Covenants That Run with the Land Can Be Waived

The New York City Transit Authority's predecessor (the Board of Transportation) and 4761 B'Way's predecessor (Landlord) entered into an Indenture in 1926. The Landlord was constructing an apartment house on the corner of Broadway and Dyckman Street, and wanted to include within the ground floor of that building the latest in urban amenities: entrances and stairways leading to the burgeoning New York City subway system, specifically, the planned Dyckman Street station. The Indenture required Landlord to maintain the entrances (the Repair Covenant), and further required the Landlord to indemnify the Board of Transportation against damage claims in connection with the entrances (the Indemnification Covenant).

In 2014, NYCTA commenced an action asserting that 4761 B'Way had breached the Repair Covenant, and demanded, pursuant to the Indemnification Covenant, damages to recover costs allegedly incurred by NYCTA with respect to the subway entrances. 4761 B'Way argued that NYCTA had waived or abandoned the Covenants; NYCTA argued that covenants that run with the land are not subject to the defenses of waiver or abandonment.

Prior Case Law

There was remarkably little case law on the subject. In Water's Edge on Saratoga Lake Homeowners' Assn. Inc. v Weissman, 205 AD2d 1014 (3d Dept. 1994), the homeowners claimed that the developer (Kohn) had waived a covenant running with the land regarding the homeowners' right to replace their front door. The Third Department found for the defendant Homeowners' Association, stating without fanfare or analysis that "[t]here is no proof in the record that Kohn and was empowered to waive plaintiff's rights under the Declaration, which, having been incorporated into the deed as covenants running with the land, may only be waived or released by those they are intended to benefit."

The issue next arose in Condor Funding, LLC v 176 Broadway Owners Corp., 147 AD3d 409 (1st Dept. 2017). There, the respective predecessors-in-interest to the parties entered into a Heating Agreement whereby defendant would supply heat to plaintiff's adjacent building. The First Department, affirming Supreme Court's finding that the Heating Agreement was "a covenant running with the land," nevertheless reversed Supreme Court's ruling that plaintiff was entitled to summary judgment on its breach of contract claim:

"Contrary to plaintiff's urging, defendant's argument as to plaintiff's waiver of any objection to the termination of the Heating Agreement is preserved for appellate review. As to that argument, a covenant running with the land may only be waived or released by those the covenant is intended to benefit (see, Water's Edge on Saratoga Lake Homeowners' Assn. Inc. v Weissman, 205 AD2d 1014 [3d Dept. 1994] lv dismissed 84 NY2d [1994]. Here, plaintiff, as the owner of a building to which heat was to be provided by defendant in accordance with the covenant, was clearly intended to benefit from that covenant, and was, therefore, legally eligible to waive it."

NYCTA v 4761 B'Way

NYCTA argued in the 4761 B'Way appeal that abandonment and waiver, "which can be a defense to a personal contract claim, does not apply to covenants attached to real property." Acknowledging Water's Edge, supra, NYCTA asserted that even if a covenant that ran with the land could be abandoned, such abandonment must be evidenced by recorded writing. In Condor Funding, however, the First Department held that there was a question of fact as to the waiver of the Heating Agreement, even though there was "no express statement of plaintiffs' consent to the [Heating Agreement's] termination."

In addition to citing Condor Funding, 4761 B'Way argued that although a covenant that runs with the land is a special form of contract that binds successors-in-interest, it is still a contract, and is thus subject to subject to the defenses of waiver and abandonment.

With the issue squarely before it, the First Department held that covenants that run with the land can indeed be waived or abandoned:

"The court correctly denied the Transit Authority's motion. The record does not permit resolution, as a matter of law, of the issues of whether the Transit Authority waived the covenant requiring defendant landowner, 4761 Broadway Associates, LLC, to provide maintenance for the entrances, passages and stairwells leading to the subject subway stop. Condor Funding, LLC v 176 Broadway Owners Corp., 147 AD3 409, 410-411 [1st Dept. 2017] see Fundamental Portfolio Advisors v Toqueville Asset Mgt., L.P., 7 NY3d 104 [2016]."

The Court's citation to the Fundamental Portfolio Advisors, supra, is significant. That case was a contracts case, and stands for general proposition that "[c]ontractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned." Thus, the First Department in 4761 B'Way viewed a covenant that runs with the land as a contract — albeit a contract binding on successors — pursuant to which benefits can be waived or abandoned."

The importance of 4761 B'way, in addition to clarifying the state of the law, is that the NYCTA undoubtedly has many similar covenants throughout the City. Passengers slip and fall in subway entrances all the time, and sue the NYCTA for damages. Where there are similar covenants, the NYCTA will implead the landowner for damages and, possibly, the cost of repairs. But if the landowner can establish that NYCTA has waived or abandoned those covenants, impleading the landowner may well be a dead-end.

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Jeffrey Turkel, a member of this newsletter's Board of Editors, is a partner in the Manhattan real estate law firm of Rosenberg and Estis, P.C. Mr. Turkel represented the prevailing owner in New York City Transit Auth. v 4761 B'way Assoc., LLC.