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To Tell Or Not To Tell
By M. Robert Goldstein and Michael J. Goldstein
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.
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