Cooperatives & Condominiums

Supreme Ct., N.Y. Cty

(Schlesinger, J.)

In an action by contract vendees for return of their down payment on four condominium apartments, both contract vendees and sponsor-seller sought summary judgment. The court granted summary judgment to seller for 10% of the purchase price, and denied summary judgment with respect to the remainder of the claim.

In April 1999 contract vendees agreed to purchase four apartments, comprising the top two floors of the Trump World Tower, before the building was completed. The purchase price was to be $31,848,100. Purchasers paid 10% at contract signing, and the contract provided for two additional pre-closing payments of 7? % each, one in April 2000 and the second in October 2000 if closing had not yet occurred. The contract provided that upon purchaser's default in closing on the contract, seller had the right to retain all deposits place in escrow. Purchaser made the two pre-closing payments, but did not appear at the scheduled closing in October 2001, expressing concern about apartments in the city's tallest residential building just 1 month after the attacks on the World Trade Center. Seller, however, exercised its right to retain the escrow funds, a total of $7,962,025. Purchaser then brought this action for return of the down payment, contending that the 25% retained was entirely out of proportion with any loss seller might have suffered. Purchaser contends that seller has already rejected purchase offers in excess of the original contract price.

The court framed the issue as whether the contract provision permitting seller to retain escrow funds was an enforceable liquidated damages provision. The court noted that in Maxton Builders v. LoGalbo, the Court of Appeals had held that a contract provision permitting retention of a 10% down payment was an enforceable liquidated damages provision without regard to the seller's actual loss. The court then declined to extend the Maxton rule to the 25% deposit in this case, holding instead that seller would be required to establish that forfeiture of the deposit would bear a reasonable proportion to the seller's probable loss. As a result, the court granted summary judgment to seller with respect to the 10% deposit, and held that trial was necessary to resolve seller's right to retain the balance of the escrow amount.

Seller May Not Retain 25% Deposit As Liquidated Damages

Uzan v. 845 UN LP

NYLJ 7/23/03, p. 18, col. 3

Supreme Ct., N.Y. Cty

(Schlesinger, J.)

In an action by contract vendees for return of their down payment on four condominium apartments, both contract vendees and sponsor-seller sought summary judgment. The court granted summary judgment to seller for 10% of the purchase price, and denied summary judgment with respect to the remainder of the claim.

In April 1999 contract vendees agreed to purchase four apartments, comprising the top two floors of the Trump World Tower, before the building was completed. The purchase price was to be $31,848,100. Purchasers paid 10% at contract signing, and the contract provided for two additional pre-closing payments of 7? % each, one in April 2000 and the second in October 2000 if closing had not yet occurred. The contract provided that upon purchaser's default in closing on the contract, seller had the right to retain all deposits place in escrow. Purchaser made the two pre-closing payments, but did not appear at the scheduled closing in October 2001, expressing concern about apartments in the city's tallest residential building just 1 month after the attacks on the World Trade Center. Seller, however, exercised its right to retain the escrow funds, a total of $7,962,025. Purchaser then brought this action for return of the down payment, contending that the 25% retained was entirely out of proportion with any loss seller might have suffered. Purchaser contends that seller has already rejected purchase offers in excess of the original contract price.

The court framed the issue as whether the contract provision permitting seller to retain escrow funds was an enforceable liquidated damages provision. The court noted that in Maxton Builders v. LoGalbo, the Court of Appeals had held that a contract provision permitting retention of a 10% down payment was an enforceable liquidated damages provision without regard to the seller's actual loss. The court then declined to extend the Maxton rule to the 25% deposit in this case, holding instead that seller would be required to establish that forfeiture of the deposit would bear a reasonable proportion to the seller's probable loss. As a result, the court granted summary judgment to seller with respect to the 10% deposit, and held that trial was necessary to resolve seller's right to retain the balance of the escrow amount.