§ 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.