Posted by: Patricia Salkin | August 29, 2015

NY Appellate Court Reverses Dismissal of Takings Claim Against Town

The plaintiffs, Blue Island Development, LLC, and Posillico Development Company at Harbor Island, Inc., purchased land in the Town of Hempstead which had formerly been used as an oil storage facility with the intention to remediate the environmental contamination and to develop the property into 172 waterfront condominium units. The Town granted the zoning change for this proposed use; however, restrictive covenants were imposed on the property, including a provision which required Blue Island to sell all the units in the proposed developments as condominium units, but permitted subsequent owners of the units to lease them to the extent otherwise permissible under Town law. By petition, the Town modified the subject covenant to provide that Blue Island was permitted to lease up to 17 of the 172 units for a period of five years after the issuance of the certificate of occupancy or until the delivery of title to the 155th unit, whichever occurred first. In 2013, Blue Island sought a further modification allowing it to sell 32 units and maintain the remaining 140 as rentals, but the Town denied this application without explanation. The trial court determined that Blue Island’s challenge to the zoning action could not be entertained as a CPLR article 78 proceeding because it challenged a legislative act, and converted that claim to a CPLR 3001 declaratory judgment cause of action pursuant to CPLR 103(c). The Town appealed, asserting that the court should have granted those branches of its motion to dismiss the CPLR 3001 and RPAPL 1951 causes of action. Blue Island cross-appealed, asserting that the court should have granted its cross motion for summary judgment and denied that branch of the Town’s motion to dismiss the unconstitutional taking cause of action.

The appellate court found that Blue Island sufficiently alleged that the restrictive covenant was improper because it regulated Blue Island’s ability as the owner of the property to rent the units rather than the use of the land itself. Furthermore, assuming that there was a benefit to be obtained by requiring the units to be sold rather than rented, Blue Island alleged that, because the rental restriction imposed by the restrictive covenant only applied to it and not to any subsequent owner of any of the units in the planned development, it was of no substantial benefit to the Town or its citizens. The Town failed to offer any explanation or evidence combatting this claim. Also unchallenged by the Town was Blue Island’s complaint alleging that the restrictive covenant did not advance any legitimate municipal interest, and that the covenant denied it an economically viable use of the land. Accordingly, the court found that the Supreme Court should have adhered to its prior determination denying that branch of the Town’s motion which was to dismiss the unconstitutional taking cause of action.

Blue Island Development, LLC v Town of Hempstead, 2015 WL 4744517 (NYAD 2 Dept 8/12/2015)


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