The State liquor law preempts  local municipalities from restricting hours of operation for businesses selling alcoholic beverages for on-premises consumption.   Accordingly, local municipalities should use caution when imposing conditions upon establishments regulated by the State Liquor Authority and would be wise to consider alternative ways to manage late hours accompanied by public imbibing.

shutterstock_542466670In February 2017, the United States District Court for the Western District of New York issued a decision in Obsession Sports Bar & Grill, Inc. v. City of Rochester  (“Obsession“) involving State law preemption of local laws limiting hours of operation for certain businesses such as bars and restaurants.  The federal Obsession case involved section 1983s  claims following successful litigation in State Court. Although the federal Obsession case addressed constitutional claims only,  the decision casted stark attention upon the legal precedent set forth in the underlying State Court case, wherein the Fourth Department upheld the trial court’s holding that the State’s liquor laws preempted the City of Rochester (“City“) from restricting Obsession’s hours of operation.  Id.

In August 2011, Obsession obtained a liquor license from the State Liquor Authority authorizing the retail sale of alcoholic beverages for on-premises consumption of alcoholic beverages at its bar and grill.  Under the State Alcoholic Beverages Control Law (“ABC Law“), as amended by Monroe County local law, persons holding liquor licenses are permitted to sell alcohol, on-premises, Monday through Saturday from 8:00 a.m. until 2:00 a.m. and Sunday from 10:00 a.m. to 2:00 a.m.  In addition, these establishments may remain open an additional one-half hour to permit customers to consume their beverages, i.e. until 2:30 a.m.

Obsession’s business was located in the City’s C-1 zoning district, which permits small-scale commercial uses and restricts evening hours of operation for restaurants and bars to 11:00 p.m.  Although the City partially granted Obsession’s variance by permitting the establishment to remain open until 12:00 a.m. Monday through Thursday and until 2:00 a.m. on Friday and Saturday, the City’s local laws still forced Obsession  to close several hours earlier than required by the ABC Law, as well as earlier than similar businesses located in neighboring zoning districts.

In November 2012, Obsession commenced a state court Article 78 proceeding against the City alleging that the ABC Law preempted the local ordinance vis-à-vis hours of operations.   The City argued  that the State law did not preempt the ordinance because the ordinance did not directly address the sale or consumption of alcoholic beverages.  The trial court found in favor of Obsession holding that the City’s local ordinance was an impermissible exercise of municipal zoning power and null and void in the face of the ABC Law’s conflicting and preemptive provisions.  The Fourth Department unanimously affirmed; and in 2014, leave to appeal to the Court of Appeals was denied.

Although Obsession may have prevailed in the State court with respect to the pre-emption question,  the federal court ultimately concluded that the City did not violate Obsession’s constitutional rights because Obsession did not show that the City’s actions were arbitrary, conscience-shocking or oppressive in the constitutional sense.  Despite this holding, the Court did note that the City may have been negligent. The Court opined that municipalities could and should consider alternative means to address the potential adverse effects of bars and restaurants that operate in the later evening hours.  To placate opposition to development, redevelopment and applications of the like, municipalities should consider alternative regulations, including but not limited to outdoor seating restrictions, light pollution, kitchen hour limitations and parking limits.

images7PKZX7LEIn this post, which is the second segment of a three-part series, we will highlight the various ways that local governments facing fiscal challenges have turned to imposing fees related to the administration of their zoning, subdivision and other land development ordinances to generate additional revenue.  Such fees are authorized by law and can be justified on the basis that those who derive the benefit from a land use application should bear the cost to review that application, rather than the taxpayers.  However, many municipalities on Long Island are imposing new administrative review fees, or increasing the amount of existing fees, that require applicants to pay amounts that are not reasonably commensurate with the cost of the services performed.  Excessive administrative review fees are subject to legal challenge as an illegal “back-door tax.”

Administrative Review Fees

A local government, as part of its regulatory authority, may establish fees for the payment of the expenses to administer a regulatory program. Pursuant to such authority, governmental entities typically charge fees in connection with applications associated with land development to recoup the costs involved with the review of said applications and associated plans to insure that the proposed work complies with all applicable laws, ordinances and regulations. However, while municipalities are authorized to impose review fees, the courts have made clear that the fee amount that can be charged is limited to that which is “reasonably necessary” to undertake the regulatory review involved. In applying the “reasonably necessary” principle, courts do not require exact congruence between the fees charged and the government’s cost to review an application; but there must be some rational underpinning for the charges levied. In other words, the review fees charged must be commensurate with the actual expense of the application being processed and should not be exacted for revenue-generating purposes or to offset the cost of general governmental functions.

Nassau County’s GML § 239-f Review Fee

In 2015, the Nassau County Legislature adopted Ordinance No. 176-215, which pertains to fees charged by the Nassau County Department of Public Works (“NCDPW”). According to the ordinance, certain fees charged by Nassau County “no longer cover the costs required to administer and process the services for which they are charged.” Therefore, the ordinance states that it is “necessary to fix such fees so that they cover the administrative costs associated with the operation of services of the departments.”

Among the fees imposed by Ordinance No. 176-215 are those charged to review applications for building permits, pursuant to General Municipal Law (“GML”) § 239-f, that are forwarded from the various town, cities and villages. GML § 239-f grants the NCDPW the authority to review applications for building permits for developments having frontage on a Nassau County road, but only insofar as the proposed building, including curb cuts or other means of access, may be related to the County road. Where the application is for a development with an anticipated construction cost of $25,000 or more, the initial review fee is $1,500. However, if the anticipated cost of construction is greater than $250,000, the developer is required to pay a fee equal to .75% of the estimated construction value in addition to the initial review fee.

While there clearly is authority for the NCDPW to charge reasonable administrative review fees to process building permit applications for developments that front on a County road, these fees are vulnerable to legal challenge because the amount of the fees charged, at least for developments costing $250,000 or more, is not commensurate with the cost of the services performed. Nor do they bear any relationship to the development’s impact on County roads or other facilities. To illustrate this point, the fee charged to review a building permit for a 150,000 square foot membership warehouse store (such as a Sam’s Club, Costco, or BJ’s), which is typically a simple concrete block building with inexpensive fixtures and finishes, is likely to be significantly less than the fee charged for a building of the same size and constructed on the same site for use by a retailer that elects to construct its building with better and more expensive materials, fixtures and finishes. Presumably, both retailers’ uses would have the same impact on the adjacent County roads and facilities, but the retailer whose building will cost more to construct will be required to pay more to have its plans reviewed by NCDPW. Aside from being patently unfair (and perhaps illegal), the NCDPW’s review fee structure encourages developers to construct buildings using inferior, less expensive materials.

NCDPW’s building permit review fees, at least when they are based on the cost of construction, appear to be vulnerable to attack because they are not calculated based on the NCDPW’s cost to review an application, or the impact that a proposed development may have on County facilities. Instead, they are based on the amount of the investment that a developer chooses to make in the site. Moreover, according to the Nassau County Legislature’s Review of the Fiscal Year 2017 Budget & Multi-Year Plan, these fees also appear to be imposed for revenue generating purposes and to offset the cost to operate the NCDPW. Indeed, while the NCDPW revenues have generally decreased since 2015, the County’s current budget projects nearly a 300% increase in revenue from GML § 239-f building permit review in 2017.

To date, the NCDPW’s building permit review fees have not been challenged by developers, who instead simply pay the fees and capitalize them into the land value. However, these increased costs are being passed on to consumers who ultimately pay more for housing, goods and services. While these fees are helping Nassau County balance its budget, they are also contributing to the high cost of living that is driving people away at an alarming rate.

In the next and final segment of this series, we will look at real property recording fees, which have increased significantly in Nassau and Suffolk Counties in recent years. These fees are being used as yet another revenue-generating device that some consider to be nothing more than an illegal tax.

 

shutterstock_1842816On April 27, 2017, the Town Board of the Town of Brookhaven approved a change of zone for Rock Hill Golf and Country Club from a one-acre residential lot zone to the Golf Course District.  Manorville’s Rock Hill is the first private course to join the Town’s newly created Golf Course District.

The district is designed to protect and preserve Long Island’s golf courses amidst rapid redevelopment.  The open spaces, vistas, greenery and outdoor recreation have recently experienced a surge of transition into multi-family dwellings and housing complexes.  The new zone removes some of the allure for such transitions and provides golf course owners and operators with more tools to be successful, including added permitted uses and on-site functionality.

Rock Hill joins Mill Pond and Rolling Oaks in the Golf Course District.

shutterstock_637510813On April 25, 2017, the Southold Town Board adopted Local Law No. 5 of 2017, which amends the Town’s Zoning Code as it relates to agricultural uses. Specifically, the local law amends and adds certain definitions to the Code in recognition of the changes in modern farm operations. The changes are also consistent with the expanded definitions of agriculture found in New York State’s Agriculture and Markets Law.

The new law broadens the scope of agricultural practices by adding several definitions, including those for agriculture, agricultural production, agricultural processing, farm operations, farmhouses, processed agricultural product and on-farm operation direct marketing.  These changes expand agricultural practices beyond the growing of crops and raising of livestock and will allow farmers to process their crops and other agricultural products onsite and market them for sale, much like vineyards that make wine on their properties. Such processed agricultural products include jams, jellies, cheeses, potato chips, jerkies, meats, fowl, fish, breads and baked goods, beer, wine and distilled alcoholic and non-alcoholic beverages.

Farmers will also be allowed to sell their processed agricultural products directly to consumers from within buildings constructed on the farm for the purpose of marketing their products.  The law even allows non-farmers to sell home grown fruits, vegetables or plants to the general public from a “roadside stand,” which is defined as a display area that is less than 100 square feet in size located on the same parcel where the products are grown.

According to Chris Baiz, the chairman of the Southold Agricultural Advisory Committee and a fourth-generation farmer, the high cost of land requires farmers to achieve greater cash flows in order to operate successfully.  These new changes should help local farmers realize more income from their lands by allowing them to process and market value-added products from within their operations.

voidable-contractsAlso known as negative easements, restrictive covenants can wreak havoc on the ability to develop property. Recently, in our real estate practice at Farrell Fritz, we have seen two alarming examples.

In both cases, the restrictive covenant combined with applying municipal zoning requirements precluded the development of the property. Fortunately, we had inserted language into the contracts that allowed the client to cancel the contract with no negative financial consequences.

Restrictive Covenants and Land Use Regulations

One such instance involved a waterfront parcel on Shinnecock Bay in the Town of Southampton. This property was subject to the Town’s wetland law, which regulates the setback of structures in relation to the location of the wetlands on site. Through a title search, we found out that the property was also burdened by a private covenant that also restricted the location of structures.

This covenant contained specific language which required that a structure constructed on the site be setback at least 85 feet from the street. From the opposite side of the property, the Town’s wetland regulations required that a principal structure be at least 125 feet from the wetlands.

Applying both the wetland setback and covenant setback resulted in a negative building envelope.

Since this covenant was included as part of the subdivision process, all 26 owners of lots in the subdivision had to sign off on a waiver of the covenant requirements.

Another similar circumstance occurred where a covenant in a deed for a lakefront property required that any structure constructed on the premises be situated 60 feet from the street. This property was also subject to the same 125-foot wetland setback as the previous example. Again, application of both setbacks rendered the lot unbuildable.

In this instance, the covenant was unusual. It only benefitted the sellers of the lot, who also owned other properties in the area. The sellers specifically retained the right to modify the restrictions imposed by the covenant.

If applied to their fullest extent, both restrictions result in a lot that cannot be developed.

Relief From Restrictive Covenants

Obviously, a property owner could apply for relief to the municipal agency having authority over wetland regulations. However, these municipal boards are under increasing pressure to preserve wetlands which protect water bodies, so relief from these restrictions is difficult to obtain. Extinguishment of the covenant is the only other option. There are three ways to extinguish a covenant:  (1) an agreement between the interested parties to the covenants; (2) a merger of ownership or (3) a final decision by a court of law.

All three paths are challenging.

To obtain an agreement to extinguish the covenant in my first example would require consent from the other 25 property owners in the subdivision.

Because of the vague nature of the language that created the covenant in the lakefront example, extinguishment involves a difficult title challenge. There, a prospective developer must research title ownership of the nearby properties to determine those owned by the persons that created the covenant. After that research, a perspective purchaser must then obtain an agreement of all current property owners in the chain of title of the affected properties to amend the covenant.

Second, to merge ownership would require the purchase of the properties that benefit from the covenant. A purchase of the necessary lots in both examples above would be cost prohibitive.

Finally, a party looking to extinguish a covenant can commence a litigation under §1500 of the Real Property Actions and Proceedings Law. There are too many causes of action under §1500 to list here; but extinguishing a well written covenant through the court system would be a difficult, time consuming, and expensive task.

The obvious advice here is to authorize a title company to provide any covenants and easements that could affect the development of a property under consideration for purchase prior to entering into contract of sale.

The Town of Southampton recently held several public hearings to consider a local law requiring an updated certificate of occupancy prior to all property transfers. Specifically, the local law proposed amending Town Code §123-16, Certificate of Occupancy, to state that “upon any change in ownership of a property, an updated certificate of occupancy shall be obtained.” After consideration at several meetings, starting in December of 2016 and ending in March of 2017, the Town Board determined not to proceed with the amendment.

Many East End villages already require an updated certificate of occupancy prior to transfers of property, [1] however East Hampton, Southampton and Southold towns do not. During its public hearing process, the Town Board of the Town of Southampton waded through the many issues raised with regard to the impacts of requiring an updated certificate of occupancy upon both property owners and the Town Building Department. The Town considered allowing exceptions for those transfers conducted for estate purposes only and those transfers between individuals and corporations, limited liability companies, trusts or other entities where the majority shareholder would be the same as the prior fee title owners. Additionally, the Town was asked to consider those properties that cannot obtain an updated certificate of occupancy upon transfer due to over-clearing where compliance requires significant re-vegetation of the property and in certain circumstances Planning or Conservation Board approvals. Obviously re-vegetation cannot occur during the winter months and there is no temporary certificate of occupancy provision in the Town of Southampton’s code potentially putting property owners in a hurry to sell in a difficult situation.

The Appellate Division, Second Department, addressed an updated certificate of occupancy code provision in Lazy S Group I, v. Gomez, et al., 60 A.D. 3d 999, 876 N.Y.S.2d 473 (2d Dept. 2009). This case involved an action for specific performance of a contract for the sale of real property in the City of Peekskill where the contract required the seller to deliver a valid certificate of occupancy authorizing the use of the premises as a four-family dwelling. At closing, the parties learned that the certificate of occupancy for the premises permitted its use as a “three-plus” family dwelling but not as a four family dwelling and title did not close. Litigation followed and during that time period the City of Peekskill enacted a new provision of the Code of the City of Peekskill requiring that an updated certificate of occupancy be obtained before any improved real property that is transferred may be used or occupied. The code imposed the burden of obtaining the certificate of occupancy upon the seller “unless the parties agree otherwise in their contract of sale.” (Peekskill City Code §300-48A(3)). The Supreme Court granted the seller’s motion for summary judgment dismissing the complaint and directing the delivery of the down payment to the seller as liquidated damages. The Appellate Division reversed noting that while the City Code imposed the burden of obtaining an updated certificate of occupancy on the Seller unless the contract stated otherwise, the contract in this case was silent with respect to which party must obtain the updated certificate of occupancy. Thus, the Court found that triable issues of fact existed as to whether the communications between the parties and conduct of the parties at closing constituted any agreement with regard to the updated certificate of occupancy and whether there was a breach and if so, which party was in breach of contract. This case illustrates issues that arise when updated certificates of occupancy are required by municipalities and further illustrates the benefit of addressing such matters with specificity in the contract of sale. Indeed, most real estate attorneys require updated certificates of occupancy in their riders to the contract and are successful in obtaining same unless the property is being sold “as is” or there are existing illegal structures that would take a significant amount of time and village/town approvals to cure (as in the case of those over-cleared properties that require costly re-vegetation and further town approvals).

Requiring updated certificates of occupancy for real property transfers burdens homeowners with legalizing all structures on their property and necessarily can delay real estate transactions to the chagrin of real estate brokers. However, the law would obviate any need for protracted and often difficult negotiations regarding properties that do not comply with the law or have existing, illegal structures and would therefore be welcomed by most attorneys. Regardless, for real property transfers in the East End towns, attorneys must continue to resolve such matters through contract negotiations.

[1] See Village of Quogue; Village of Sag Harbor Code §300-17.3(B); Village of Southampton Code §A119-8(A); Village of North Haven Code §55-7(A); Village of Westhampton Beach Code §197-64(C); & Village of East Hampton Code §104-11(A), among others.

This month, U.S.-based energy giant Invenergy expects to break ground on New York’s second largest solar farm project at the former Tallgrass golf course in Shoreham.  A leader in wind and solar development, energy storage and natural gas operations, Invenergy will add the Shoreham Solar Commons to its portfolio.

Tall Grass solar media pic
The Long Island Power Authority approved the solar array in 2016 and, in early 2017, the New York State Comptroller and Attorney General green-lit the project.  Last month, Invenergy finalized its acquisition of the Tallgrass property.  Invenergy awaits the Town of Brookhaven’s issuance of the building permit for the project.

The 150-acre array will generate 24.9 megawatts (50,000 megawatt hours per year) – enough to power approximately 4,500 homes – under a 20-year power-purchase agreement with LIPA.  Notably, the 24.9 megawatts comes in just under the 25 megawatt threshold that would have triggered a more extensive review process under New York’s Power Act of 2011 that was signed into law by Governor Cuomo on August 4, 2011 (codified in Article 10 of the New York Public Service Law).

Unlike many other solar farms proposed on Long Island and elsewhere, Shoreham Solar Commons will not require clearcutting trees.  Tallgrass was fittingly a “links style” golf course, a more traditional style course hosting open spaces, high grass and bunkers rather than trees and brush.  In addition, Invenergy has pledged to plant 2,000 evergreen trees to buffer the array.

Invenergy will employ upwards of 100 people during construction over the next year, but there are no plans for full-time jobs after the array is built.  The Commons will pay approximately $670,000 per year to its local taxing districts – almost ten times more than the taxes paid by Tallgrass.  The tax figure will increase prospectively.

two housesOn April 5, 2017, in an Article 78 proceeding, Tavano v. Zoning Board of Appeals of the Town of Patterson, 2017 NY Slip Op 02661, the Second Department reversed a trial court decision and reinstated a decision of the Zoning Board of Appeals of the Town of Patterson.  The zoning board had granted petitioner Tavano’s application to establish a legal non-conforming use of a second building on his property, referred to as the “cottage.”

Tavano argued that the cottage located at his property was a leased residential dwelling and that its use preexisted the Town’s 1942 zoning ordinance, which provided that “a building, structure, or premises could be used as a rooming or boarding house so long as there were no more than three boarders or roomers.”  Id.

In reversing the trial court’s finding, the Appellate Division noted that petitioner owned property in Brewster that is improved with a single family dwelling constructed in 1947 and a cottage constructed in 1955.  Tavano lived in the single family dwelling and rented the cottage.

Although the Appellate Division did not affirmatively state that its decision rested on the fact that the cottage was constructed in 1955, well after the 1942 zoning ordinance was enacted, and thus, Tavano could not establish entitlement to a legal nonconforming use, the Court did state that “to establish a legal nonconforming use, a property owner must demonstrate that the allegedly preexisting use was legal prior to the enactment of the zoning ordinance that purportedly rendered it nonconforming.”

Here, and without benefit of the trial court opinion, it appears that the relevant question was not only whether the cottage was constructed prior to enactment of the 1942 ordinance, but also whether Tavano’s use of the cottage constituted use as a rooming or boarding house.

In reinstating the zoning  board’s decision, the Appellate Division relied upon the long-standing legal principle that ‘[t]he determination of a zoning board regarding the continuation of a preexisting nonconfirming use must be sustained if it is rational and supported by substantial evidence, even if the reviewing court would have reached a different result”

Consequently, and as all land use lawyers will attest, even if the trial court or reviewing court would have reached a different result than that zoning board, deference is to be afforded to the zoning board.  Finding that the “ZBA’s determination that the cottage did not constitute a rooming or boarding house under the 1942 zoning ordinance was not arbitrary or capricious”, the Appellate Division reversed the trial court and reinstated the zoning board’s decision.

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The Town of Brookhaven has engaged in efforts to preserve Long Island’s links and, last month, took the first steps towards fulfilling its endeavor. On March 2, 2017, the Brookhaven Town Board unanimously adopted two resolutions rezoning Mill Pond and Rolling Oaks golf courses, respectively, from a residential district to the newly created golf course district. See, p. 2, 151-161.  Recent closure and redevelopment of renowned eighteen-rounders, including the Links at Shirley and Tall Grass, precipitated the Town’s concern and concerted efforts to act.

A housing development replaced the Links at Shirley after it closed in 2011.  A separate housing development failed to precipitate at Tall Grass several years ago; and over the next few months, the State’s second largest commercial solar farm will consume the bunkers, water hazards and greens in Shoreham. Notably, Commack-based development firm Heatherwood has added housing to its golf course in Manorville and has future plans to add housing to its Centereach club.

Brookhaven’s latest zoning ordinance developments seek to protect and promote our Island’s golf courses, which provide greenery, open spaces, vistas, outdoor activities for our residents and visitors and economic stimulus for the immediate areas. The resolutions placed the two Town-owned properties into the new golf course district – which move accomplishes two major items.

First, the rezone protects the courses by making redevelopment into other residential uses less attractive and adds another hurdle to the redevelopment process. For example, a developer seeking to excise parcels zoned within the golf course district to build housing must not only purchase the parcels from the Town, but must also seek a rezone from the golf course district to a residential or mixed-family district. In seeking a rezone, the developer must obtain Town Board approval. Moreover, if objectants file a protest petition, then a supermajority of the Town Board must approve the rezone. The additional hurdle to redevelopment inevitably creates hesitation for lending prospects, because lenders require certainty to finance such projects.

Second, the new golf course district permits the course operators to make additional improvements to promote their courses and venues. Permitted accessory uses include bars, catering halls, spas, game rooms, health clubs, physical therapy facilities and major restaurants. Such enhancements will allow golf course operators to promote their clubs with added entertainment and event planning.

Brookhaven initially planned to rezone more courses, including privately-owned courses, but the owners’ concerns of the rezone affecting their abilities to borrow funds prompted a pause on this maneuver. There are approximately eight other golf courses located within the Town; two courses operated by the Village of Bellport and the Village of Port Jefferson, respectively, are not affected by the latest rezone.

office spaceOn February 20, 2017, our colleagues blogged about Ader v. Guzman, 135 AD3d 668 [2d Dept. 2016] and a guidance letter subsequently issued by the NYS Department of State (NYSDOS). At issue was the responsibility of a real estate broker to have a working knowledge of the property being marketed, including land use and zoning restrictions. The Court held that a broker has no duty to investigate whether there is a valid rental permit for the residential rental property. The NYSDOS, which licenses real estate brokers and salespersons in New York, reached a different conclusion, noting that the failure of a broker to have a working knowledge of the site could violate the broker’s obligations under the Real Property Law §§ 441 and 441-c.

On Wednesday, March 29, 2017, we presented a program to the Commercial Industrial Broker Society of Long Island (CIBS) about Land Use and Environmental Pitfalls for Real Estate Agents and Brokers that dealt with the Ader/NYSDOS issue. We also discussed NYS’s Tenant Notification Law and other potential environmental and land use traps that could adversely impact realtors.  Please click here for a copy of our power point presentation.  We hope you enjoy it!