Cooperatives & Condominiums

Condominium Sponsor Entitled to Retain 25% Deposit

Uzan v. 845 UN Limited Partnership

NYLJ 6/21/04, p. 18, col. 1

AppDiv, First Dept

(Opinion by Mazzarelli, J.)

In an action by contract vendees of luxury condominium units for return of their 25% down payments, sponsor appealed from the Supreme Court's denial of its summary judgment motion. The Appellate Division reversed and granted the motion, holding that the liquidated damage provision in the sale contract was fully enforceable.

Contract vendees contracted in 1999 to purchase four penthouse condominium units in the projected Trump World Tower. During negotiations, the contract vendees and their lawyers extracted numerous concessions from the sponsor, including a significant price concession, a right to advertise the units for resale before closing, and the right to terminate if closing did not occur before Dec. 31, 2003. The ultimate sale contract included a purchaser price of $34 million, and required the contract vendees to make a down payment of 10% at contract, an additional 7.5% 12 months later, and a final 7.5% 18 months after execution of the contract. The contract and the sponsor's offering plan provided that the sponsor would be entitled to retain the entire down payment in the event of default by the contract vendees. Closing was set for Oct. 19, 2001. The contract vendees did not appear at the closing, but sent a letter indicating that in light of the events of 9/11, which made the tallest residential building in the city a terrorist target, they were entitled to rescind the sale contract and recover their down payment. When the contract vendees brought an action to recover that down payment, the Supreme Court granted the sponsor summary judgment with respect to 10% of the sale price, but held that the remainder was subject to a liquidated damages analysis to determine whether it bore a reasonable relation to sponsor's actual or probable loss. The sponsor appealed.

In reversing, the Appellate Division started by citing the long-established New York rule that in real estate transactions, a defaulting vendee is not entitled to recover his deposit. The court noted that in Maxton Builders, Inc. v. LoGalbo, 68 NY2d 373, the Court of Appeals had reaffirmed that rule with respect to contract provisions permitting the seller to retain a 10% deposit. The Appellate Division extended that rule to permit retention of the 25% down payment in this case, relying on two factors. First, the court relied on the arms-length negotiation that took place before this contract was executed. Second, the court relied on evidence that in the pre-construction luxury condominium industry, the risks of default are such that 25% down payment provisions have become customary. As a result, the court concluded that the sponsor was entitled to summary judgment dismissing the complaint.

Condominium Sponsor Entitled to Retain 25% Deposit

Uzan v. 845 UN Limited Partnership

NYLJ 6/21/04, p. 18, col. 1

AppDiv, First Dept

(Opinion by Mazzarelli, J.)

In an action by contract vendees of luxury condominium units for return of their 25% down payments, sponsor appealed from the Supreme Court's denial of its summary judgment motion. The Appellate Division reversed and granted the motion, holding that the liquidated damage provision in the sale contract was fully enforceable.

Contract vendees contracted in 1999 to purchase four penthouse condominium units in the projected Trump World Tower. During negotiations, the contract vendees and their lawyers extracted numerous concessions from the sponsor, including a significant price concession, a right to advertise the units for resale before closing, and the right to terminate if closing did not occur before Dec. 31, 2003. The ultimate sale contract included a purchaser price of $34 million, and required the contract vendees to make a down payment of 10% at contract, an additional 7.5% 12 months later, and a final 7.5% 18 months after execution of the contract. The contract and the sponsor's offering plan provided that the sponsor would be entitled to retain the entire down payment in the event of default by the contract vendees. Closing was set for Oct. 19, 2001. The contract vendees did not appear at the closing, but sent a letter indicating that in light of the events of 9/11, which made the tallest residential building in the city a terrorist target, they were entitled to rescind the sale contract and recover their down payment. When the contract vendees brought an action to recover that down payment, the Supreme Court granted the sponsor summary judgment with respect to 10% of the sale price, but held that the remainder was subject to a liquidated damages analysis to determine whether it bore a reasonable relation to sponsor's actual or probable loss. The sponsor appealed.

In reversing, the Appellate Division started by citing the long-established New York rule that in real estate transactions, a defaulting vendee is not entitled to recover his deposit. The court noted that in Maxton Builders, Inc. v. LoGalbo, 68 NY2d 373, the Court of Appeals had reaffirmed that rule with respect to contract provisions permitting the seller to retain a 10% deposit. The Appellate Division extended that rule to permit retention of the 25% down payment in this case, relying on two factors. First, the court relied on the arms-length negotiation that took place before this contract was executed. Second, the court relied on evidence that in the pre-construction luxury condominium industry, the risks of default are such that 25% down payment provisions have become customary. As a result, the court concluded that the sponsor was entitled to summary judgment dismissing the complaint.