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A SELLER OF REAL PROPERTY CAN REMAIN SILENT ABOUT DEFECTS IN THE PROPERTY BUT CANNOT TAKE STEPS TO THWART A BUYER’S DISCOVERY OF DEFECTS; HERE IT WAS ALLEGED THE SELLERS COVERED WATER DAMAGED WOOD WITH NEW PLYWOOD (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the complaint alleging the defendant sellers concealed water damage to the property should not have been dismissed. A seller of real property can remain silent about property defects (caveat emptor, buyer beware) but cannot act to thwart discovery of the defects. Here plaintiffs alleged the sellers put new plywood over wood damaged by water:

“New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment” … . “If, however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property” … . “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his [or her] responsibilities fixed by the doctrine of caveat emptor” … .

Here, accepting the facts alleged in the amended complaint as true, and according the plaintiffs the benefit of every possible favorable inference … , the amended complaint sufficiently states a cause of action to recover damages for fraud on the theory that the … defendants actively concealed extensive water damage to the property. The amended complaint, as amplified by an affidavit of one of the plaintiffs … , alleges, among other things, that the … defendants took measures to actively conceal the existence of leaks and water damage to the property, including placing new wood on top of rotten wood to hide the extent of the damage. The plaintiffs’ allegations, if true, might have thwarted the plaintiffs’ efforts to fulfill their responsibilities imposed by the doctrine of caveat emptor with respect to the property … . Striplin v AC&E Home Inspection Corp., 2023 NY Slip Op 03720, Second Dept 7-5-23

Practice Point: Although a seller of real estate can remain silent about defects in the property, a seller can not take steps to thwart a buyer’s discovery of defects.

 

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THE AFFIDAVITS AND REAL ESTATE CONTRACT SUBMITTED IN SUPPORT OF THE MOTION TO DISMISS DID NOT CONSTITUTE DOCUMENTARY EVIDENCE WHICH UTTERLY REFUTED THE ALLEGATIONS OF UNLAWFUL DISCRIMINATION IN THE COMPLAINT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the complaint alleging unlawful discrimination in a real estate deal should not have been dismissed because the documentary evidence did not utterly refute the allegations in the complaint. After the real estate purchase offer was signed by both parties and the down payment was made, defendant’s attorney returned the down payment check with a letter saying that the defendant was no longer interested in selling to the plaintiff:

Here, neither the affidavits submitted in support of the defendant’s motion nor the purported contract between the defendant and another purchaser constituted documentary evidence within the intendment of CPLR 3211(a)(1) … , and the defendant’s evidentiary submissions were “insufficient to utterly refute the plaintiff’s factual allegations” … . Moreover, accepting the facts as alleged in the complaint as true, and according the plaintiffs the benefit of every possible favorable inference … , the complaint sufficiently stated a cause of action alleging unlawful discrimination pursuant to Administrative Code § 8-107(5). Jeffrey v Collins, 2023 NY Slip Op 03686, Second Dept 7-5-23

Practice Point: The affidavits and real estate contract submitted in support of the motion to dismiss did not utterly refute the allegations in the complaint and therefore did not support dismissal of the complaint based on documentary evidence.

 

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BUYER WAS ENTITLED TO SPECIFIC PERFORMANCE OF A CONTRACT FOR THE SALE OF “INCLUSIONARY AIR RIGHTS” (IAR’S); IAR’S DICTATE THE ALLOWED SQUARE FOOTAGE OF BUILDINGS ON A PARCEL OF LAND (THE ALLOWED NUMBER OF FLOORS FOR EXAMPLE) (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, in a full-fledged opinion by Justice Gonzalez, determined that a contract for the purchase of “inclusionary air rights” (IAR’s) was subject to specific performance. “Air rights” are controlled by zoning regulations. For example, if a 10,000 square-foot parcel of land is allowed 50,000 square feet of floor space, the air rights for that 10,000 square-foot parcel constitute 40,000 square feet. Here the contract for the purchase of air rights between sophisticated real estate developers was deemed to be subject to specific performance. Defendant seller tried to back out of the deal because the selling price was too low:

… New York courts have consistently considered air rights an “interest in real property” … . … [S]pecific performance is not solely limited to real property; the remedy may also apply in other instances, such as a conveyance of shares of stock in a close corporation or an agreement to sell shares in a cooperative real estate corporation … .

… [S]pecific performance may be available in actions where the market is opaque and the price of the goods is subject to intense fluctuation … . … [S]pecific performance is warranted because of the parties’ incorporation of a specific performance in their agreement, defendant’s willful breach of the agreement, the absence of an inequitable or disproportionate burden, and the admitted uncertainty of valuing IARs.  301 E. 60th St. LLC v Competitive Solutions LLC, 2023 NY Slip Op 02842, First Dept 5-30-23

Practice Point: A contract for the sale of “inclusionary air right” (IAR’s) which, for example, dictate the number of floors allowed in a building constructed on a parcel of land, can be subject to specific performance.

 

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A DEADLINE SET IN A TIME-IS-OF-THE-ESSENCE LETTER CAN BE WAIVED ORALLY, OR EVEN BY CONDUCT ALONE (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined there was a question of fact whether defendant orally waived the deadline for the real estate transaction set in a time-is-of-the-essence letter:

… “[I]t is well settled, in New York, that an oral waiver of the time for the sale of real property will be given effect” … . [Plaintiff’s] assertion, made under the penalties of perjury, that he was assured by the defendant’s president that the plaintiff would not be held in default in the event that it failed to close the transaction on May 15, 2019, was sufficient to raise a triable issue of fact as to whether the defendant’s president made a statement … that operated as a waiver of the defendant’s right to enforce the May 15, 2019 deadline for the closing. Contrary to the defendant’s contention, in order for such a waiver to occur, it was not necessary that the [time-is-of-the-essence] letter be withdrawn in a formal communication from the defendant’s attorney. A waiver of the right to timely performance under a contract “need not be in writing in order to be valid and enforceable” … . Such a waiver may occur even without an oral statement, such as the one that was allegedly made in this case, and may instead be inferred solely from a party’s conduct … . LG723, LLC v Royal Dev., Inc., 2023 NY Slip Op 02653, Second Dept 5-17-23

Practice Point: A deadline in a time-is-of-the-essence letter can be waived orally or by conduct alone.

 

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THE PARTIAL PAYMENTS MADE TOWARD THE DOWN PAYMENT ON THE REAL ESTATE PURCHASE CONTRACT DID NOT CONSTITUTE PART PERFORMANCE OF THE ALLEGED ORAL MODIFICATION OF THE AGREEMENT; THE STATUTE OF FRAUDS RENDERED THE ALLEGED ORAL MODIFICATION UNENFORCEABLE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the alleged oral modification of the real estate purchase contract was unenforceable pursuant to he statute of frauds. The original contract called for a $750,000 down payment by a specified date. The payment was not made. Plaintiff argued defendant had orally agreed to take installment payments toward the down payment and two partial payments had in fact been made and accepted. Plaintiff sued for specific performance of the contract. The defendant asserted the statute of frauds affirmative defense. The Second Department held that the two payments did not constitute part performance which would excuse the absence of a writing:

While the statute of frauds empowers courts of equity to compel specific performance of agreements in cases of part performance (see General Obligations Law § 5-703[4]), “the claimed partial performance must be unequivocally referable to the agreement” … . Unequivocally referable conduct is conduct that is “inconsistent with any other explanation” … . It is insufficient “that the oral agreement gives significance to plaintiff’s actions” … . “Rather, the actions alone must be ‘unintelligible or at least extraordinary,’ explainable only with reference to the oral agreement” … . “Significantly, the doctrine of part performance is based on principles of equity, in particular, recognition of the fact that the purpose of the Statute of Frauds is to prevent frauds, not to enable a party to perpetrate a fraud by using the statute as a sword rather than a shield” … . S&G Golden Estates, LLC v New York Golf Enters., Inc., 2023 NY Slip Op 02548, Second Dept 5-10-23

Practice Point: In order to constitute part performance of a contract such that the statute of frauds does not apply, the part performance must be inconsistent with any other explanation. The actions must be explainable only with reference to the oral agreement (not the case here).

 

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THE TEXTS AND EMAILS WERE NOT SUBSCRIBED; THE BREACH OF CONTRACT ACTION BASED UPON THE EMAILS AND TEXTS WAS BARRED BY THE STATUTE OF FRAUDS (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the emails and texts did not meet the criteria for a written contract (here a purported agreement to purchase property). The breach of contract cause of action was therefore barred by the statute of frauds:

Initially, “[a]n e-mail sent by a party, under which the sending party’s name is typed, can constitute a [signed] writing for [the] purposes of the statute of frauds” … . Here, however, not one of the text messages or emails submitted by plaintiff contains a signature block or other electronic signature of defendant. Those communications are therefore “clearly inadequate, since [they were] not subscribed, even electronically, by the defendant[] who [is] the part[y] to be charged, or by anyone purporting to act in [his] behalf” … . We further agree with defendant that the doctrine of part performance does not apply to defeat the affirmative defense of the statute of frauds (see § 5-703 [4]; CPLR 3211 [a] [5]). Under the circumstances of this case, plaintiff’s actions in paying property taxes and related expenses, including making renovations to a sunroom on the property, “were not ‘unequivocally referable’ to an agreement to purchase the property to warrant invoking the doctrine of part performance … . Preston v Nichols, 2023 NY Slip Op 02408, Fourth Dept 5-5-23

Practice Point: Here the texts and emails which were alleged to constituted a valid property purchase agreement were not subscribed. The breach of contract action based upon the texts and emails was therefore barred by the statute of frauds.

 

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THE STIPULATION SETTING A DATE FOR THE CLOSING ON DEFENDANT’S PURCHASE OF THE PROPERTY DID NOT INFORM DEFENDANT HE WOULD BE CONSIDERED TO BE IN DEFAULT IF THE CLOSING DID NOT TAKE PLACE BY THAT DATE; THEREFORE THERE WAS NO “TIME OF THE ESSENCE” AGREEMENT AND PLAINTIFF WAS NOT ENTITLED TO THE DOWN PAYMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the stipulation waiving defendant’s payment of rent as long as the closing on defendant’s purchase of the property occurred by a designated date did not inform defendant “time was of the essence” such that plaintiff could keep the down payment:

Sometime after the parties entered into the contract, the defendant commenced a landlord-tenant proceeding against the plaintiff, which the parties settled in a stipulation dated February 16, 2011. Paragraph 2 of the stipulation provided that “[i]n settlement and satisfaction of all claims by [the plaintiff], and in consideration of [the plaintiff] closing title on the purchase of 1474 Ralph Avenue, Brooklyn, New York, no later than March 31, 2011, [the defendant] waives the rent due for July 2010.” The closing never occurred. * * *

Where, as here, “time was not made of the essence in the original contract” … , “one party may make time of the essence by giving proper notice to the other party” … and avail himself [or herself] of forfeiture on default” … . “The notice setting a new date for the closing must (1) give clear, distinct, and unequivocal notice that time is of the essence, (2) give the other party a reasonable time in which to act, and (3) inform the other party that if he [or she] does not perform by the designated date, he [or she] will be considered in default” … . “A party need not state specifically that time is of the essence, as long as the notice specifies a time on which to close and warns that failure to close on that date will result in default” … . It does not matter that the date is unilaterally set … , and “[w]hat constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case” … .

… [T]he stipulation did not inform the plaintiff that if he did not perform, he would be considered in default … . Lashley v BDL Real Estate Dev. Corp., 2023 NY Slip Op 00314, Second Dept 1-25-23

Practice Point: To trigger “time is of the essence” the defendant must be informed that failure to close the real estate purchase by the designated date will place the defendant in default.

 

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CONTRARY TO SUPREME COURT’S RULING, THE REAL ESTATE PURCHASE AGREEMENT, BY ITS TERMS, DECLARED THE CONTRACT CANCELLED IF THE INSPECTION REVEALED PROBLEMS AND THE PARTIES DID NOT AGREE ON HOW TO ADDRESS THOSE PROBLEMS WITHIN TEN DAYS; THE INSPECTION IN FACT REVEALED PROBLEMS AND NO AGREEMENT ON RESOLUTION WAS MADE WITHIN THE ALOTTED TEN DAYS (THIRD DEPT). ​

The Third Department, reversing Supreme Court, determined that the real estate purchase agreement was canceled in accordance with its own terms:

… [P]laintiff’s transmission of the form contract and rider constituted an offer, and the sellers counteroffered by signing and returning to plaintiff only the form contract without the rider. Plaintiff then accepted the counteroffer by proceeding with the inspections, as “a counteroffer may be accepted by conduct” … . We also agree with the court that plaintiff’s counsel’s May 18, 2020 letter did not constitute attorney disapproval of the contract under the attorney approval contingency. This letter merely acknowledged receipt of the signed contract and inquired as to the rider and other documents; in no way did it signal disapproval.

… Plaintiff’s attorney, in his letter of June 17, 2020, notified the sellers’ attorney that the property had failed multiple inspections, and provided a copy of the relevant inspection report. This conduct, in accordance with the language set forth in the inspection contingency, rendered the contract “cancelled, null and void” unless plaintiff chose to defer cancellation for 10 days. Given that the letter from plaintiff’s attorney also set forth potential ways in which the inspection issues could be resolved, we are satisfied that the 10-day option was exercised. That said, the parties did not reach a written agreement on these issues within 10 days as was expressly required pursuant to the inspection contingency … . Savignano v Play, 2022 NY Slip Op 06307, Third Dept 11-10-22

Practice Point: In reversing Supreme Court, the Third Department simply read the real estate purchase agreement and enforced the term deeming the contract cancelled if the parties did not agree on the resolution of problems revealed by inspection within ten days. No such agreement was reached.

 

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THE BROKER WAS THE PROCURING CAUSE OF THE SALE OF THE REAL PROPERTY AND THEREFORE WAS ENTITLED TO THE AGREED 4% COMMISSION (SECOND DEPT).

The Second Department, reversing Supreme Court, over an extensive dissent, determined the broker in this sale of real property was the procuring cause of the sale and was therefore entitled to the agreed 4% commission:

“To prevail on a cause of action to recover a commission, the broker must establish (1) that it is duly licensed, (2) that it had a contract, express or implied, with the party to be charged with paying the commission, and (3) that it was the procuring cause of the sale” … . Here, the issue disputed by the parties was whether the plaintiff was the procuring cause of the sale. “To establish that a broker was the procuring cause of a transaction, the broker must establish that there was ‘a direct and proximate link, as distinguished from one that is indirect and remote'” between the bare introduction of the parties to the transaction and the consummation of the sale … . “[I]n order to qualify for a commission, a broker need not have been involved in the ensuing negotiations or in the completion of the sale,” if such a direct and proximate causal link exists … . …

It was Minetree’s [the broker’s] introduction of the subject properties to, and work with, TNC [the nature conservancy] which brought the County and the defendants together on a bargain sale transaction. Saunders Ventures, Inc. v Catcove Group, Inc., 2022 NY Slip Op 05879, Second Dept 10-19-22

Practice Point: If a broker is the “procuring cause” of the sale of real property, the broker is entitled to the commission agreed to in the broker’s contract.

 

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ALTHOUGH THE HOME-INSPECTION CONTRACT WAS NOT SIGNED, PLAINTIFF TESTIFIED SHE WAS AWARE OF THE TERMS OF THE CONTRACT AND AGREED TO THEM; THEREFORE THE UNSIGNED CONTRACT WAS ENFORCEABLE AND PLAINTIFF’S FAILURE TO COMPLY WITH THE NOTIFICATION PROVISION ENTITLED DEFENDANT TO SUMMARY JUDGMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant home-inspection company was entitled to enforcement of a provision in an unsigned contract. The home inspection contract provided that defendant would not be liable if plaintiff failed to timely notify defendant of any alleged defects in the property. Defendant moved for summary judgment based on plaintiff’s failure to notify. The fact that the contract was not signed did not raise a question of fact because plaintiff testified she was aware of the terms of the contract and agreed to them:

“[A]n unsigned contract may be enforceable, provided there is objective evidence establishing that the parties intended to be bound” … . Here, the plaintiff testified at her deposition that she was “certain” that she looked at the contract “at the time of the inspections,” that she understood the contents of the contract, and that “after reading the agreement before the July 2016 inspection” she “accepted these terms” and paid ARPI its fee. This testimony is bolstered by the fact that the plaintiff signed an identical contract four months earlier for a home inspection performed by the defendants. Accordingly, the defendants demonstrated, prima facie, that the July 2016 contract was valid and enforceable … . Cotich v Town of Newburgh, 2022 NY Slip Op 05075, Second Dept 8-31-22

Practice Point: Although the home inspection contract was not signed, plaintiff testified she was aware of the terms and agreed to them. The contract was therefore enforceable and plaintiff’s failure to comply with the notification provision entitled defendant to summary judgment.