Court Holds Restrictive Covenant Provision Limiting Leasing of Units Was Unenforceable

Blue Island Development, LLC, and Posillico Development Company at Harbor Island, Inc. (collectively “Petitioners”), purchased land that had formerly been used as an oil storage facility and developed it into 172 waterfront condominium units.  This required a zoning change, which the Town of Hempstead granted subject to a restrictive covenant allowing Blue Island to sell the condos, but subsequent owners to sell the units for any purpose allowing by Town Law.  The Town later agreed to modify the covenant to allow Petitioners to rent 17 of the units for five years.  Petitioners applied to modify the restrictive covenant again to allow it to maintain 140 of the properties as rentals.  The application was denied, and Petitioners brought an action against the Town, challenging the town's denial. The Supreme Court denied the Town's motion to dismiss, and the Town appealed. The Appellate Division affirmed.  On remand, the Supreme Court denied Petitioners’ motion for summary judgment, and Petitioners’ again appealed.

On appeal, the Court found that Blue Island met its prima facie burden of showing that paragraph seven of the Declaration was of no actual and substantial benefit to the Town. In opposition, the Town failed to raise a triable issue of fact, as it offered no explanation to rebut this showing. Pursuant to RPAPL 1951(1), “a restrictive covenant shall not be enforced if, at the time enforceability of the restriction is brought into question, it appears that the restriction is of no actual and substantial benefit to the persons seeking its enforcement or seeking a declaration or determination of its enforceability.” Accordingly, the Court held that the Supreme Court erred in denying that branch of Blue Island's motion for summary judgment on the second cause of action declaring paragraph seven of the Declaration invalid and unenforceable pursuant to RPAPL 1951.

The case was Blue Island Development, LLC, v Town of Hempstead, 143 A.D.3d 656 (2d Dep’t 2016).

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