Court Allows Takings Claim Based on Restrictive Covenant

Plaintiff Blue Island Development, LLC purchased a defunct oil storage facility in the Town of Hempstead with the intent of cleaning up the site and developing the property into 172 waterfront condominiums. The property was re-zoned to allow this, but Blue Island was made subject to a restrictive covenant that it had to sell all of the condominium units. This covenant was later modified to allow 17 properties to be retained as rental units, but Blue Island eventually requested it be allowed to keep up to 140 units as rental properties. This request was denied by the Town without justification, and so Blue Island brought suit to challenge the zoning action. After some procedural changes, Blue Island was granted summary judgment on a CPLR 3001 claim for declaratory judgment. The Town appealed.

On appeal, the Appellate Division found the restrictive covenant in appropriate on several grounds. First, it restricted Blue Island’s ability to rent the property rather than its ability to use the land itself. Second, the restriction on renting the property only applied to Blue Island, but not any subsequent owner, meaning it was ultimately of no benefit to the Town. Finally, the covenant allegedly denied Blue Island an economically viable use of the land. Given that the Town failed to offer any kind of evidence or justification for the restrictive covenant, the Appellate Division reversed and allowed the Takings claim to proceed.

The case was Blue Island Development, LLC v Town of Hempstead, 2015 WL 4744517 (NYAD 2015)

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