Julie Schechter, Armstrong Teasdale
Negotiating a licensing agreement with a neighboring board or a property owner during the pandemic can be a little bit like a trip to the Wild West, where no rules apply. There are, however, ways for co-op and condo boards to push back against extortionist demands by their neighbors.
How has the pandemic changed the art of negotiating licensing or access agreements? Has outdoor space become even more valuable since the pandemic?
Absolutely. During the pandemic, outdoor space has become even more valuable to shareholders and unit-owners, because it's a private area; it was a way to get outdoors when there was a lockdown and people were working from home. We've had a lot more pushback about getting onto neighboring terraces during the pandemic than in the past, because the unit-owner or the shareholder with the outdoor space is suddenly valuing it. It's a lot more valuable to them than perhaps it had been before the pandemic.
You've actually run into this in recent negotiations. How does it play out?
Well, in one example, I represent a co-op board. We started our negotiations early in 2020, and we knew that we were going to need to access the penthouse terrace of the neighboring building. We started negotiating a license agreement in January, so that we could be on the terrace in March and be off before the summer months. Unfortunately, because of the timing of the pandemic, our construction was delayed, and once the stay on the construction was lifted, it was then June and the unit-owner next door with the penthouse terrace was furious that we wanted to take away her outdoor space for the entire summer.
So what we actually did, which worked out really well, was speak to our engineer about reordering the work that we were doing on our building. Because it was a full facade project, we were able to do the other three sides of the building first. And we entered into a license agreement with the neighbor where we're not going to enter her property until October 1st of this year. So she had the entire summer to enjoy her outdoor space and we'll do the work between October and Thanksgiving at a time when outdoor space is less desirable to her.
Everybody's under a lot of stress. Have you found people more unreasonable, or less amenable to compromise, because of the pandemic?
Well, it's funny because I think there's been a diminution of reasonableness over the past couple of years because anybody with outdoor space has learned that they may be able to get a buck if their neighbor needs access. It's sort of become the Wild West as far as what people could charge for licensing fees. There's no standardization. If you have a difficult neighbor next door and they don't want to be neighborly and cooperate with you, they could pretty much hold you up for whatever license fee they think is appropriate and your only real option is to sue them for access.
One solution that we came up with at our firm, which I think is pretty reasonable and has been pretty successful, is to include a reciprocal provision in our license agreement. For example, if the neighboring building has outdoor space and they're asking for something wild, like $8,000 a month for the outdoor space, and there's absolutely no way that they'll negotiate that, we've created a provision in our license agreements that says, "Okay, we'll pay you that $8,000, but when you need to do your local Law 11 work and you're going to need access to our property, the same provisions are going to apply. So it's $8,000 a month, and you agree to that now."
Does that make them balk and become suddenly more reasonable?
Yes. In one or two cases, we had the unreasonable person with the outdoor space back down and say, "All right, I'll be a little bit more reasonable." And in a couple of cases, we had them say fine. So we entered into an agreement with this reciprocal provision, and while it stinks for our buildings to pay such extortionist rates, within the next five years when the other building has to do their local Law 11, we know we'll get the money back.
That works out nicely then. It's a carrot and stick kind of a thing.
Is there any kind of a push in the legal profession to inject some sort of yardsticks in these negotiations – a set value of an outdoor square foot or a six foot tall window? Is there any push to bring some sort of order to these negotiations?
Well, you absolutely pinpointed a huge problem in the legal community right now, and it is that there is no standardization. I mean, to some degree, it's hard to quantify outdoor space because every situation is different. Sometimes you're not completely taking away outdoor space, you're just putting overhead bridging, or in other cases, you're closing off a panoramic window.
And so, because each situation is so different, it's hard to come up with a standardization for how to determine legal fees. But I was handling a 881 proceeding recently, which is a demand for access to your neighbor's property, and because we were trying to quantify it and demonstrate to the judge what license fees we thought were appropriate, we had an appraisal report done. The appraiser took the value of the apartment with the outdoor space, the rental value, and compared it to what the rental value would be without the outdoor space and was able to come up with a standardization and a number. And I thought that made a lot of sense, and the judge agreed with us.
So I wish moving forward, there would be some way of standardizing or quantifying what's appropriate for license fees, but you pinpointed the issue, and that is that there is no standardization right now.
Is there any chance that it will come to pass, that the courts or the city council or someone would regulate these things and specify the value of things?
Yes. It's not unreasonable to think that they will do that. I hope that there's some guidance that's out there now, because I think in the past couple of years in particular, the concept of license fees has gotten out of control. And whereas 10 years ago, everybody seemingly was more neighborly, that sort of has gone out the window and people see dollar signs and are looking to cash in now. It's become incredibly problematic when you negotiate license agreements.
You mentioned going before judges. The pandemic has taken that route away from you, has it not?
Yes, it has. The courts were closed for a while, which put the existing 881 proceedings on hold. And now that they've opened, it's not so easy to get in front of a judge. So whereas the threat of, "I'll sue you for access," was always lurking in the background, during the pandemic, we didn't have that as a tool because it was a hollow threat. The courts were closed and we couldn't get in front of a judge even if we wanted to.
But I don't recommend filing an 881 proceeding or suing somebody for unless it's absolutely necessary. Because what was intended to be a quick proceeding can sometimes be very long and very costly, just like any other litigation.
And it also stalls the project, and nobody wants that to happen.
In summing up, have you learned anything in the past year from this strange experience we've all been having? As a lawyer, are there any lessons that you've learned that you would pass on to our readers and viewers on co-op and condo boards?
Well, I've learned that pandemics stink. I don't know if that's legal.
The real takeaway is just to be creative. The two examples that I gave are doing alternate sides of the building first so as not to encumber somebody's outdoor space during the summer, and that reciprocal clause that I discussed – including that in license agreements. Being creative is probably the best way to do it. Like I said, I'm involved in a couple of 881 proceedings and they're time-consuming and costly, and I always prefer to try to come up with a different solution first.
So be creative. See if you can work it out with your neighbor. Also, when you're negotiating these types of license agreements, try to remind the person you're negotiating with to be neighborly. We all have local Law 11. And so, if you need access one year, your neighbor's probably going to need it the next. So remember to be neighborly, be creative, and be reasonable, and that's my big takeaway.