COMPLETION OF VESTED PROJECTS IN NEW YORK CITY

Land Use

The NYC Department of Buildings maintains a database of stalled construction sites within the City (see web link below), which is frequently updated. We note that the latest update from March 6, 2011, indicates that there are still nearly 700 stalled construction sites in New York City. However, despite the persistently sluggish real estate development market, the NYC Department of City Planning has recently completed and continues to pursue rezoning plans throughout the City, many of which reduce density (a/k/a “down-zoning”). This can pose certain problems for developers of sites located within a rezoning area or within an area that is proposed for rezoning, where developers have completed foundations prior to a zoning change, but the project has since stalled.

In New York City, a new development is deemed “statutorily vested” under Section 11-331 of the New York City Zoning Resolution (the “ZR”), if, prior to a zoning change, a valid building permit is issued based upon complete plans and specifications, and the foundations of the new development are complete. However, while the large majority of developers in New York City are aware of this “statutory vesting,” and the rush to get foundations completed prior to the effective date of a rezoning, they may not be aware that this “statutory vesting” is not perpetual. Even if a development is deemed “statutorily vested,” pursuant to Section 11-332 of the ZR, the new development must be completed and a certificate of occupancy (or a temporary certificate of occupancy) issued prior to the two (2) year anniversary of the effective date of the zoning change. Failure to complete construction will result in a lapse of the building permit and the inability to complete construction.

Nevertheless, there is relief available to a developer who fails to complete construction within this two (2) year period. If the building permit lapses, a developer can make a BZY application to the NYC Board of Standards and Appeals (“Board”) for an extension to complete construction pursuant to Section 11-332 of the ZR within thirty (30) days of the lapse. Pursuant to Section 11-332 of the ZR, such extension may be granted by the Board if it finds “that substantial construction has been completed and substantial expenditures have been made” in connection with the project pursuant to lawfully issued permits. It is important to note that this process can be time-consuming and costly, and will require the submission of a substantial application detailing the amount of construction completed and the expenditures made. For an application under Section 11-332 of the ZR, the Board will look only at the construction completed and expenditures incurred after the issuance of a valid permit. Moreover, there is no fixed standard as to what in fact constitutes substantial construction and substantial expenditures, and such a determination is made by the Board on a case-by-case basis. Because it can take more than thirty (30) days to prepare such an application, we strongly recommend that developers begin preparing this application well before the two (2) year anniversary of the zoning change.

We also note that even if a developer fails to file a BZY application within the requisite thirty (30) day period, the developer may still commence an Appeals case (a/k/a, an “A” case) to establish common law vested rights, which similar to the BZY case, will require a demonstration that substantial construction has been completed and substantial expenditures made. However, under common law, pre-permit expenditures made in furtherance of the project, such as site preparation costs, irrevocable financial commitments, and certain soft costs, may be considered in support of the finding that substantial expenditures were made.

While delays in construction may unfortunately be out of a developer’s control, we do recommend that developers keep this two (2) year deadline in mind when they have vested a project under Section 11-331 of the ZR. At a minimum, a developer should carefully document the construction completed at the site and document all expenditures made in furtherance of the project, and be prepared to file a complete application under Section 11-332 of the ZR within thirty (30) days of the lapse of a permit. For those stalled project sites that are not within a rezoning area, we recommend that developers stay fully informed of potential zoning changes that could affect their development.

To see the DOB’s database of stalled construction sites, please follow the link below:

http://www.nyc.gov/html/dob/html/guides/snapshot_report.shtml

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