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Appellate Panel Rules Power Covenant is Unenforceable & Cancels Obligation to Provide Free Electricity.

Posted by Arnold A. Arpino | Apr 04, 2016 | 0 Comments

Niagara Mohawk Power v. Allied Healthcare, 521430, NYLJ 1202753846388, at *1 (App. Div., 3rd, Decided March 31, 2016) Before an appeals court in Albany was the issue of whether or not an affirmative covenant dating back to the 1800's was still viable today. The power covenant was to provide free power to manufacturing facilities on property now owned by defendant Allied Healthcare Products (AHP). The power covenant first arose in 1899, when Anna Frisbee and Charles Frisbee, who owned textile mills on property adjacent to the Stuyvesant Falls on the Kinderhook Creek, deeded the bulk of their water rights to the Colonial Trust Company. Colonial Trust agreed to furnish free of cost all the water or electric power necessary for properly running the mills. The Frisbees further covenanted to deed up to four acres of land to Colonial Trust so that it could construct and maintain facilities needed for the project. AHP now owns the Frisbees' property and manufactures medical products in the mills. The hydroelectric facility and associated property interests were owned by plaintiff for many years but, as a result of plaintiff divesting its interests in hydroelectric generation plants in the 1990s, those property interests are no longer under common ownership. Plaintiff continues to own the four-acre parcel, where it maintains electricity transmission and distribution lines. Plaintiff has also historically provided — and, pursuant to a preliminary injunction issued in this action, continues to provide — AHP a free allotment of electricity pursuant to the power covenant. Plaintiff commenced this action in 2009 and sought, inter alia, a declaration that the power covenant was unenforceable and that it had no obligation to supply free power to AHP. Albany Engineering answered and cross-claimed against AHP, arguing that the power covenant was unenforceable or, in the alternative, that only plaintiff was bound by it. AHP answered and asserted counterclaims and cross claims seeking, among other things, a declaration that the power covenant remains enforceable. The Appellate Court held the affirmative covenant is disfavored in the law because of the fear that this type of obligation imposes an undue restriction on alienation or an onerous burden in perpetuity.  Furthermore, the Court stated the power covenant has no express limitation on its duration, and it may fall prey to the criticism that it creates a burden in perpetuity, and purports to bind all future owners, regardless of the use to which the land is put.  Therefore, the panel declared that the covenant is unenforceable.

About the Author

Arnold A. Arpino

Managing Shareholder focusing on Creditor's Rights, Real Estate, & Non-Taxable Estate Planning.


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