Scott E. Mollen

Contracts—Condominium Sponsor Granted Summary Judgment on Breach of Contract Claim Arising from Buyer's Failure To Close—Sponsor's Prediction as to When Temporary Certificate of Occupancy Would be Issued Was Not a Misrepresentation of Existing Fact, But Only an Expression of Future Expectations

This action for breach of contract, legal fees and costs arose out of an "unconsummated sale of a condominium…." The plaintiff condominium sponsor (sponsor) and the defendant buyer (buyer) had entered into an "option agreement" (contract) for the sale of a condominium unit (unit). The contract was dated June 30, 2015. At the time of contract, the unit and the rest of the building were still under construction. The purchase price was $7,450,000.00. The buyer had made a deposit of $1,490,000.00. The contract incorporated the condominium offering plan (plan). The plan stated that if the buyer failed to close, he would forfeit the down payment as liquidated damages.

The plan provided that if the buyer defaulted under the contract, "time being of the essence with regard to the obligations of purchaser thereunder," the sponsor may cancel the contract. If the sponsor cancelled the contract, the buyer would have 30 days to cure the specified default. If the default was not cured within 30 days, "TIME BEING OF THE ESSENCE," then the contract would be deemed cancelled and the sponsor could retain the down payment as liquidated damages, plus interest and "Unit Upgrade Funds." If the buyer defaulted, the sponsor could sell the apartment "without any obligation to account to (the buyer) for any of the proceeds from such sale."

The plan provided that no closing would occur before the issuance of a temporary certificate of occupancy (TCO). The buyer was obligated to close title once the TCO was issued "irrespective of outstanding items of work, provided Sponsor has satisfied the closing conditions set forth in the Section of the plan entitled 'Terms of Sale.'"

The sponsor initially sent a letter to the buyer to schedule the closing for Dec. 7, 2016. However, since the sponsor lacked a TCO at that time, the closing was adjourned by the sponsor pursuant to a provision in the plan that permitted the sponsor to reschedule the date. In view of construction delays, the closing was adjourned to Feb. 1, 2017 and again to Feb. 27, 2017. Another closing letter was sent to the buyer on Nov. 28, 2017. During the delay, on Jan. 10, 2017, the sponsor had filed a ninth amendment to the plan with the NYS attorney general.

The plan gave the buyer a 15-day right to rescind the agreement, since "the first closing of a residential unit would not take place within the first 12 months of the projected First Year of Condominium Operation." The sponsor advised the buyer of the 15-day right of rescission and that it expired on January 25, 2017. The buyer never elected to rescind the agreement during that time period. Thereafter, a closing date was set for Dec. 7, 2017 and accepted by the buyer. The buyer exercised his "one-time right to adjourn the closing and the parties agreed to reschedule for December 14, 2017." The buyer thereafter failed to close.

The sponsor had moved for summary judgment.

The court explained that written agreements that are "complete, clear and unambiguous on (their) face must be enforced according to the plain meaning of (their) terms…." The court noted that such rule "has even greater force in the context of real property transactions, where commercial certainty is a paramount concern, and where…the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length…."

The sponsor had demonstrated that the buyer failed to close and the sponsor was "ready, willing and able to perform on the closing date." The buyer denied the sponsor's allegations and asserted counterclaims for "fraud in the inducement, the refund of his deposit, promissory estoppel and unjust enrichment."

The counterclaims were based on the buyer's alleged justifiable reliance on the sponsor's "communications as to the status of the building's construction and that (TCO) and closing date were anticipated soon, causing him to waive the 15-day right to rescind the agreement." The buyer cited three emails from the sponsor as evidence of the alleged material misrepresentations. The first email was sent with the ninth amendment to the plan and was dated Jan. 11, 2017. The other emails were dated Jan. 19, 2017 and all were sent during the 15-day rescission period (Jan. 10, 2017 to Jan. 25, 2017) and expressed the sponsor's "expectation that the (TCO) was expected shortly."

The court found that the foregoing emails did not establish the buyer's counterclaims for fraud or misrepresentation. In order to establish a fraud or misrepresentation claim, the buyer had to establish that the sponsor "knew its misstatements were false, and (buyer) points to nothing to demonstrate (buyer's) required scienter." The sponsor had "expressed uncertainty as to when it would receive the (TCO)" and such uncertainty was "patent from multiple adjournments of the closing that was originally scheduled in December 2016." Each communication from the sponsor which scheduled the closing embodied language which warned that "we are advised that sponsor anticipates, but cannot guarantee, that the (TCO) for the Unit will be issued in advance of the closing date."

Here, the sponsor's "prediction" to the buyer "as to when it would obtain the (TCO) was not a misrepresentation of an existing fact, but nothing more than an expression of future expectations…." The court explained that "mere promissory statements as to what will be done in the future are not actionable." This is particularly so in the subject context, "since the future action was not in (sponsor's) control and it was reliant upon contractors and the NYC Department of Buildings to secure the required (TCO)."

The court further stated that even if those communications constituted misrepresentations of present facts, the buyer, in order to demonstrate "justifiable reliance," would have had to have shown that the facts represented were "matters peculiarly within the (sponsor's) knowledge" and the buyer lacked the means, by "the exercise of ordinary intelligence," to ascertain the "truth or the real quality of the subject of the representation…." The court emphasized that the buyer "must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations…."

The buyer argued that he had been "left in the dark about the status of the condominium." However, the buyer failed to explain what steps he had taken to "ascertain the truth or accuracy of (sponsor's) representations" and the TCO was not within the direct control of the sponsor.

The court cited appellate precedent which held that "[w]here a party has means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on (the other party's) misrepresentations…." Here, there was no demonstration by the buyer of "his due diligence or the materiality of (sponsor's) communications." Moreover, "the contract documents warned (the buyer) of the potential for construction delays that would postpone the closing of the unit and contained no obligation by the (sponsor) to close on date certain."

The buyer also failed to provide a reason why he justifiably relied on the sponsor's predictions when the closing would occur in deciding to waive his right of rescission. The closing had previously been delayed and the buyer knew that the sponsor was relying on outside agencies to obtain the TCO. Further, when the closing did not take place in February 2017, the buyer sought a status update on the unit in March 2017, thereby establishing that after the right of rescission expired, the buyer continued to show interest in purchasing the unit despite the multiple adjournments of the closing. Moreover, after the sponsor noticed a closing for Dec. 7, 2017, the buyer did not seek rescission at that time, but only requested an adjournment of the closing to Dec. 14, 2017. "At that point, any purported reliance on plaintiff's January 2017 communications would be moot." The court also rejected the equitable estoppel and promissory estoppel arguments based on the lack of a material misrepresentation and ability to show justifiable reliance.

Accordingly, the court granted the sponsor's motion for summary judgment. The sponsor was permitted to retain the down payment and recover reasonable attorney fees. The plan provided that the prevailing party in any litigation between the parties would be entitled to recover reasonable legal fees and other costs and disbursements.

Comment: New construction of significant buildings often involves unexpected delays. The delays arise from a plethora of causes, including errors in design, delays, or poor performance by subcontractors or material suppliers, as well as delays attributable to regulatory agencies.

The subject offering plan provided a remedy, i.e. a right of rescission. Some purchasers may negotiate and obtain an outside closing date, apart from the right of rescission embodied in an offering plan. Additionally, NYC Building Department records are generally available to the public. Some purchasers will retain their own architect, Building Department "expeditor" or lawyer to check the NYC Dep't of Buildings records.

Of course, in a given instance, a sponsor could have made fraudulent representations as to existing facts. Here, the court found that the communications were mere predictions of future events and the buyer failed to show justifiable reliance on such statements.

Philip Tucker, a partner at Herrick, Feinstein, LLP who specializes in condominiums and cooperative law explained that "when the real estate market is strong, sponsors rarely agree to an outside closing date. When the market is soft, sponsors are more likely to provide an outside closing date."

Thus, the perception of leverage impacts the ability of a buyer to extract outside closing date as a condition to buying the unit.

361 Broadway Assocs. Holdings v. Morales, Supreme Court, New York Co., Case No. 151711/2018, decided Jan. 6, 2020, Kahn III, J.

Landlord-Tenant—Rent Control—Proceeding Dismissed—Landlord Failed To Provide 48-Hour Filing Notice to District Rent Office—Court Rejected Argument That Delay Was De Minimis and Non-Prejudicial

A landlord commenced a holdover proceeding relating to a rent-controlled apartment. The landlord alleged that the tenant permitted a "horrific bed bug infestation to develop…" in her apartment, which had spread to other apartments. The tenant moved to dismiss, arguing that the landlord had failed to serve the "district office with a copy of the notice of termination within 48 hours, after service of the notice on her, as required by 9 NYCRR §2204.3(c)."

9 NYCRR §2204.3(a) provides that "except where the ground for removal or eviction of a rent controlled tenant is non-payment of rent, no rent controlled tenant shall be removed or evicted…by court process, and no action or proceeding shall be commenced for such purpose upon any of the grounds stated in section 2204.2 of this Part, unless and until the landlord shall have given written notice to the tenant and to the district rent office as hereinafter provided." 9 NYCRR §2204.3(c) specifies that "within 48 hours after the notice is served upon the tenant," an "exact copy" of the notice, "together with an affidavit of service shall be filed in the district rent office. In computing such 48-hour period, any intervening Saturday, Sunday or legal holiday shall be excluded."

The notice of termination had been personally served on the tenant on Aug. 12, 2019 at 2:24 pm. The landlord "was required to file with the district rent office the exact copy of the notice and affidavit of service no later than Aug. 14, 2019." The affidavit of service for the notice of termination had been stamp marked "received" by the NYS Div. of Housing and Community Renewal on Aug. 15, 2019. Aug. 12 was Monday and Aug. 15 was a Thursday and there were no legal holidays between Aug. 12 and Aug. 15. Thus, the landlord had not complied with the 48 hour filing notice.

Citing appellate precedent, the court held that the untimely filing with the district rent office was "fatal to landlord's right to maintain a holdover proceeding and warrants dismissal of the proceeding." The court held that the 9 NYCRR §2204.3(c) defense could not be "waived by the parties nor can the parties' consent confer jurisdiction." The court also rejected the landlord's de minimis and non-prejudicial arguments, citing the Legislature's decision to enact a 48-hour filing deadline. The court reasoned that the Legislature had "considered the narrow timeframe for filing and found that it was compelling enough to justify the ramifications of untimeliness. There is a strong public policy interest in protecting the notice requirements of rent controlled tenants facing termination of their tenancies."

Capmar Realty Corp. v. Novak, Civil Court, New York Co., Case No. 67028/19, decided Jan. 4, 2020, Ortiz, J.

Scott E. Mollen is a partner at Herrick, Feinstein.