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COURT OF APPEALS OF NEW YORK 1968.NY.42441 <>; 239 N.E.2d 713; 22 N.Y.2d 417 decided: July 1, 1968. IN THE MATTER OF JAYNE ESTATES, INC., RESPONDENT,v.J. MADISON RAYNOR ET AL., CONSTITUTING THE ZONING BOARD OF APPEALS OF THE INCORPORATED VILLAGE OF WESTHAMPTON BEACH, APPELLANTS Matter of Jayne Estates v. Raynor, 28 A.D.2d 720, affirmed. Counsel Howard M. Finkelstein for appellants. Gabriel Koszovitz for respondent. Chief Judge Fuld and Judges Burke, Scileppi, Bergan and Breitel concur with Judge Keating; Judge Jasen dissents and votes to reverse in a separate opinion. Author: Keating

Matter of Jayne Estates v. Raynor, Chief Judge Fuld and Judges Burke, Scileppi, Bergan and Breitel concur with Judge Keating; Judge Jasen dissents and votes to reverse in a separate opinion.

Author: Keating

 In December, 1959 respondent, Jayne Estates, Inc., purchased for some $80,000 certain real property on the bay and the ocean sides of Dune Road in Westhampton Beach. At the time, the zoning ordinance permitted apartment house construction, subject to the approval of the Zoning Board of Appeals.

Shortly after the purchase, the Village Board of Trustees proposed an amendment to the zoning map which would prohibit such construction. Before any amendment was enacted, Jayne applied to the Zoning Board for approval of a 52-unit garden apartment project on the ocean side property. The board, while expressing its disapproval of the entire project, considered the application because the new ordinance had not become effective. The board approved the project, but cut its scope down by one half, i.e., to 26 apartments.

Dissatisfied with this decision, Jayne commenced an article 78 proceeding challenging the board's action. In December, 1960 Special Term (Suffolk County) rendered a decision sustaining Jayne's third amended petition in which it alleged that the conditions imposed on the grant were burdensome, illegal and arbitrary and, moreover, were deliberately imposed by the board, knowing that such conditions would make it impossible for Jayne to develop the property, thereby achieving the result it admittedly desired, which was to stop the apartment house project.

After this decision, Jayne started negotiations with the village trustees and the Planning Board. The discussions lasted until February, 1963 and resulted in an agreement whereby Jayne would be authorized to build 40 units on the ocean side (a reduction from the 52 requested but an increase over the 26 previously authorized) and a like number on the north side. To make the settlement possible, Jayne purchased additional parcels on the north side for about $9,000. The village trustees passed a resolution authorizing the village attorney to compromise and settle the article 78 proceeding. A formal stipulation was thereafter executed and filed with the Supreme Court, which "so ordered" the settlement.

After a period of some delay, in the course of which the number of units on the north side of the project was reduced to 32, Jayne commenced construction expending over $100,000 in construction costs and $15,000 on account of taxes and interest on a mortgage. While the project was proceeding, one Stern, who resided on an adjacent piece of property, instituted a proceeding to have the building permit revoked. At Special Term, the petition was granted on the ground that the trustees had no authority to enter into any such stipulation since the proper party to do so was the Zoning Board of Appeals. The decision was unanimously affirmed by the Appellate Division and leave to appeal was denied by this court (Stern v. Kreiling, 24 A.D.2d 704, mot. for lv. to app. den. 16 N.Y.2d 488).

While appealing this decision, Jayne sought an amendment to the zoning ordinance to permit garden apartments in the area. The Planning Board recommended approval, but the proposal was never adopted. Instead, a more restrictive amendment was passed limiting all construction to single-family residences.

Thereupon, Jayne made application for the variance, which is the subject of this proceeding. The Zoning Board of Appeals held a hearing on May 13, 1966. At the conclusion of the hearing, the attorney for the board read into the record the board's determination denying the application.

While sympathetic to petitioner's plight, Special Term held that the applicant had failed to establish "unique circumstances" contemplated by the decision in Matter of Otto v. Steinhilber (282 N. Y. 71). The Appellate Division reversed, two Justices dissenting, holding that "unless the variance is granted appellant will suffer unnecessary hardship within the meaning of Matter of Otto v. Steinhilber (282 N. Y. 71)".

Jayne's undisputed evidence is that, under present zoning regulations, the fair market value of the land is $102,800. Since Jayne paid only $89,000 for its various parcels, if the expenditures in reliance on the invalid permit are excluded, Jayne has suffered little or no hardship. Therefore, the initial question to be resolved here is whether these expenditures are properly includable in the cost basis in determining whether Jayne has suffered unnecessary hardship.

One does not acquire vested rights where one builds in reliance on an invalid permit (Matter of B & G Constr. Corp. v. Board of Appeals of Vil. of Amityville, 309 N. Y. 730; Marcus v. Village of Mamaroneck, 283 N. Y. 325). But it is beyond the exigencies of the situation to say that the expenditures cannot be considered on an application for a variance where the property owner has acted in good faith and there is no reasonable basis to charge him with constructive notice. There is sound reason to distinguish the two situations. After the building permit has been declared invalid, the landowner should gain no vested rights principally because of the damage to the zoning plan and also because he might find it quite feasible to recover his expenditures by using the property for a permitted use. However, where he seeks a variance, he is, in effect, not only arguing that there is no way for him to recover his loss under existing zoning, but also that his proposed use will not be inconsistent with existing uses, and the danger to the existing zoning scheme will be minimized.

Thus, a strictly applied good faith test should be sufficient to deal with the problem. Such a test is implicit in prior decisions. (Matter of Sherman v. Gustafson, 22 N.Y.2d 793; Matter of Hoffman v. Harris, 17 N.Y.2d 138; Matter of Fina Homes v. Young, 7 N.Y.2d 845; Matter of Chasanoff v. Silberstein, 6 N.Y.2d 807; Matter of Clark v. Board of Zoning Appeals, 301 N. Y. 86; Matter of Badish v. O'Regan, 212 N. Y. S. 2d 632; but see Matter of Midgett v. Schermerhorn, 24 A.D.2d 572.)

The problem is not unlike that involved in those cases where a property owner argues that he has obtained a vested right to build for a use no longer permitted under a new or amended zoning law. The test in such cases is whether substantial construction expenses have been incurred prior to the effective date of the new law or, if no building permit has been issued, whether the property was purchased without knowledge of the proposed change and sums were thereafter expended in anticipation of the issuance of the permit, but the municipal officials deliberately delayed the processing of the application and misled and hindered the applicant in order to prevent the accrual of any rights. (Matter of Glenel Realty Corp. v. Worthington, 4 A.D.2d 702; Matter of Dubow v. Ross, 254 App. Div. 706; Matter of Harris v. Coffey, 14 Misc. 2d 916, affd. 6 A.D.2d 898; cf. Matter of Atlas v. Dick, 192 Misc. 843, revd. 275 App. Div. 670, affd. 299 N. Y. 654.) In principle, a similar rule should be applied to the situation here. In particular, if there was good faith reliance on the invalid permit, it should be considered in determining whether Jayne has suffered "unnecessary hardship".

Appellants claim that Jayne was a "party to a most flagrant, negotiated, personal zoning permit" and had engaged in "illegal activities". We find no support in the record here or in the prior proceeding to support any inference of impropriety in the negotiations ...

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