One of the biggest challenges real estate developers face is dealing with overzealous municipal boards seeking to impose excessive restrictions on projects as a condition of granting land use approvals. Developers frequently agree to such restrictions in the form of restrictive covenants, only to realize afterwards that compliance with such restrictions is so costly that proceeding with the project is economically unfeasible. Such restrictions can be challenged in court, but where the developer has specifically agreed to the restrictions as part of a conditional approval, this challenge would be very difficult to win unless counsel can show the restrictions are illegal or violate public policy. See Summit School v. Neugent, 82 A.D.2d 463, 468 (2d Dep't 1981). Counsel advising real estate developers faced with this situation may appear to have no choice but to recommend abandoning the project—until now.

In the recent decision obtained by our law firm in Blue Island Development v. Town of Hempstead, 143 A.D.3d 656, 659 (2d Dep't 2016), app. den., 29 N.Y.3d 915 (2017), app. dismissed, 29 N.Y.3d 984 (2017), the Second Department applied Real Property Actions and Proceedings Law (RPAPL) 1951 to invalidate a restrictive covenant imposed under these conditions on the ground that the restriction provided “no actual and substantial benefit” to the town and extinguished the restrictive covenant entirely.

In the late 1990s, Blue Island Development (Blue Island) purchased a +/- 10 acre industrial property in Harbor Island, Island Park; and in 2008, sought a zone change from the Town of Hempstead (the town) to develop the site into a 172-unit waterfront residential housing development. The town granted the zone change, but conditioned its approval on Blue Island agreeing to enter into certain restrictive covenants, including one covenant prohibiting rental units and requiring all units in the project to be sold as condominiums (the restrictive covenant).