N.Y. Rapid Transit Law § 40: Contract for equipment, maintenance and operation

§ 40. Contract for equipment, maintenance and operation. a. Subject

to the approval of the board of estimate and of the mayor, the board of

transportation shall have full power and authority to provide for the

maintenance, supervision, care and operation of any railroad and also of

the subsurface structures and all other devices and appurtenances,

constructed or to be constructed for and at the expense of such city

pursuant to the provisions of this chapter. With like approval, such

board of transportation may enter into a contract with any person, who

in the opinion of such board shall be best qualified to fulfill and

carry out such contract, for the equipment, or any part thereof not

provided for pursuant to section thirty-one of this chapter, of a

railroad, at his own cost and expense, and for the maintenance and

operation of such road for a term of years to be specified in such

contract and not to exceed twenty years. In lieu of such definite term

of twenty years the contract may be for a longer period to be fixed

therein and in such case it shall provide that the city upon giving a

specified notice shall have the right to terminate the contract for the

equipment, maintenance and operation of such road as to all and if

deemed advisable as to any specified portion thereof at any time after

the expiration of ten years from the date when operation of any part of

such road or of such specified portion thereof shall actually begin, but

such right of termination shall be upon condition as follows:

1. If the title to the equipment of such railroad shall not be vested

in the city then that the equipment of such railroad or portion thereof

suitable to and used for purposes of such contract shall be purchased

and taken by the city at an amount which shall be ascertained as

provided in the contract, but which shall not be greater than the actual

cost thereof, plus fifteen per centum thereof. Such equipment shall upon

such termination of such contract become and be the property of the city

on paying to the contractor such amount, or in case the title to the

equipment of such railroad shall be vested in the city then that the

city shall pay to the contractor an amount for his investment in the

equipment of such railroad, or portion thereof, which shall not exceed

the actual cost to the contractor of the equipment of such railroad or

portion thereof, plus fifteen per centum thereof, and shall decrease

under the provisions of the contract as the term thereof continues so

that at the end of the full term of the contract no such amount shall be

paid. If additional equipment shall be required and supplied after the

railroad, or portion thereof, shall have been put in operation, and if

the contract shall provide that title to such additional equipment shall

vest in the city when supplied, then the city shall pay an amount for

the investment of the contractor in such additional equipment which

amount shall not exceed the actual cost to the contractor of such

additional equipment plus fifteen per centum thereof, and shall diminish

so that at the end of the full term of the contract the city shall be

required to pay for such investment in additional equipment only such

amount as shall be provided in such contract, and

2. Upon the further condition if such railroad shall be constructed

wholly or in part at the cost of the contractor that the city shall also

pay to the contractor an amount for his investment in the construction

of such road or portion thereof which shall not exceed the actual cost

to the contractor of constructing such road or portion, plus fifteen per

centum thereof, and shall decrease under provisions of the contract as

the term thereof continues so that at the end of the full term of the

contract no such amount shall be paid. If betterments, additions or

improvements shall be required by the board of transportation or

approved by such board prior to the construction thereof and be

constructed wholly or in part at the cost of the contractor, then that

the city shall pay an amount for the investment of the contractor in

such betterments, additions or improvements which shall not exceed the

actual cost to the contractor of constructing such betterments,

additions or improvements plus fifteen per centum thereof and which

amount shall diminish so that at the end of the full term of the

contract the city shall be required to pay for such investment in

betterments, additions or improvements only such amount as shall be

provided in the contract.

b. The contract shall provide a method of ascertaining the amount to

be paid for such equipment and for such investment of the contractor in

the construction of such road upon termination by the city of any such

contract and for the equipment of such railroad at the end of the full

term of the contract. The contract may provide for determining from time

to time in default of agreement by arbitration or by the court a

valuation of such investment of the contractor in the construction of

such road and of the equipment or any part or portion of either thereof

for any purpose under such contract. The contract may provide that the

title to the equipment as well as to such road, shall vest in the city

from the beginning and that the amount to be paid by the city for the

investment of the contractor in such equipment shall decrease as the

term of the contract continues, so that at the end of the full term of

the contract no amount shall be payable therefore except for additional

equipment as aforesaid.

c. The contract shall provide that upon the expiration of a period

fixed in the contract, the term of such contract shall end without

compensation to the contractor except as provided in the contract, for

betterments, additions or improvements to any such railroad required to

be made or approved by the board of transporation prior to the

construction thereof during the term of any such contract, and, if the

title to the equipment be not vested in the city, for equipment suitable

to and used for the purposes of such contract to the amount, if any,

ascertained as provided in the contract, and that in such event such

equipment shall become the property of the city upon payment to the

contractor of such amount or, if the title to the equipment be vested in

the city, then an amount for the investment of the contractor in

additional equipment for any such railroad to be ascertained as provided

in the contract. The contract may also provide that the city in

exercising the right so to terminate any contract shall for such

compensation as may be reasonable and which shall be determined pursuant

to the contract permit the contractor whose contract is so terminated or

the assignee or lessor of the contractor to use the tracks, structure

and line equipment of a portion of such road when necessary or

convenient to reach terminals, yards or other facilities of the

contractor or such assignee or lessor then located thereon. The contract

may also provide for assuring that in case a new contract under this

section for equipment and for maintenance and operation of such railroad

is made after such termination pursuant to notice or after the

expiration of the full term of the contract that the title to and

possession of the equipment so taken and the right to the possession of

the railroad so constructed may be transferred directly to the new

contractor upon his paying the amount so required.

d. If such contract be made with a railroad corporation organized for

the purpose of maintaining and operating a railroad, including the

equipment or any part thereof, constructed pursuant to the provisions of

this chapter, and which has entered into a contract for the maintenance

and operation of a railroad theretofore constructed in whole or in part

at the expense of the city as provided in this chapter, and is engaged

in the maintenance and operation thereof within such city, and if such

contract shall make provision for the equipment, maintenance and

operation of such road of the city in connection with such railroad

theretofore constructed as aforesaid at the expense of the city, and for

a single fare, such corporation and the city may in such contract or by

modification of an existing contract provide that the original term of

any contract for operation of such railroad theretofore constructed in

whole or in part at the expense of the city, may be extended or reduced

and any right to a renewal thereof may be abrogated or waived so that

such term as extended or reduced shall become and be co-terminous with

the term for equipment, maintenance and operation of such road of the

city to be fixed in and by any such contract; and that if the city shall

elect to terminate the contract for equipment, maintenance and operation

of such road as to any line or portion thereof, which with a connecting

line or portion of such railroad theretofore constructed and then

operated by such corporation shall make a continuous line, then the city

may when so terminating such contract as to any such line or portion

thereof, take over such connecting line or portion thereof theretofore

constructed in whole or in part at the public expense and then operated

by such railroad corporation and terminate the contract of such

corporation as to the same, provided that in lieu of such connecting

line or portion thereof so taken over such corporation shall for the

then unexpired term of the contract for operation of the railroad

theretofore constructed have the right to maintain and operate without

right of recapture by the city another line of road or portion thereof

specified in such contract which with such lines of the railroad

theretofore constructed shall make a continuous line. The contract shall

in such case provide for adjustment between the city and the corporation

of the difference in the value of the right to operate the lines or

portions thereof so exchanged by agreement or arbitration or by the

court and for payment of such difference between them. The city and the

corporation, in such contract, may also provide that if the city, under

any provision of law, shall terminate the contract for the maintenance

and operation of such road of the city after the expiration of ten years

from the date when operation of any part of such road shall actually

begin, the city, at any time after thirty-five years from such date, may

terminate such contract for the maintenance and operation of the

railroad theretofore constructed at the public expense, and take over

any such railroad upon payment to such company of a sum not exceeding

the then present worth of the unexpired portion of the term of such

contract to be ascertained as provided in such contract, which may

provide that in default of agreement such sum may be determined by

arbitration or by the court.

e. The contract between the city and such corporation may also provide

that in consideration of the operation of any such railroad as provided

for in such contract and any such railroad theretofore constructed in

whole or in part at public expense in connection with each other for a

single fare, and of the payment by such company of moneys to be applied

as authorized by this chapter to or toward the construction by the city

of the road to be maintained and operated under such contract. In

further consideration of any covenants or agreements by the company to

modify the term of any of its leases or to waive or modify any of the

other provisions of any of its contracts, the gross receipts of the

operation of any such railroad theretofore constructed and of such road

of the city to be maintained and operated under such contract may be

combined during the term of such contract, and that the city shall

receive for the use of such additional road at intervals named a

specified part or proportion of the income, earnings or profits of the

railroads whose receipts are so combined. In such case the contract may

apportion out of the amount so to be received by the city and specify a

portion thereof which shall be deemed to be the rental for the use of

each of the roads of the city maintained, equipped and operated under

such contract. Any such contract shall provide for determining the

amount of income, earnings or profits of the railroads whose gross

earnings are so combined, and for such considerations may authorize the

retention by such railroad corporation for each year of the term of such

contract, prior to the payment of any sums or of any part or portion of

the income, earnings or profits to the city as rental for the use of the

roads specified or provided for in such contract, of:

1. A specified sum of money, which sum may represent the average

annual income from operation of such railroad theretofore constructed

and operated by such corporation for any two or more years;

2. A sum not exceeding six per centum per annum for each year upon the

investment of such company, including brokerage charges not exceeding

three per centum, in the construction and equipment of such road of the

city to be maintained and operated under such contract; and

3. A sum not exceeding the annual expense or cost to the contractor

plus one per centum per annum on account of the investment of the

contractor in betterments or improvements upon or additions to such road

and equipment.

Such contract may also provide that such annual payments shall be

cumulative, and that any deficiency with respect thereto shall be paid

off and discharged annually out of such gross receipts before any

payments by way of rental or compensation for the use of such roads

shall be made to the city.

f. Every such contract shall contain such terms and conditions as to

the rates of fare to be charged and the character of services to be

furnished and otherwise as the board of transportation shall deem to be

best suited to the public interests, and subject to such public

supervision and to such conditions, regulations and requirements as may

be determined upon by such board, with like approval. In case different

parts of a road shall be constructed at different times or at intervals

of time, or if the contract shall provide for the use by the contractor

of an existing railroad as part of a continuous route as aforesaid, then

and in any such case the board of transportation, in its discretion, may

prescribe periods for the operation of the different parts of such road

so that at one period of time in the future the board may be enabled to

make a single operating contract or lease of the entire road. Such

board, in its discretion, as one of the terms and conditions of any such

contract, may provide that as a consideration for the making of such

contract the contractor in addition to any sums to be paid as provided

by this chapter by way of rental or otherwise for the use of such road

shall contribute a part of the cost of construction of such road which

shall be contributed and disbursed by such method, in such manner and at

such times as may be provided for in any such contract. Such

contribution shall be deemed to be an investment by the contractor in

the construction of such road or to be part of the cost to the

contractor of constructing such road within the meaning of subdivision a

of this section providing for termination of such contract by the city.

Any such contract may provide for the construction during the term of

such contract of any branches or extensions of such road and the

construction of additional lines and for the equipment and operation

thereof by the contractor in connection with such road and may make

separate provision for apportioning the receipts of such road and of

such branches, extensions or additional lines and as to the compensation

to be paid to the city for the use of any such branches, extensions or

additional lines. The city may enter into a contract for the equipment,

maintenance and operation of any such road before any contract for

construction of such road or any portion thereof shall have been made,

and in such case the contract may provide that the city may construct or

complete such road or additions thereto or betterments thereof from time

to time at the expense of the city, or partly at the expense of the city

and partly at the cost or through contribution of the contractor as

aforesaid in such proportion as may be agreed upon between the city and

the contractor. Such contract for the equipment, maintenance and

operation of such road or any portion thereof may be made and entered

into as provided in this chapter before the consents shall have been

obtained for any such road or for any portion thereof as provided in

section twenty-one of this chapter, and before the detailed plans and

specifications shall have been prepared as provided in section

twenty-two of this chapter. In such case such contract for equipment,

maintenance and operation of such road or any portion thereof shall be

upon condition that such contract shall not become operative or go into

effect as to such road or such portion thereof unless and until the city

shall acquire the right to construct such road or portion thereof by

obtaining such consents. The board of transportation in any contract

may reserve the right, upon conditions and for compensation to the

contractor, as provided in the contract, to permit other persons and the

municipality itself to use the tracks, structure and line equipment of

the railroad, or any portions thereof.

g. Every such contract shall further provide that the person so

contracting to equip, maintain and operate such road annually or at

specified intervals, shall pay into the treasury of such city, such

rental for the use of such road, as shall be prescribed therein. The

rental may be either a specified sum of money or a specified part or

proportion of income, earnings or profits of such road, or both a sum of

money and a part or proportion of income, earnings or profits, as such

board shall deem best suited to the public interest and the board of

estimate and the mayor shall approve. Every such contract may further

provide that the amount and character of such rental may be readjusted

at the expiration of a prescribed period of not more than twenty years,

and be readjusted from time to time in the future at intervals each of

not more than twenty years, and may prescribe a method of determining by

arbitration or by the court the amount to be paid upon any readjustment

thereof. If such contract be made with a person owning or actually

operating or agreeing to operate a railroad wholly or in part within the

limits of the city and shall make provision for the equipment,

maintenance and operation of such road of the city in connection with

such railroad and for a single fare, the contract may provide that the

gross receipts from the operation of such railroad within the limits of

the city and from the operation of such road of the city may be combined

during the term of such contract and that the city shall receive for the

use of such road at intervals named a specified part or proportion of

the income, earnings or profits of the railroads whose receipts are so

combined and the contract, in such case, may apportion out of the amount

so to be received by the city and specify a portion thereof which shall

be deemed to be the rental for the use of each of the roads of the city

maintained, equipped and operated under such contract. In any such case

the contract shall provide for determining the amount of the income,

earnings or profits of the railroads whose gross earnings are so

combined, and may authorize the retention, prior to the payment of any

sums to the city for or on account of the investment of the city in the

construction of such road or for the use of the same, of:

1. A specified sum of money, which may represent the average annual

income from operation of such railroad theretofore constructed during a

period specified in such contract;

2. A sum not exceeding six per centum per annum for each year upon the

investment of the contractor, including brokerage charges not exceeding

three per centum, in the construction and equipment of such road of the

city to be maintained and operated under such contract, and in the

construction and equipment of extensions of any railroads and tracks not

owned by the city thereafter constructed and to be operated under such

contract; and

3. A sum not exceeding the annual expense or cost to the contractor,

plus one per centum per annum, on account of the investment of the

contractor in betterments or improvements upon, or additions to such

road of the city, and upon or to any railroads not owned by the city and

operated under such contract, and upon or to the equipment thereof.

Such contract may also provide that such payments shall be cumulative,

and that any deficiency with respect thereto shall be paid off and

discharged annually out of such gross receipts before any payments by

way of rental or compensation for the use of such roads shall be made to

the city. The contract may provide for a readjustment at specified

intervals of the part or proportion of such income, earnings or profits

of the railroads, which the city shall receive, or of the portion of the

amount received by the city which shall be deemed to be the rental of

each such road owned by the city, and may prescribe a method of

determining by arbitration or by the court the amount which the city

shall receive as its part or proportion of such income, earnings or

profits or as such rental upon any such readjustment thereof.

h. Such rental and the term for the operation of the railroad included

in any such contract shall begin, as to such road, or any section

thereof, at such time as may be provided in the contract. The aforesaid

rental shall be paid at such times during each year or at such intervals

as the board of transportation shall require. If a contract to equip,

maintain and operate such road be made with the person having or to have

the contract to construct the same and such contract shall provide that

such road shall be constructed wholly or in part at the cost of such

person such road, however, to be the property of the city in the same

manner and to the same extent as if constructed wholly with public

money, then the contract may provide as an alternative in lieu of the

rental above provided for that any and all income and increase derived

by the contractor or on his behalf in any manner from the enterprise of

constructing, equipping, maintaining and operating such road, after

deducting operating expenses, taxes, payments to reserve and

amortization funds as provided for in the contract, and not exceeding

six per centum interest per annum payable quarterly upon the actual cost

to the contractor of construction and equipment of such road, shall be

divided share and share alike between the contractor and the city. The

rental and any sums payable under such contract, except any sum of money

that may be contributed toward the construction of any road by the

contractor having the contract for the equipment and operation of such

road, shall be applied first to the payment of the interest upon

obligations issued by such city for the construction and equipment of

such road, as the same shall accrue and fall due. The remainder of such

rental and moneys not required for the payment of such interest shall be

kept separate and apart from any and all other moneys of such city and

shall be securely invested and, with the annual accretions of interest

thereon, shall constitute a sinking fund for the payment and redemption

at maturity of the aforesaid obligations. Such rental, moneys and

accumulations of such fund over and above so much as may be required for

payment of interest and principal of such obligations, shall be paid

into the rapid transit fund provided in section thirty-four of this

chapter.

i. Any such contract also may provide for a renewal or renewals not to

exceed twenty years in the aggregate of the lease of such road upon the

expiration of an original term of not more than twenty years upon such

terms and conditions, to be approved by the board of estimate and the

mayor, as to the board of transportation may seem just and proper. Such

contract also may contain provisions for the valuation of the whole or a

part of the property of such contractor employed in and about the

equipment, maintenance and operation of such road, and for the purchase

thereof by the city, at such valuation, or a percentage thereof, should

such lease not be so renewed at any time, or should it be terminated or

expire as aforesaid. Such contract also shall state the date on which

the operation of the road, or any section thereof, shall commence.

j. In case the title to the equipment of such road shall not be vested

in the city, the city also shall have a first lien upon the rolling

stock and other property of such contractor, constituting the equipment

of such road and used or intended for use in the maintenance and

operation thereof, as further security for the faithful performance by

such contractor of the covenants, conditions and agreements of such

contract, on his part to be fulfilled and performed. In case of the

breach of any such covenant, condition and agreement such lien shall be

subject to foreclosure by action, at the suit of such city, in the same

manner, as far as may be, as is then provided by law in the case of

foreclosure by action of mortgages on real estate. The board of

transportation, however, from time to time, may relieve from such lien

any of the property to which it may attach, upon receiving additional

security, which may be deemed by such board to be the equivalent of that

which it is proposed to release and otherwise upon such terms as to such

board shall seem just.

k. The contract shall further provide that in case of the failure or

neglect on the part of such contractor, after such notice as the

contract may prescribe, faithfully to observe, keep and fulfill the

conditions, obligations and requirements of such contract, the city, by

the board of transportation, may either terminate the contract or take

possession of such road and the equipment thereof, and as the agent of

such contractor, either maintain and operate such road, or enter into a

contract with some other person, for the maintenance and operation

thereof. Such contract shall contain such terms, conditions and

provisions in relation thereto as such board shall deem necessary or

desirable for adequately safeguarding and protecting the rights and

interests of the city. Such contract shall also contain appropriate

terms, conditions and provisions for accomplishing such termination or

taking possession.

l. Any existing railroad corporation owning or actually operating a

railroad wholly or in part within the limits of the city and approved by

the board of transportation, shall be competent and is hereby authorized

to enter into any contract for the equipment, maintenance and operation

of any railroad pursuant to the provisions of this chapter, or, after

such a contract shall have been made, shall be competent and is hereby

authorized, with the approval of such board, to contract with the

original contractor or his assignee or assignees for the maintenance and

operation (including the equipment or any part thereof) of any railroad

constructed or in process of construction or to be constructed pursuant

to the provisions of this chapter, and shall have all the powers

necessary to the due performance of such contract. A corporation may be

organized under the railroad law, for the purpose of constructing,

equipping, maintaining and operating a railroad pursuant to the

provisions of this chapter or for the purpose of maintaining and

operating a railroad, including the equipment or any part thereof,

already constructed, in process of construction or to be constructed

pursuant to the provisions of this chapter. Any corporation so

organized, upon the approval in writing of the board of transportation,

in addition to the powers conferred by the general act under which such

corporation is organized, shall be empowered, and is hereby authorized

to enter into any contract permitted by law for the maintenance and

operation when constructed, including the equipment or any part thereof

if desired, as the case may be, of any such railroad owned or to be

owned by the city, constructed or to be constructed at the expense of

the city or of such corporation or both as provided by this chapter. The

certificate of such approval shall be filed in the office of the

secretary of state, and a copy thereof certified to be a true copy by

the secretary of state or his deputy, shall be evidence of the fact

therein stated. A corporation so organized shall not be required to

procure the consent of the public service commission as provided for in

section nine of the railroad law.

m. Where in this section or in section thirty-one of this chapter the

consents referred to in section twenty-one of this chapter are

mentioned, they shall be construed to include any consent given by the

commissioners appointed by the appellate division of the supreme court,

and confirmed by such appellate division in lieu of the consent of

property owners as provided in this section.