Hey, Neighbor: What Changes To New York’s Section 881 Will Mean For Construction Across Property Lines

A proposed change to state law could impact the foundations of building construction in New York City — literally.

In a long-sought win for developers and building owners performing construction work that impacts a neighboring property, an amendment to New York’s Real Property Actions and Proceedings Law Section 881 will clarify the obligations they owe to the adjacent property’s owner.

The bill has overwhelming support in the state legislature, said Sean Scuderi, a partner and vice chair of the construction practice at New York law firm Tarter Krinsky & Drogin.  It passed in the Senate with a 62-1 vote and is presently in the legislature's Assembly Committee.

Scuderi said the amendment addresses concerns over disagreements that may arise under the current Section 881 process, which can inflate construction costs or create other obstacles for owners and developers, who are legally required to protect adjoining properties under New York City building code. 

“This change is certainly going to swing a lot of the leverage back to the developing party,” Scuderi said. 

Owners of neighboring buildings in America’s densest big city have traditionally negotiated the amount and type of access one party will have to its neighbor’s property during ground-up construction, renovations or rehab work. Typically, this results in a license agreement that grants access for a limited time in exchange for the builder indemnifying its neighbor against damage or injuries incurred on-site. 

The party conducting the work might pay a monthly fee to its neighbor if the work creates any inconveniences or temporarily restricts use. This is commonly seen when balconies, yards or terraces of the property next door are made temporarily unusable because of scaffolding or overhead work.

Under New York’s RPAPL Section 881, disagreements over access are ironed out in state courts, which generally rule in favor of a developer’s temporary encroachments.

“More than nine times out of 10, the court is going to grant the developing party the temporary access it needs, so long as it shows why the access is necessary and how long it will be there,” Scuderi said. “The court will also determine what kind of compensation the neighbor is entitled to, which is determined on a case-by-case basis.” 

However, Section 881, as currently written, is limited to temporary access. This statute is typically unavailable to developers when permanent changes to a neighbor’s property are needed to complete construction or protect adjacent structures. Prior to the proposed amendment, permanent access was granted only at the neighboring property owner’s discretion.

“The best example of this is when a new development is going to be taller than the existing building next door,” he said. “Often, they will need to dig below the foundation of the neighboring property and structurally stabilize that building so it doesn't move, settle or collapse. Underpinning is the most common way of doing this, which involves pouring concrete under the existing foundation of the neighboring property.” 

Up until now, the state’s courts have viewed such permanent encroachments as trespassing, and that the owner of a neighboring building could not be compelled to allow it. This has resulted in developers having to make major design changes resulting in the loss of valuable square footage, pay exorbitant fees to the neighbor or abandon the project outright. Often underpinning is the safest or best method to structurally stabilize adjacent structures, and it is to the parties' detriment if it cannot proceed, Scuderi said.

“It gave a lot of leverage to neighbors, to the point that they would ask for large upfront fees in exchange for allowing a developer to underpin,” Scuderi said. “Neighbors were able to extract as much compensation as possible. We've seen underpinning fees paid from $25K to over $100K, depending on the size of the project, nature of the properties and extent of the underpinning.” 

In some cases, the demanded fees might exceed the developer’s budget, potentially putting a stop to its project.

In a major change, the amendment to Section 881 spells out the types of permanent encroachments that are allowed, including underpinning of neighboring foundations. It will now be up to the courts to decide what compensation impacted owners are entitled to, but the amendment will put an end to one property owner’s unchecked veto power over another’s construction project.

The amendment also allows the developing party to take action if it continues to be denied access or feels its neighbor has acted in bad faith. 

“In that case, the neighbor may be ordered to pay the developer’s fees, which has never been the case in any proceeding until now,” Scuderi said. “There is a full cost-shifting provision in the amendment in the event of bad faith, which is a monumental change. Many types of disagreements can arise during access negotiations — i.e., scope of access and protection design, duration and compensation — and it will be critical for the courts to define what rises to the level of bad faith to trigger cost-shifting.”

But even with the leverage developers gain under the Section 881 amendment, taking a neighbor to court should only be a “weapon of last resort,” Scuderi said. Instead, there are several steps a project owner can take to avoid a court date and maintain cordial relations with its neighbor before, during and after construction.

“The biggest advice I give to clients is to do outreach as soon as possible because the best way to navigate through all of this is to create a good rapport with your neighbor from the start,” he said. “Provide clarity, share the relevant plans and give them an opportunity to provide input, because a bad first impression with the neighbors throws all of this off. Rather than reaching an agreement, the developer is forced to seek access through court, which can be timely, costly and unpredictable."

Scuderi also urged all stakeholders to meet on the actual site of the proposed construction. This helps them fully understand the scope and impact of the work, develop creative solutions to address areas of concern and allows them to observe conditions that might not be apparent on a Zoom call or by reviewing photos.

In addition, the developer should craft its budget to account for licensing and legal fees it may have to pay. And finally, if negotiations hit an impasse in spite of a developer’s best efforts, they should have a backup plan ready to take the place of their preferred construction method.

Scuderi said clients who have taken these proactive measures have avoided added costs and frustration. 

“There have been times when the project was fully designed, but the cost to redesign the entire foundation to win the support of a neighboring building was too cost-prohibitive to move forward with the work,” he said. “Smart developers already have alternative plans mapped out.”

This article was produced in collaboration between Tarter Krinsky & Drogin and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.