Blue Island Development, LLC v Town of Hempstead, An Inverse Condemnation

The Appellate Division, Second Department handed down the Blue Island decision on August 12, 2015 (2015 NY Slip Op 06488). The decision can be read by clicking here: Blue Is. Dev., LLC v Town of Hempstead. The decision sets forth an interesting case dealing with a taking claim which arose because of the imposition of a restrictive covenant upon the granting of a zoning change.

Blue Island Development acquired a parcel of land which had been used as an oil storage facility. It intended to remediate the environmental contamination and thereafter develop the property into waterfront condominium units. It petitioned for a zoning change to permit the proposed use. The Town granted the zoning change but imposed restrictive covenants requiring Blue Island to sell all the units as condominium units, but permitted subsequent owners of the units to lease them.

Blue Island Development petitioned for a modification of the restrictive covenant which was granted to the extent of allowing 17 of the 172 units to be rented for five years. In 2013, Blue Island Development sought a further modification allowing it to sell 32 units and maintain the remaining 140 units as rentals. The Town denied the application without explanation.

Blue Island Development then commenced a hybrid CPLR Article 78 Proceeding/Declaratory Judgment action. The Lower Court granted the Town’s motion to dismiss the unconstitutional taking cause of action.

In its discussion, the Court noted that the power to zone is not a general police power, but a power to regulate land use. Zoning deals basically with land use and not the person who owns or occupies it.

The Second Department also stated,

“[R]estrictive covenants will be enforced when the intention of the parties is clear and the limitation is reasonable and not offensive to public policy” (Chambers v Old Stone Hill Rd. Assocs., 303 AD2d 536, 537, aff’d 1 NY3d 424). However, even the ” [p]urchase of property with knowledge of [a] restriction does not bar the purchaser from testing the validity of the zoning ordinance [because] the zoning ordinance in the very nature of things has reference to land rather than to owner'” (BLF Assocs., LLC v Town of Hempstead, 59 AD3d at 56, quoting Vernon Park Realty, Inc. v City of Mount Vernon, 307 NY 493, 500; see Matter of Summit School v Neugent, 82 AD2d 463, 468).

. . .we find that Blue Island sufficiently alleged that the restrictive covenant is improper because it regulates Blue Island’s ability as the owner of the property to rent the units rather than the use of the land itself. Blue Island has further alleged that, particularly in light of the provision permitting future owners to lease units in the development, the restrictive covenant “bears no substantial relation to . . . the public health, safety, morals or general welfare” (Nicholson v Incorporated Vil. of Garden City, 112 AD3d at 894

The Court continued,

With respect to the third cause of action, which alleged an unconstitutional taking based upon “denial of development, as opposed to excessive exactions” (internal citations omitted) the test set forth by the United States Supreme Court in Agins v City of Tiburon (447 U.S. 255) applies (see Matter of Smith v Town of Mendon, 4 NY3d at 13). Pursuant to this test, “a zoning law effects a regulatory taking if either: (1) the ordinance does not substantially advance legitimate state interests’ or (2) the ordinance denies an owner economically viable use of his land'” (Bonnie Briar Syndicate v Town of Mamaroneck, 94 NY2d at 105, quoting Agins v City of Tiburon, 447 U.S. at 260; see Matter of Smith v Town of Mendon, 4 NY3d at 9). However, “[a] reasonable land use restriction imposed by the government in the exercise of its police power characteristically diminishes the value of private property, but is not rendered unconstitutional merely because it causes the property’s value to be substantially reduced, or because it deprives the property of its most beneficial use” (Putnam County Natl. Bank v City of New York, 37 AD3d 575, 577, [internal quotation marks and citation omitted]). Thus, a court must examine “(1) [t]he economic impact of the regulation on the claimant’; (2) the extent to which the regulation has interfered with distinct investment-backed expectations’; and (3) the character of the governmental action'” (Matter of New Cr. Bluebelt, Phase 4, 122 AD3d 859, 861[1], quoting Penn Cent. Transp. Co. v City of New York, 438 U.S. 104, 124; see Matter of Smith v Town of Mendon, 4 NY3d at 9; Putnam County Natl. Bank v City of New York, 37 AD3d at 577).

The Court held that,

Blue Island’s complaint alleged both that the restrictive covenant did not advance any legitimate municipal interest and that the covenant denied it an economically viable use of the land. Whether Blue Island can ultimately demonstrate that the denial of a modification to the restrictive covenant effects a taking, it has stated a claim.

The Court further ruled that the taking claim was timely commenced since the challenge was timely made to the 2013 resolution denying modification.

[1] We represented the Claimant in Matter of New Cr. Bluebelt, Phase 4. See our blog posted on November 20, 2014.

Posted in Eminent Domain, Inverse Condemnation, Zoning
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