The First Department Addresses Reimbursable Fees Awardable Under RPAPL 881

• Posted on: Mar 4 2022

By Jonathan H. Freiberger

As indicated in our previous articles regarding RPAPL 881, Real property owners or lessees (“Owners”) often find that their real property is in need of improvement and/or repair (the “Work”).  [Eds. Note:  this Blog has discussed RPAPL 881 [here] and [here].]  Sometimes, the Work requires access to adjoining property (a “Neighbor”).  In many instances, a Neighbor graciously permits access to the Owner’s contractors so that the Work can be performed.  In such instances, the parties can informally reach an appropriate resolution should a problem arise.

Sometimes, a Neighbor may voluntarily permit the Work to be performed, but only after a formal license/access agreement is negotiated and executed.  Access agreements can address many issues including, but not limited to: time and day restrictions for the Work; appropriate indemnification and hold harmless provisions; insurance requirements; requiring the Owner’s insurance policies to name the Neighbor as an additional insured; requiring prompt repair of damage to the Neighbor’s property, and the like.

However, when neither informal nor formal cooperation is forthcoming from a Neighbor, an RPAPL 881 permits an Owner to obtain a license from the court.  RPAPL §881 provides:

When an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license so to enter pursuant to article four of the civil practice law and rules. The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires. The licensee shall be liable to the adjoining owner or his lessee for actual damages occurring as a result of the entry.

On February 15, 2022, the Appellate Division, First Department, decided Matter of Panasia Estates, Inc v. 29 W. 19 Condominium, in which the Court had the occasion to address license fees and reimbursable expenses in RPAPL 881 cases.  The facts of Panasia are typical.  Petitioner is a building owner that sought to add two stories of commercial office space.  Respondent 1 owns a neighboring building.  Respondent 2 is an individual unit owner in Respondent 1’s building, which unit has a 1,730 square foot terrace abutting petitioner’s building.  Respondent 3 is the owner of another neighboring building.

Petitioner’s attempts to obtain voluntary access to the Respondents’ property were unsuccessful.  Petitioner commenced a proceeding under RPAPL 881 and, after a hearing, the court issued an order granting the license to conduct a pre-construction survey and install the overhead and roof protections, flashing, and outrigger and netting system, and to swing scaffolding and directing:

petitioner, inter alia, to pay a monthly license fee of $3,000 to [Respondent 2], increasing to $4,000 after 12 months and $7,000 after 24 months, for interference with the use of their terrace; a monthly license fee of $1,000 to the nonparty first-floor unit owner of [Respondent 1], increasing to $1,250 after 12 months and $2,000 after 24 months, for interference with the use of his terrace; and a monthly license fee of $1,200 to [Respondent 3], increasing to $1,600 after 12 months and $3,200 after 24 months, to be split among three residential tenants with roof access and the commercial tenant; to reimburse [Respondents 1 and 2] $10,000 for attorneys’ fees and $3,500 for engineering fees and [Respondent 3] $15,278.36 for attorneys’ fees and $40,500 for engineering fees; to post a bond in the amount of $1,000,000; and to provide proof that respondents have been added as additional insureds on “the relevant insurance policy.”

Petitioner appealed.  

The First Department rejected Petitioner’s contention that license fees, attorney’s fees and engineering and design fees are not awardable under RPAPL 881 and do not come within the “upon such terms as justice requires” language of the statute.   The Court reiterated that “because the respondent to an 881 petition has not sought out the intrusion and does not derive any benefit from it equity requires that the owner compelled to grant access should not have to bear any costs resulting from the access.”  (Citation, internal quotation marks, internal brackets and ellipses omitted.)

The Court also reiterated that the assessment of license fees is appropriate “where the granted license will entail substantial interference with the use and enjoyment of the neighboring property during the license period, thus decreasing the value of the property during that time.”  (Citations, internal quotation marks and internal brackets omitted.)  Similarly, compulsory licensors are also entitled to reimbursement of reasonable attorney’s fees and engineering fees because “a property owner compelled to grant a license should not be put in a position of either having to incur the costs of a design professional to ensure petitioner’s work will not endanger his property or having to grant access without being able to conduct a meaningful review of petitioner’s plans.”  (Citations, internal quotation marks and internal brackets omitted.)  

The Court also rejected Petitioner’s argument that awarding attorney’s fees is inconsistent with the “American rule” because “[w]here the respondent in an RPAPL 881 proceeding has not refused access but rather seeks reasonable terms for access, attorneys’ fees, including those incurred in opposing the petition, are not an incident of litigation but rather part of the process of negotiating a license agreement.”  (Citation omitted.)

In describing special considerations in RPAPL 881 cases, the Court stated:

Unlike in other types of litigation, respondents in a special proceeding pursuant to RPAPL 881 are not accused of any wrongful conduct but are haled into court by a petitioner seeking access to their properties solely for its own benefit. That access can be extremely invasive: RPAPL 881 is designed to strike a balance between the petitioner’s interest in improving its property and the harm to the adjoining property owner’s enjoyment of its property.

Notwithstanding the Courts view that, in principle, the Respondents are entitled to the fees awarded by the supreme court, the order below was modified.  Respondent 3 was not entitled to the $40,500 in “anticipated” engineering fees, but, like the other Respondents, are entitled to reimbursement of engineering fees “incurred”.  The same was the case for attorney’s fees.  As to the escalating license fees, the Court rejected same and stated that “[i]nsofar as the purpose of a license fee is to compensate for loss of enjoyment and diminution in value due to loss of use, the license fee escalations imposed on petitioner appear to be punitive and, therefore, unwarranted.”  The Court granted the license for 24 months and directed Petitioner to “timely commence the project and proceed diligently.”  Finally, the Court remanded the case so that supreme court can “specify the applicable insurance, including policy limits, that petitioner is required to procure in favor of respondents.”

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.