and demanded payment of same. In a responsive letter, counsel for General Contractor informed counsel for Subcontractor that General Contractor was relying upon an indemnity provision in the subcontracts that entitled it to withhold money due and owing to Subcontractor, pending the outcome of the Wage Action, stating that

“[w]hile it may be ultimately determined that the [Wage Action] Plaintiffs’ claims are frivolous and/or without merit, be advised that General Contractor  will continue to enforce the indemnity provisions contained in the contracts with your client until such determination is made by the Court [in the Wage Action].”

The letter further noted that, in connection with one of the jobs, payment was not yet due, since the public owner had not yet approved a change order. Subcontractor did move for summary judgment in the Wage Action. However, after the summary judgment motion was denied, and the Wage Action became protracted, it decided it could no longer wait to be paid. Accordingly, it commenced an action to collect its alleged balance due.

General Contractor argued that the action was time-barred by the contractual limitations provision, which required Subcontractor to commence suit within six months of the last time it performed physical work under any of the subcontracts. General Contractor asserted that, in accordance with the limitations clause, this was the earliest of the three possible dates for measuring the time to commence suit, the others being the “accrual date,” and termination of the subcontracts.

Subcontractor asserted that General Contractor had been paid in full by the public owner on all four of the projects for which it provided security services, wherefore General Contractor could not rely on certain provisions in the subcontracts making Subcontractor’s right to payment contingent on payment to General Contractor by the owners. Subcontractor argued that the contractual limitations period did not bar the claim because General Contractor, pursuant to General Municipal Law section 106–b(2), (which requires a contractor who receives any payment from a public owner to make prompt payment to its subcontractors for their work), imposed upon it a continuing and ongoing obligation to pay Subcontractor. Subcontractor also relied on the letter from General Contractor’s counsel, claiming that it constituted an acknowledgment of the debt, as contemplated by General Obligations Law section 17–101, thus defeating any statute of limitations claim.

In reply, General Contractor asserted that the public owner was either retaining funds in connection with the Wage Action or that the General Contractor, while acknowledging it had been paid, was holding the money, in case it was later determined that Subcontractor had to indemnify it as the result of an adverse judgment in the Wage Action.

The Subcontractor’s argument in the case that went up on appeal to the First Department was that the contractual limitations provision was unenforceable, because it permitted a scenario in which,  even though a claim had not accrued by the time six months had passed since the last time physical work was performed, it was still time-barred. Subcontractor argued essentially that, in light of General Contractor’s stated position that payment was not due to Subcontractor until such time as the Wage Action was resolved, Subcontractor should not have been subjected to the “catch–22” of having to file a lawsuit to toll the statute of limitations, where the claim was not yet ripe for adjudication.

General Contractor noted that Subcontractor demanded payment from General Contractor in its counsel’s letter, which was still within the six-month limitations period. It characterized this as an acknowledgment by Subcontractor that it had a ripe claim. However, in its counsel’s response, General Contractor explicitly rejected the claim as premature. Accordingly, Subcontractor rightfully saw filing a lawsuit at the time as a futile gesture.

A recent Second Department case further undermines General Contractor ’s position. Similarly in that case the subcontractor was owed money pursuant to a subcontract that contained a one-year contractual limitations period, and a provision making payment by the owner to the general contractor a condition precedent to the general contractor’s obligation to pay the plaintiff. It took nearly two years for the owner to approve payment to the general contractor, and when the plaintiff sued to recover, the general contractor moved to dismiss, relying on the contractual limitations period. The court refused to dismiss on statute of limitations grounds.

In this First Department case, it was not clear that General Contractor was relying on a specific contractual condition precedent, in advising Subcontractor it would not pay until a favorable resolution of the Wage Action had been reached. Nevertheless, General Contractor made clear that it would not release monies to Subcontractor until the Wage Action was resolved. Accordingly, Subcontractor’s argument that the limitations period was rendered ineffectual by General Contractor’s position was correct.

To Incorporate or not to Incorporate – that is the Question

Written by Frank Gramarossa on . Posted in Legal Alerts.

Incorporation by reference is a tool often utilized by a contractor to pass through its own obligations under its upstream contract (the “prime contract”) to its subcontractors and/or suppliers.However, it is very common that these subcontractors have not seen the applicable prime contract prior to executing its own contract and, thus, are completely unaware of what they agreed to.When negotiating a contract with an incorporation by reference provision, a subcontractor should request a copy of the prime contract to understand the provisions which may affect the subcontractor.However, it is also important to understand that some provisions of the prime contract will not be incorporated into a downstream contract by a general incorporation by reference clause.This issue has been analyzed extensively by both federal and state courts in New York.We were all reminded of this principle in the recent decision of the Appellate Division, Second Department’s in the case entitled SJS Construction Company, Inc. v. Darius Masonry, Inc., 156 AD 3d 933 (2d Dept 2017).

SJS, the general contractor, filed suit against its subcontractor, Darius, claiming breach of a subcontract to perform masonry work. The subcontractor moved to dismiss the case on grounds that the parties were required to arbitrate disputes pursuant to an arbitration provision included in the prime contract between SJS and the owner. The motion was denied; on appeal, the Appellate Division affirmed the lower court’s ruling that the prime contract’s arbitration provision was not specifically incorporated by reference into the subcontract, the provision did no compel the parties to the subcontract to arbitrate in the event of a dispute.

The ruling in SJS Construction was based on the case of United States Steel Corp. v. Turner Construction Co., 560 F. Supp. 871 (S.D.N.Y. 1983).In U.S. Steel, a subcontractor started an action in federal court in New York, seeking to recover its contract balance plus additional costs allegedly caused by the general contractor’s breach of contract.The general contractor moved to dismiss based on a forum selection clause included in the prime contract that required claims to be litigated in New York state court. The general contractor argued that its general incorporation by reference clause in the subcontract, in turn, required its subcontractors to do the same.The Court disagreed and denied the motion to dismiss.The Court held that where a subcontract generally states that the terms of the prime contract are incorporated into the subcontract, without specifically referencing any provisions, then only those provisions related to scope, quality, and manner of performance of the work are in fact incorporated by reference.Therefore, its case did not have be litigated in New York state court.Although the Court in U.S. Steel fell short of precisely defining what it meant by “scope, quality and manner of performance”, federal courts have held that similar clauses cannot be incorporated by reference unless specifically agreed to in the subcontract.For instance, a no damage for delay clause, a waiver of damages clause, and a clause that governs the resolution of claims between the owner and prime contractor cannot be incorporated by reference unless done so specifically.

New York state courts have made other similar findings.In George Hyman Constr. Co. v. Precision Walls, Inc., 132 AD 2d (1987), the Court cited U.S. Steel in declining to enforce a forum selection clause included in the prime contract but not specifically incorporated by reference into the subcontract.Similarly, arbitration clauses included in a contract cannot be incorporated by reference unless specifically done so.However, it should be noted that the specificity requirement is a minimal one.

Contractors must be aware of incorporation by reference clauses in their contracts – otherwise, they will not be aware of the full extent of their obligations. Because the courts have failed to provide an exact definition of “scope, quality, and manner of performance”, the question can only be answered on a case-by-case basis.Sound legal advice from experienced construction lawyers is critical in assisting contractors in understanding their obligations, as well as navigating the minefield that is contract negotiation and dispute resolution.

Knowledge of Contrary Facts Negates Effect of Estoppel Certificate

Written by Gregory J. Spaun on . Posted in Legal Alerts.

Regardless of whether you are in the construction business, the financial industry, or are a brick-and-mortar retailer, chances are that if you own a business, you have a commercial landlord for one or more of your business locations. In the commercial real estate business, landlords who undertake certain transactions, such as refinancing or selling the leased property, often require tenants to sign estoppel certificates. Estoppel is an equitable concept that prevents a party from doing something that he or she otherwise has every legal right to do because of a promise, a representation, or some other reason. Estoppel certificates are meant to provide the financier, purchaser, or other party to the landlord’s transaction with assurances that there are no defaults or other problems under the tenant’s lease, and that the tenant has no claims against, or issues with, the landlord. Accordingly, in the context of an estoppel certificate, when signed by the tenant, they “estop”, or prevent the tenant from later raising a claim against the landlord that was not specifically disclosed in the certificate. In the case of Aerotek, Inc. v 757 3rd Avenue Associates, LLC, argued by this author, an appellate court declined to enforce an estoppel certificate, notwithstanding that it was signed by the tenant.

In Areotek, the leases at issue provided that Areotek (and a sister-entity) were entitled to be reimbursed for certain tenant improvement allowances by the landlord. Areotek submitted initial documentation in support of its request for reimbursement of the tenant improvement allowances in August of 2014, and it followed up with final documentation (which included final lien releases from its contractors and suppliers) on December 4, 2014. Two months later, the landlord executed an agreement to sell the building in which Areotek was a tenant, and it represented to the buyer its belief that Areotek was no longer entitled to be reimbursed for the tenant improvements. In order to close its sale, the selling landlord asked Areotek to sign an estoppel certificate stating that Areotek had “no further rights to receive any allowances or Landlord contributions for tenant improvements pursuant to the terms and conditions of the Lease”, which it did. After the sale closed, the landlord refused to reimburse Areotek for the tenant improvement allowances, and Areotek sued.

In response to the lawsuit, the landlord made a motion to dismiss, citing to the estoppel certificate and the language stating that Areotek had no further rights to receive the allowances. In opposition, Areotek argued that estoppel, as an equitable construct, required the party claiming the doctrine (here, the landlord) to have “clean hands”, and that this landlord did not have clean hands because it accepted the certificate with knowledge of a contrary—and true—state of facts. The trial court denied the motion on that ground, and an appeal was taken. On the appeal, this author argued that Areotek took no action to suggest that they were withdrawing their reimbursement request, or that they were willing to forgo payment, and that the landlord therefore had no grounds to believe that the facts stated in the estoppel certificate were actually true. The Appellate Division affirmed, finding that the allegations were clear that the landlord accepted the estoppel certificates “with knowledge of the contrary, and true, state of the facts”, and that without “action to suggest that [Areotek was] withdrawing their reimbursement request or that they were willing to forgo payment”, the landlord could not rely on those estoppel certificates to bar Areotek’s claim.

While the tenant ultimately prevailed against the motion to dismiss its lawsuit, the fact of the signed estoppel certificates was hard to overcome. The outcome of the case rested on equitable grounds of “clean hands”, the doctrine that one who seeks to invoke equity must have behaved equitably itself. As the court ruled here, a landlord with knowledge that the facts recited in the estoppel certificate are not true, and with knowledge that contrary facts are true, cannot invoke the equitable remedy. However, as equity is a relative concept that is applied in each case, a tenant who is asked to sign such a certificate would be well advised to consider the effect of signing such a certificate, and to consult with competent counsel in order to help weigh the effects of such a signature. Or else, in a less clear cut case, the certificate may be enforced to your detriment.

Labor Law Section 220 Provides a Direct Right of Action to Workers to Assert Claims Against Contractors for Payment of Prevailing Wage and Benefit Rates

Written by Michael Irwin Silverstein on . Posted in Legal Alerts.

In Agolli v. PS Contracting of NJ Inc. (Supreme Court, N.Y. County, Nov. 29, 2017), plaintiffs, two laborers employed by defendant PS Contracting of NJ, Inc. (“PS Contracting”) brought a class action lawsuit for breach of contract on behalf of themselves and all other similarly situated persons who furnished labor to defendants PS Contracting and two other contractors, Zoria Housing, LLC (“Zoria Housing”), and Technico Construction Services Inc. (“Technico Construction”) on three different projects.  The plaintiffs alleged that these defendants breached their public work contracts with the New York City Housing Authority (“NYCHA”) when they failed to pay the plaintiffs prevailing wage rates, supplemental benefits, and overtime wages as required by Section 220 of New York’s Labor Law. The plaintiffs specifically alleged that Zoria Housing and Technico Construction Services entered contracts with NYCHA around 2009 to manage and perform construction projects at various sites owned by NYCHA. The two named plaintiffs performed construction work for PS Contracting, a subcontractor for Zoria Housing and Technico Construction Services, on these public work projects. The purported class included workers of any one of these three defendants. The plaintiffs claimed that Labor Law Section 220 required Zoria Housing and Technico Construction Services, either themselves or through their subcontractor PS Contracting, to pay laborers working on these projects “not less than the prevailing rate of wages,” supplemental benefits, and prevailing “premium wages” for “overtime work.” Each contract for the projects included a schedule of prevailing wage and benefit rates.

The defendants, including Zoria Housing’s payment bond surety, unsuccessfully moved to dismiss the workers’ lawsuit. On the motion to dismiss, the defendants first argued that the complaint lacked the specificity required to state a claim for breach of contract. The  the Court disagreed, finding that the complaint identified the parties and projects covered by the contracts under which the plaintiffs made their claim. The complaint further alleged that those contracts obligated defendants to pay the plaintiffs prevailing wages and benefits according to Labor Law Section 220, as third party beneficiaries of the defendants’ contracts with NYCHA.  Finally, the plaintiffs alleged that the defendants violated those contracts by failing to pay them the statutorily required wages and benefits. The Court found these allegations were sufficient to sustain plaintiffs’ breach of contract claims. In doing so, the Court observed that at the pleading stage of litigation, the plaintiffs need not specifically identify the contracts under which they claimed payment, and it was sufficient that they have identified the construction projects that the contracts cover, and that they have specified that the complaint refers to the contracts requiring defendants to pay plaintiffs prevailing wages according to Labor Law Section 220.  

The defendants’ second ground for dismissal was equally unavailing.  Here, the defendants relied a provision of their contracts with NYCHA, which read, as follows:

DISPUTES CONCERNING LABOR STANDARDS
Disputes arising out of the labor standards provisions of this Contract shall not be  subject to the general disputes clause of this Contract. Such disputes shall, be resolved in accordance with the procedures of the Department of Labor set forth in 29 C.F.R. parts 5, 6, 7. Disputes within the meaning of this clause include disputes between the Contractor (or any of its subcontractors) and the Authority, the U.S. Department of Labor, or the employees or their representatives.

The defendants maintained that this section of the contract required the plaintiffs to resolve their dispute over prevailing wage rates, supplemental benefits, and overtime wages under the procedures set forth in 29 C.F.R. Parts 5-7, the application of which would have divested the Court of jurisdiction to hear plaintiffs’ claims. The Court, however, did not agree, noting that the cited sections of the C.F.R. only applied to challenges in the prevailing wage rates, and that the plaintiffs were not challenging the prevailing wage and benefit rate schedules in the public work project contracts but, rather, the defendants’ failure to pay those wage and benefit rates, as defined in those schedules, in the first place.

The lesson to be gleaned from the Court’s holding is a reminder that Section 220 of the Labor Law not only provides the Department of Labor with an administrative remedy against the contractor, but it also provides the workers with a direct right of action. This direct right not only includes the worker’s employer, but contractors upstream from the worker’s employer. Accordingly, contractors on public works projects would be cautioned to not only ensure that they are paying their workers proper prevailing wage and benefit rates, but to ensure that their subcontractors are as well.

Do You Know If Your Lien Was Filed Correctly?

Written by Frank Gramarossa on . Posted in Legal Alerts.

New York’s Lien Law is quite specific on the requirements of a notice of lien.So what happens when a lien does not strictly comply with those requirements?This very issue was recently analyzed by the Appellate Division, Second Department in the case of Park Side Constr. Contrs., Inc. v. Bryan’s Quality Plus, LLC (156 AD3d 804).

In Park Side, the plaintiff was Park Side Constr. Contrs., Inc., a general contractor who hired Bryan’s Quality Plus as its piling subcontractor to perform drilling services at 2 different sites.During construction, Bryan’s Quality Plus had difficulty with the soil at the Brooklyn site, and it had to use alternative means and methods to complete its work.When it was complete, Bryan’s Quality Plus submitted a claim for the additional costs associated with the unexpected changes.At the Manhattan site, Bryan’s Quality Plus ordered materials but could not start work due to a stop work order.Park Side did make payments for materials, and Bryan’s Quality Plus kept materials in storage with the expectation that it would use them when the job started.However, when the work commenced, Park Side hired a different subcontractor to perform the work.

As a result, Bryan’s Quality Plus filed 2 liens: one for the additional costs associated with the alternative means and methods used at the Brooklyn project, and the other for the alleged unpaid balance for materials at the Manhattan site. In response, Park Side sued Bryan’s Quality Plus for: 1) an order of seizure of materials it purchased for the Manhattan site; 2) a declaration that liens were willfully exaggerated and void under Lien Law §39; and 3) damages for the amounts demanded by the liens in excess of costs and materials actually provided.Bryan’s Quality Plus counterclaimed to foreclose mechanic’s liens, and for breach of contract.

Prior to trial, Park Side file a motion to summarily discharge the liens because they included Park Side’s post-office box address rather than its principal place of business.Bryan’s Quality Plus filed a cross-motion for leave to amend the liens nunc pro tunc, essentially asking the Court to amend these apparently harmless defects.  The trial court ruled that despite the defect, the use of a post office box address rather than the address of a foreign corporation’s principal place of business within the state is a non-jurisdictional defect – one that the Court, within the discretion afforded by Lien Law §12-a, was willing to correct.The Appellate Division, Second Department ruled that the trial court properly exercised its discretion.

The lesson to be learned is this: while the subcontractor in this situation was allowed to retroactively amend its liens after making the proper application to the Court, it incurred unnecessary legal expenses to preserve its liens.  This could have been avoided had they consulted with an attorney prior to filing the lien.  It is important to receive good legal counsel at the outset of a dispute, particularly from attorneys who are well-versed in the Lien Law and its requirements.  However, if you do find yourself in the unfortunate situation of filing a facially-defective lien, you are not without hope – contact a knowledgeable attorney who can make the appropriate petition to the Court preserve your rights. 

What Type Of “Pre-Construction” Services Can You Lien For?

Written by WB&G on . Posted in Legal Alerts.

In a recent New York case, an interesting question arose as to the type of pre-construction services for which a construction professional can file a lien. Generally speaking, if you perform work and you are not paid for labor or services utilized “for the improvement of real property” you are permitted to file a mechanic’s lien. A mechanic’s lien is a powerful tool to secure payment, but is equally fraught with perils if not carefully prepared. In the pre-construction context, you can file a lien for certain services even if a project never proceeds to completion. However, determining what type of services you can lien for is often tricky. An improper description of your work or services provided can result in the lien being challenged and, ultimately, dismissed.

In The Matter of the Application of Old Post Road Associates, LLC, 2018 WL 2209500 (Sup Ct, Westchester County, 2018), petitioner, Old Post Road Associates, LLC (“Old Post Road Associates”), sought to summarily discharge a lien filed by LRC Construction, LLC (“LRC”), pursuant to Lien Law § 19(6). LRC, in its lien, claimed it provided “pre-construction management services” for the owner, Old Post Road Associates. The owner did not dispute that it engaged LRC to perform certain “pre-construction management services” in connection with a planned construction project on its property. LRC claimed the services it performed included updating the project budget, attending meetings with consultants to discuss construction phasing and reviewing documents in connection with the site plan approval. Old Post Road Associates argued that LRC provided these services “gratis” in the hope of being retained as the project construction manager. LRC disagreed, claiming that it provided these services for eleven (11) months until it was terminated, and it should be compensated. Obviously, LRC was not retained as the project construction manager, and both parties unsuccessfully attempted to negotiate a settlement. LRC then filed a mechanic’s lien for the services in the amount of $225,000, and Old Post Road Associates filed a petition to discharge the lien.

Supreme Court acknowledged that little guidance exists as to what type of work falls within and outside the category of “improvements” for which a lien can be filed. Analyzing an almost one-hundred-year-old case, the Court noted that the Lien Law does not cover services associated with procurement of subcontractors and “applying for permits and approvals”, as that type of work is not “the work of improving property”. Old Post Road Associates argued that the description of labor and services in the lien did not provide the basis to file a lien and, thus, the lien should be discharged. LRC countered that the Lien Law is subject to a liberal construction in favor of contractors. The Court ultimately concluded that LRC’s description in the lien for “pre-construction management services” does not automatically render the lien defective. Interestingly, the Court permitted LRC to submit an affidavit further describing the services it provided for the Project and found that the more detailed description in the affidavit was sufficient to permit the lien to stand—although some of the described work may be non-lienable.

Although LRC was able to dodge dismissal, the case should serve as a warning against filing a lien that contains any description of services which do not fall under the Lien Law. All mechanic’s liens filed in New York must contain a concise statement describing the work, labor or services that were provided for the benefit of a construction project. It is important to remember that the stakes are high because even one mistake can render your lien fatally defective. For pre-construction services, make sure the services you provided are allowable under the Lien Law, and be very specific as to the services performed. Often, being overly detailed, rather than using generalizations, can help avoid an early challenge to the lien and, as discussed above, can even result in the lien surviving an attempt at dismissal.

How to Comply with Notice Requirements for the Safe Construction Bill of Rights and Tenant Protection Plans

Written by WB&G on . Posted in Legal Alerts.

Suppose you are a general contractor, hired by a landlord to renovate the atrium of an apartment building in Bushwick. It looks like a simple job that will take a month, but it will generate significant noise and dust, and it will require interruption of the hot water and gas lines. In this case, you need to make sure that the landlord has provided sufficient notice to the occupants of the building.

In 2017, the New York City Council enacted a package of ordinances dubbed as the “Stand for Tenant Safety”. These laws were enacted to curb egregious abuses like the case of Daniel Melamed, a Crown Heights landlord so determined to evict rent-stabilized tenants that he hired contractors to perform illegal construction work. Melamed hired his contractors to conduct partial demolition of the building while tenants were still living in it, exposing tenants to friable asbestos and toxic concentrations of lead dust, and intentionally cutting off heat in the dead of the winter. The Attorney General filed criminal charges, and Melamed was ultimately convicted on three counts of unlawful eviction.

The City Council’s stated intent in enacting these new notice requirements is to provide tenants with relevant information when their Landlord conducts significant renovations in the building, and to deter the misuse of construction contractors for the ulterior purpose of harassing rent-stabilized tenants.

The Safe Construction Bill of Rights

One ordinance in the “Stand for Tenant Safety” package is Intro-960 sponsored by Rosie Mendez (D-Lower East Side), more colloquially known as the “Safe Construction Bill of Rights” (or in this legal alert, “SCBOR”). Substantively, the only thing that SCBOR does is establish an affirmative obligation for landlords to provide written notice to their tenants about any significant construction or renovations on the premises. It is a best practice for every contractor to take care that the landlord follows this new notice rule.  

In any such situation in which a Landlord’s obligations attach, the Landlord must make available a document titled the “Safe Construction Bill of Rights” to all of the Occupants (“SCBOR Notice”). For new buildings, the SCBOR Notice requirements attach whenever a landlord applies for a temporary certificate of occupancy. For existing buildings, the notice requirement attaches “contemporaneously” when a landlord applies for a work permit for any work significant enough that it requires a permit; i.e. anything more than mere “ordinary repairs” or “minor alterations”.  Note, however, that if the landlord applies for an emergency work permit, the notice requirement attaches “immediately.”

According to the Safe Construction Bill of Rights, the SCBOR Notice must inform occupants of the following information:

  1. A description of the construction work being conducted (“Work”)
  2. The location of the Work
  3. The projected timeline for completion of the Work
  4. A description of the services anticipated to be interrupted during the Work, such as hot water, an elevator, a stairwell, an entrance, etc.
  5. Contact information for an agent or an employee of the landlord who can be reached for emergency matters and non-emergency matters
  6. Contact information for 311 or other city or state agencies

The Landlord can comply with the Notice requirements by distributing the SCBOR Notice to each occupied dwelling unit. The Landlord can also comply by posting the SCBOR Notice “in a conspicuous manner” in the building lobby next to the Housing Information Guide required to be posted on every floor next to every elevator and every stairwell.

The Tenant Protection Plan

A separate ordinance, Intro-936-A, establishes the requirements of a valid Tenant Protection Plan (“TPP”). New York City landlords will also have to provide a TPP (“TPP Notice”) in any scenario in which there will be construction or demolition work in “buildings containing occupied dwelling units”. This includes buildings that are partially occupied while contractors are still conducting construction work elsewhere in the building.

At minimum, the TPP Notice must include specific, detailed provisions for:

  1. Egress. The TPP must include how tenants can exit the building during construction
  2. Fire Safety. The TPP must include how construction will comply with the Fire Code
  3. Health Requirements. The TPP must specify means and methods to be used to control dust, disposal of construction debris, pest control, maintenance of sanitary facilities, and limitation of noise. The TPP must include a statement of “means and methods” of compliance with applicable laws on lead and asbestos.
  4. Housing Code. The TPP must state how to comply with the NYC Housing Maintenance Code and the New York State Multiple Dwelling Law (if applicable)
  5. Structural Safety. The TPP must state that no structural work shall be done that may endanger the occupants.
  6. Noise Restrictions. The TPP must state the limitations where the hours of the day or days of the week in which construction work may be undertaken are limited pursuant to the NYC Noise Control Code.
  7. Maintaining Essential Services. The TPP must specify the “means and methods” to be used for maintaining heat, hot water, cold water, gas, electricity, or other utility services; if such “essential services” are anticipated to be disrupted, for how long what “means and methods” will be employed to minimize the disruption of “essential services”.

The TPP Notice must contain a statement that “the building contains dwelling units that will be occupied during construction” and must list those units. The TPP Notice must also include the specific “means and methods” which the contractor will employ to safeguard the safety and health of all occupants throughout the construction. You have to explain your safety and health procedures  with particular detail – a bare recitation of the law, or writing “legal” or “code compliant” will not suffice.

Once the TPP Notice responsibilities attach, the landlord will have to make the TPP Notice available to all of the tenants. The TPP Notice can also be distributed to each occupied dwelling unit, or posted “in a conspicuous manner” in the building lobby and on each floor next to the elevators or stairwells.  Landlords will have to use the DOB-approved form.  

In Practice

The next time you have to conduct any significant work on a residential building, make sure that the Landlord has complied with the Notice requirements of the Safe Construction Bill of Rights and a Tenant Protection Plan. Otherwise, DOB can issue fines to the landlord on the order of a Class 1 Violation – and if that happens, there is a good chance that many landlords are going to try to pin the blame on the contractor.

Remember that the Tenant Protection Plan is not a toothless notice requirement; it is a part of your “Contract Documents”. The owner must provide written notice to DOB at least 72 hours before the contractor commences any work requiring a TPP. The contractor is obligated to comply with the TPP upon issuance of work permits.

When drafting a contract, you may want to specifically provide that the landlord is obligating to provide due notice of the Safe Construction Bill of Rights and a Tenant Protection Plan to all tenants and to DOB. If you get to the job site, and you do not see the Notice posted at entrances, stairwells, and elevators, make sure to get in writing from the Landlord that Notice has been distributed directly to all of the tenants.

According to the ordinance, DOB is going to conduct inspections of at least 5 percent of all building sites to determine compliance with the TPP. DOB is also going to conduct inspections after receiving a complaint about any such work. If DOB determines that work is noncompliant with the approved TPP, DOB can issue a stop work order.

Be wary of contracting with unscrupulous landlords. If you have any reason to believe that a potential client has ulterior motives in hiring you to do construction work, think twice about signing that contract.

If you are already on the job site, and your client asks you to do anything suspicious, give your lawyer a call. It is better to err on the side of caution than to be named as a defendant in a messy, highly-publicized lawsuit that could result in major liabilities and jeopardize your ability to obtain future work permits and future public contracts in New York City.