First Department Confirms: In NYC Excavation Work, the Party Digging Bears the Risk of Protecting the Neighbor

The Appellate Division, First Department’s decision in 1992 Third Realty LLC v. Third Avenue NY Realty LLC is an important reminder for developers, contractors, adjacent property owners, design professionals, and insurers involved in New York City excavation and foundation work.

The Court held that an adjoining property owner could not be held liable in negligence for a developer’s construction delay damages allegedly caused by the poor condition of the neighboring building. The key takeaway is straightforward: under NYC Building Code § BC 3309.4, the party performing soil or foundation work bears the duty, at its own expense, to preserve and protect adjoining structures. That duty applies even where the adjoining building is allegedly old, unstable, defective, or non-code-compliant.

The case involved neighboring Manhattan properties. The developer began excavation and foundation work for a new building. The adjacent owner alleged that the work, including pile driving and dewatering, caused its nine-story building to settle and lean. The New York City Department of Buildings issued a stop work order identifying a potential hazard from soil or foundation work affecting the adjoining property and directing the developer to provide engineering remedial measures.

The developer responded with a negligence counterclaim against the adjoining owner. It alleged that the adjoining building had been defectively designed, poorly maintained, and left in an unsafe condition, which allegedly caused or contributed to the stop work order. The developer sought at least $16 million in delay-related damages. The trial court allowed that counterclaim to proceed. The First Department reversed and dismissed it.

The First Department held that the adjoining owner did not owe the developer a duty to design, construct, or maintain its building in a way that would protect the developer’s excavation project from delay.

The Court emphasized that § BC 3309.4 places the relevant duty on the person performing the excavation or foundation work. In other words, the developer — not the neighbor — controlled the excavation, the protection means and methods, the remedial measures, and the risk created by the project. Imposing a reciprocal duty on adjoining owners would conflict with the Building Code’s allocation of responsibility and could expose property owners to unpredictable, insurer-like liability for future neighboring projects.

The Court also rejected the developer’s attempt to recover purely economic delay damages in negligence. New York negligence law generally does not allow recovery for purely economic losses absent personal injury, property damage, contractual privity, or another recognized special duty. The developer claimed delay damages, not injury to person or property. That was not enough.

This decision strengthens the position of adjoining owners facing claims that their building’s preexisting condition delayed a neighboring development project. A developer cannot avoid its excavation-protection obligations by arguing that the neighboring building was already defective or unstable. The worse the condition of the neighboring building, the greater the practical burden on the excavator to plan, monitor, and protect against movement.

For developers and contractors, the lesson is equally direct. Before excavation begins, the project team should make sure it has a strong record of:

• preconstruction surveys;
• license/access agreements;
• geotechnical and structural review;
• vibration and movement monitoring;
• support of excavation plans;
• dewatering protocols;
• DOB filings and correspondence;
• insurance and indemnity protections; and
• emergency stabilization procedures.

License agreements with adjoining owners should be carefully drafted to address access, inspections, monitoring, professional fees, insurance, indemnity, emergency work, DOB response obligations, and dispute procedures. A vague license agreement is not risk management; it is just a fight with better stationery.

The First Department’s message is clear: in New York City excavation and foundation work, the party digging bears the burden of protecting adjoining structures. A developer generally cannot shift delay damages to the neighbor by claiming that the adjacent building was old, defective, or unstable — especially where the developer seeks only economic losses.

If you would like more information regarding this topic please contact Thomas S. Tripodianos at ttripodianos@wbgllp.com or call (914) 607-6440