Ownership of real estate carries with it the threat of litigation from tenants, guests or even passers-by. In 2002, New York City increased property owner liability for injuries sustained on sidewalks. Moreover, property owners also face liability based upon lead paint, mold and other environmental risks. Now an additional threat exists based upon a newly strengthened New York State scaffold law.
For years, property owners have known that Labor Law §240(1), more commonly known as the scaffold law, imposes liability on a property owner for elevation-related injuries to a worker on the property. These injuries include those involving the use of scaffolding, hoists, stays, ladders, slings, hangers, blocks, pulleys, braces and ropes. The most common injuries covered are falls from scaffolding or ladders or injuries that occur when a worker is hit by a falling object. This law has broad reach because most multifamily buildings must utilize scaffolding and ladders. Most important, this liability is absolute; the owner is liable even if he did nothing wrong.
The duty created by this statute to provide safe working conditions is nondelegable, meaning a person may not transfer that obligation to another party to avoid responsibility. The property owner himself is held liable for injuries covered by the law even if, for example, the work was performed by an independent contractor over which the property owner exercised no control.
A recent New York State Court of Appeals decision, Sanatass v. Consolidated Investing Company, expanded the scope of the scaffold law. The lease provision in Sanatass required the tenant to obtain written permission from the property owner before the tenant performed any alterations to the property. The tenant employed a contractor without permission from the property owner, and an employee of the contractor was injured when an air conditioning unit fell on him. The employee won a judgment against the property owner, notwithstanding the tenant’s breach and notwithstanding that the owner was not even aware the contractor was working on the property.
The ruling effectively treats property owners as insurers and will translate into more expensive insurance premiums and a significant increase in the potential for lawsuits. In Sanatass, the court made it clear that even if a property owner can’t ensure compliance with the law, it is irrelevant to his liability.
With the new interpretation of Labor Law §240(1), owners can expect more lawsuits tied to elevation-related injuries. Considering the litigation risks and changes in the interpretations of the law, it is clear that property owners must take steps to protect their assets from potential plaintiffs. Property owners can guard their real estate holdings, as well as their personal assets, by employing various asset protection strategies.
Perhaps the best way to discourage a plaintiff from bringing a lawsuit in the first place is to ensure the property owner has no attachable assets. The sooner a potential claimant learns that a property owner has no attachable assets, the sooner the claimant will forego plans to initiate a lawsuit and agree to an insurance settlement. This process brings insurance back to doing what it is supposed to do — cover the property owner rather than invite a lawsuit.
Domestic asset protection will, if properly established and maintained, be 100 percent effective. For example, ownership of real estate within a family limited partnership (FLP) should discourage future lawsuits and give property owners significant leverage to force favorable settlements within the limits of their insurance coverage. However, it is imperative that property owners engage in asset protection before the injury occurs and a lawsuit is commenced.
The Revised Uniform Limited Partnership Act (RULPA) provides that property owned by a limited partnership is not owned by the individual partners. If a property owner transfers property to an FLP, the property is no longer owned by that person. A creditor with a judgment against the property owner may not attach FLP assets to satisfy the judgment. In most cases, each parcel of real property should be placed into a separate FLP to isolate the litigation exposure of each asset. If all of the owner’s assets are held in FLPs, a claimant can do nothing more than settle with the insurance company.
International asset protection strategies can be effective when an owner is faced with pre-existing claimants. Although it is impossible to transfer real estate to a foreign jurisdiction, a property owner can sell or mortgage property, turning it into cash and then transferring the cash offshore. The proceeds of the sale or mortgage can then be protected by offshore asset protection trusts or investment in foreign deferred variable annuities. The claimant will be more inclined to settle upon terms favorable to the property owner rather than pursue litigation in a foreign jurisdiction where the burden of proof and statute of limitations will be against the claimant.
Property owners may now face claims based upon injuries that they are powerless to prevent. Owners must give thought to protecting their real estate holdings as well as their personal assets. Proper asset protection strategies provide a viable safety net when owners are faced with real estate litigation.
— Asher Rubinstein is a partner at Rubinstein & Rubinstein in New York City.