New York Commercial and Construction Lawyer Blog
Can a cooperative apartment owner claim to be “ready, willing and able” to close where the board of directors of the cooperative has threatened to try to reclaim exclusive rights to penthouse terrace access that the buyer bargained for? According to the First Department, the answer may well be “No” in the absence of “unequivocal assurances” from a meddling board.
In Pastor v. DeGaetano, et al., 128 A.D.3d 218 (1st Dep’t 2015), the defendant, an estate owner of a luxury penthouse apartment (the “Seller”), sought summary judgment dismissing the complaint seeking the return of the plaintiff’s (the “Buyer”) $2.75 million deposit. The factual record shows that, despite the Seller’s 50 years of exclusive access to the penthouse terrace and the existence of a proprietary lease clearly spelling out such exclusive use, the cooperative board (the “Board”) sent a letter to the prospective buyer advising that the upper roof of the building was common property available to all unit owners. Since the upper roof was only accessible by walking across the penthouse terrace, the letter amounted to a notification that the terrace would no longer be exclusive to the Buyer. After the Board unsuccessfully attempted to get the Buyer and Seller to execute an agreement confirming the same rooftop access right, the Seller commenced a declaratory judgment action against the Board seeking a declaration that the Seller, and the prospective Buyer, had exclusive rights to the terrace. This action was subsequently settled without the issuance of the requested declaration. The Buyer was not satisfied with this conclusion and attempted to cancel the contract and regain his deposit. When the Seller instead set a closing date, the Buyer refused to close and commenced the lawsuit at issue. The Seller then moved for summary judgment and the trial grant granted the motion, holding that the Seller had proven that it was “ready, willing and able” close.
The First Department, however, disagreed.
Noting that the Seller had not shown that the Board had “unequivocally” withdrawn its position with respect to the use of the terrace, the Court held that the Seller had not met its burden to show its ability to close on the sale. While the Seller argued that the Board had made representations and statements in the earlier declaratory judgment action that categorically recognized the Seller’s exclusive access to the terrace, the Court ruled that the Seller’s failure to obtain the requested declaration was fatal to its attempt to demonstrate the Board’s alleged change of heart. Citing to Vorheesville Rod & Gun Club v. Tompkins Co., 82 N.Y.2d 564, 571 (1993), the First Department noted the particular issues inherent in the ownership of co-operative shares (as compared to the purchase of a house or condominium) and reiterated that a buyer “ought not to be compelled to take property, the possession or title of which he may be obliged to defend by litigation.” Thus, in light of the Board’s prior actions clouding title to the terrace, the Seller could not state it was able to close.
It may be hard to fathom how a seller who has all the documents necessary to convey title, including a proprietary lease granting exclusive access, can be held not “able” to sell its shares. The problem, as the First Department noted, is in the co-operative and joint nature of the ownership of the real property. Given that joint nature of ownership, the Board’s statements and actions, on behalf of all shareholders, intending to reclaim terrace access rights created an uncertainty as to what the Seller could convey. Thus, even though the Board appeared to back down later, its early actions, and subsequent failure to unequivocally state that it would not pursue those rights in the future, were enough to potentially kill the deal, even though the Seller had done nothing wrong.
It is important to note that the Seller had an opportunity to gain its “unequivocal” assurance by way of the earlier declaratory judgment action. However, the Seller allowed the action to be settled without the issuance of the requested declaration and without language in the settlement agreement memorializing the alleged representations and statements of the Board during the proceeding. This made it impossible for the Seller to meet its burden that it could convey the shares without the Buyer also incurring the risk that he would have to “defend by litigation” his right to exclusive use of the terrace.
The case now returns to the lower court for further proceedings, including discovery as to whether the Board’s prior statements unequivocally show that it does not intend to go forward to try and reclaim the exclusive rights.