The Delaware limited liability company (LLC) is a popular form of business organization in New York real estate.  But parties who choose to use a Delaware LLC to own, manage, or invest in New York real estate need to be prepared for the application of Delaware substantive law to certain aspects of any dispute that may later arise, even if the dispute is litigated in New York.  This article—the second in a three-part series examining common features of real estate transactions that can benefit from a litigation analysis in the negotiation phase—focuses on two of those aspects: statutes of limitations and waivers of duties.

Statutes of Limitations

Parties who choose to use Delaware LLCs to invest in New York real estate projects need to be aware that such use may result in the application of a substantially shorter statute of limitations to claims arising from the investment.  In particular, although New York's statute of limitations for breach of contract claims is six years (CPLR 213(2)), Delaware's is only three years.  See 10 Del.C. § 8106(a).  A claim by a Delaware LLC arising from its investment in New York real estate may be subject to that substantially shorter limitations period.

This is because under New York law a claim based on economic harm is subject to the statute of limitations of the state of the plaintiff's residence, even if the claim is asserted under a contract that is governed by the substantive law of another state.  See U.S. Educ. Loan Trust IV, LLC v. Bank of NY Mellon, 179 A.D.3d 447, 448 (1^st Dept. 2020).