Real Property Law

Time Not of the Essence

ADC Orange Inc. v. Coyote Acres Inc.

NYLJ 10/20/06, p. 23, col. 1

Court of Appeals

(Opinion by Rosenblatt, J.)

In an action by buyer for specific performance of a land sale contract, buyer appealed from the Appellate Division's order awarding summary judgment to seller. The Court of Appeals modified, holding that buyer's late payment did not constitute a material breach of the contract, but that issues of fact required a trial on buyer's entitlement to specific performance.

Buyer contracted to purchase the subject property for $600,000. The contract required a down payment of $100,000, and a second payment of $250,000 upon the later of preliminary subdivision approval or Dec. 31, 2001, 'but in no event later than [Dec.] 31, 2001.' The contract also conditioned sale upon buyer's success in obtaining final subdivision approval by June 30, 2002. On Dec. 26, 2001, seller sent buyer a fax reminding buyer that the contract required a payment by Dec. 31. On Dec. 31, buyer's lawyer replied by fax, indicating that buyer's principal was out of the country but would transfer the funds upon his return on Jan. 14. On Jan. 10, seller's lawyer wrote buyer's lawyer informing him that seller considered buyer in default. Buyer immediately sent a check for $250,000 and insisted that the delay in payment did not constitute default because the contract included no 'time is of the essence' provision. The parties continued to negotiate, but when the negotiations stalled, buyer brought this action for specific performance of the contract. Seller raised two affirmative defenses: first, buyer's default in payment entitled seller to keep the $100,000 down payment, and second, buyer's failure to obtain final subdivision approval by June 30, 2002 terminated any obligation by seller to perform. Supreme Court awarded summary judgment to buyer and ordered specific performance. The Appellate Division reversed, concluding that buyer's late payment constituted material breach entitling seller to keep the down payment. Buyer appealed.

In concluding that seller was not entitled to summary judgment, the Court of Appeals started by noting that whether late payment constituted material breach depended on whether time was of the essence with respect to the payment. The court noted that the contract did not explicitly make time of the essence, and concluded that the language requiring payment 'in no event later than Dec. 31, 2001' was not sufficient to make time of the essence. The court acknowledged that in some circumstances, a party can make time of the essence even when the contract includes no 'time is of the essence' provision, but held that in this case, seller's Dec. 26 fax was not sufficient to make time of the essence. As a result, the court concluded that buyer's late payment did not constitute material breach. The court also held, however, that buyer had not established that it was ready, willing, and able to perform the contract because it had not obtained final subdivision approval by June 30, 2002. But the court concluded that questions of fact remained about whether seller's actions prevented buyer from obtaining final subdivision approval. Hence, neither party was entitled to summary judgment on buyer's claim for specific performance.

COMMENT

Simply specifying a closing date in a contract of sale for real estate is insufficient to render time of the essence but case law suggests that either party may make time of the essence by providing notice that is clear, distinct, and unequivocal. Moreover, the notice need not use the words 'time is of the essence.' Thus, in Zev v. Merman, 134 A.D.2d 555, the court held that because seller's notice contained a closing date and warned that failure to abide by that date would result in default, seller's notice to purchaser was sufficiently clear, distinct, and unequivocal to make time of the essence. In that case, purchaser argued that seller's letter purporting to make time of the essence was insufficient because it did not contain the terms 'time is of the essence.' In rejecting the purchaser's argument, the court held that seller's notice need not specifically state that time was of the essence so long as it contained a closing date and warned that failure to abide by that date would result in default. The warning that failure to perform by the specified date will constitute default is critical. Thus, in Karamatzanis v. Cohen, 181 A.D.2d 618 the court also applied the rule that notice must contain a date by which closing must take place and warn of default for non-compliance with that date. In that case, however, the court held that seller's notice was insufficient where it referred to a date by which closing was to take place but did not unequivocally state that failure to comply would result in default.

Notice making time of the essence must also allow a reasonable time period for the other party to perform. A party may not unilaterally make time of the essence, inform the opposing party of that fact, and simultaneously declare that party to be in default. Thus, in Levine v. Sarbello, 112 A.D.2d 197 (1989), the court held invalid that seller's notice to purchaser on the day of the closing purporting to make time of the essence and to hold purchaser in default was invalid. In that case, two days before the scheduled closing, purchaser's attorney notified seller's attorney two days prior to the closing date that purchaser did not have sufficient funds to consummate the purchase and requested an adjournment of five to six weeks. Seller's attorney responded with a letter stating that sellers would only agree to a reasonable adjournment of approximately two weeks and that purchaser's request was not reasonable. After purchaser failed to appear on the closing date, the seller's attorney sent a letter to purchaser the same day indicating that seller considered purchaser in default and refused to return the deposit. In rejecting seller's claim, the court reasoned that the seller's attempt to render time of the essence on the closing date while simultaneously declaring purchaser to be in default was invalid because it did not allow a reasonable time for purchaser to perform.

Courts are more likely to find a time period 'reasonable' when the party making time of the essence has already granted extensions of time. For example, in Liba Estates v Edryn Corp., 178 A.D.2d 152 (1991), the Appellate Division First Department held that seller's notice extending the closing date for a period of 21 days gave purchaser a reasonable amount of time to perform, especially because seller had granted. The court explained that seller gave notice after granting purchaser several adjournments of the original closing date. and, thus, 21 days constituted sufficient time for the purchaser to perform. Similarly, the court in 76 North Associates v. Theil Management Corp., 132 A.D.2d 695 (1987), held that 32 days constituted a reasonable amount of time for purchaser to perform after seller had already granted purchaser. In that case, purchaser requested an additional 90-day adjournment after initially being granted a two month adjournment of the closing date. Seller responded with a 32-day extension and made time of the essence. The court held that 32 days was a reasonable amount of time for purchaser to obtain the funds necessary to consummate the deal in light of the fact that the contract stated that this was to be an all cash deal and seller had already extended the closing date a period of two months prior to serving the notice.

 

Deed Language Does Not Establish Equal Division of Co-Owned Property

Cheslow v. Huttner

NYLJ 11/8/06, p. 22, col. 1

Supreme Ct., N.Y. Cty

(Richter, J.)

In an action for partition and sale of a single-family town house, plaintiff co-tenant sought summary judgment. The court granted the motion in part, but ordered a hearing to determine how the sale proceeds should be divided.

The two co-tenants, Cheslow and Huttner, filed for a certificate of domestic partnership in 2003, and bought the subject town house later that year for several million dollars. The deed conveys the property to the two co-tenants as 'tenants in common, a one-half undivided interest to each.' The relationship between the parties deteriorated, and as a result of the animosity between them, it became impossible for them to live together in the town house. Co-tenant Cheslow moved out and then brought this action for partition and sale. She contended that no hearing was necessary with respect to division of the proceeds because the deed establishes that the co-tenants each have a one-half interest in the property. Co-tenant Huttner contended, however, that the sale proceeds should not be divided equally because she paid the bulk of the down payment and all renovation costs, and also has made almost all of the mortgage, tax and insurance payments.

In ordering a hearing, the court rejected Cheslow's contention that the deed language conclusively established that the sale proceeds should be divided equally. The court noted that partition is an equitable proceeding, and indicated that a variety of factors should be considered in dividing the proceeds, including the respective contributions of the parties, their relationship, and whether Huttner had intended to make a gift to Cheslow when she agreed to deed language giving Cheslow a one-half interest in the town house.

 

Money Damages Adequate Remedy for Blocked Easement By Necessity

Hossain v. A to Z Properties

NYLJ 11/2/06, p. 23, col. 3

Supreme Ct., Kings Cty

(Saitta, J.)

In an action by landlocked owner to prevent neighboring owners from blocking access from the landlocked parcel to the street, landlocked owner sought a preliminary injunction. The court denied the preliminary injunction, holding that no easement ran across some of defendants' land, and with respect to the parcel over which landlocked owner had established an easement by necessity, landlocked owner might be limited to money damages as a remedy.

The subject landlocked parcel is an interior lot in Brooklyn that does not front on any street. At various points, access to the parcel has been available over a number of neighboring lots, some of which were in common ownership with the interior lot. Landlocked owner initially sought to establish an easement by necessity over lot 58, but subsequently amended the complaint to seek a similar easement over lot 45. Because the court concluded that the transaction that landlocked the interior parcel was a sale of lot 45 in 2000, the court concluded that landlocked owner could not establish an easement by necessity over lot 58.

With respect to lot 45, the court held that landlocked owner had established the requisites for an easement by necessity. In particular, the court noted that subsequent purchasers of lot 45 were on inquiry notice of the easement because it was open and obvious that an interior lot would require access to the street. But the court also noted that a building had been built on lot 45 since its severance from the landlocked parcel, and injunctive relief would require destruction of the building. Moreover, the court noted that a building could not be built on the interior lot because applicable zoning ordinances required street frontage. As a result, the court held that the appropriate remedy for landlocked owner was not an injunction, but rather money damages measured by the difference between the value of the property with and without the easement.

Time Not of the Essence

ADC Orange Inc. v. Coyote Acres Inc.

NYLJ 10/20/06, p. 23, col. 1

Court of Appeals

(Opinion by Rosenblatt, J.)

In an action by buyer for specific performance of a land sale contract, buyer appealed from the Appellate Division's order awarding summary judgment to seller. The Court of Appeals modified, holding that buyer's late payment did not constitute a material breach of the contract, but that issues of fact required a trial on buyer's entitlement to specific performance.

Buyer contracted to purchase the subject property for $600,000. The contract required a down payment of $100,000, and a second payment of $250,000 upon the later of preliminary subdivision approval or Dec. 31, 2001, 'but in no event later than [Dec.] 31, 2001.' The contract also conditioned sale upon buyer's success in obtaining final subdivision approval by June 30, 2002. On Dec. 26, 2001, seller sent buyer a fax reminding buyer that the contract required a payment by Dec. 31. On Dec. 31, buyer's lawyer replied by fax, indicating that buyer's principal was out of the country but would transfer the funds upon his return on Jan. 14. On Jan. 10, seller's lawyer wrote buyer's lawyer informing him that seller considered buyer in default. Buyer immediately sent a check for $250,000 and insisted that the delay in payment did not constitute default because the contract included no 'time is of the essence' provision. The parties continued to negotiate, but when the negotiations stalled, buyer brought this action for specific performance of the contract. Seller raised two affirmative defenses: first, buyer's default in payment entitled seller to keep the $100,000 down payment, and second, buyer's failure to obtain final subdivision approval by June 30, 2002 terminated any obligation by seller to perform. Supreme Court awarded summary judgment to buyer and ordered specific performance. The Appellate Division reversed, concluding that buyer's late payment constituted material breach entitling seller to keep the down payment. Buyer appealed.

In concluding that seller was not entitled to summary judgment, the Court of Appeals started by noting that whether late payment constituted material breach depended on whether time was of the essence with respect to the payment. The court noted that the contract did not explicitly make time of the essence, and concluded that the language requiring payment 'in no event later than Dec. 31, 2001' was not sufficient to make time of the essence. The court acknowledged that in some circumstances, a party can make time of the essence even when the contract includes no 'time is of the essence' provision, but held that in this case, seller's Dec. 26 fax was not sufficient to make time of the essence. As a result, the court concluded that buyer's late payment did not constitute material breach. The court also held, however, that buyer had not established that it was ready, willing, and able to perform the contract because it had not obtained final subdivision approval by June 30, 2002. But the court concluded that questions of fact remained about whether seller's actions prevented buyer from obtaining final subdivision approval. Hence, neither party was entitled to summary judgment on buyer's claim for specific performance.

COMMENT

Simply specifying a closing date in a contract of sale for real estate is insufficient to render time of the essence but case law suggests that either party may make time of the essence by providing notice that is clear, distinct, and unequivocal. Moreover, the notice need not use the words 'time is of the essence.' Thus, in Zev v. Merman, 134 A.D.2d 555, the court held that because seller's notice contained a closing date and warned that failure to abide by that date would result in default, seller's notice to purchaser was sufficiently clear, distinct, and unequivocal to make time of the essence. In that case, purchaser argued that seller's letter purporting to make time of the essence was insufficient because it did not contain the terms 'time is of the essence.' In rejecting the purchaser's argument, the court held that seller's notice need not specifically state that time was of the essence so long as it contained a closing date and warned that failure to abide by that date would result in default. The warning that failure to perform by the specified date will constitute default is critical. Thus, in Karamatzanis v. Cohen , 181 A.D.2d 618 the court also applied the rule that notice must contain a date by which closing must take place and warn of default for non-compliance with that date. In that case, however, the court held that seller's notice was insufficient where it referred to a date by which closing was to take place but did not unequivocally state that failure to comply would result in default.

Notice making time of the essence must also allow a reasonable time period for the other party to perform. A party may not unilaterally make time of the essence, inform the opposing party of that fact, and simultaneously declare that party to be in default. Thus, in Levine v. Sarbello, 112 A.D.2d 197 (1989), the court held invalid that seller's notice to purchaser on the day of the closing purporting to make time of the essence and to hold purchaser in default was invalid. In that case, two days before the scheduled closing, purchaser's attorney notified seller's attorney two days prior to the closing date that purchaser did not have sufficient funds to consummate the purchase and requested an adjournment of five to six weeks. Seller's attorney responded with a letter stating that sellers would only agree to a reasonable adjournment of approximately two weeks and that purchaser's request was not reasonable. After purchaser failed to appear on the closing date, the seller's attorney sent a letter to purchaser the same day indicating that seller considered purchaser in default and refused to return the deposit. In rejecting seller's claim, the court reasoned that the seller's attempt to render time of the essence on the closing date while simultaneously declaring purchaser to be in default was invalid because it did not allow a reasonable time for purchaser to perform.

Courts are more likely to find a time period 'reasonable' when the party making time of the essence has already granted extensions of time. For example, in Liba Estates v Edryn Corp., 178 A.D.2d 152 (1991), the Appellate Division First Department held that seller's notice extending the closing date for a period of 21 days gave purchaser a reasonable amount of time to perform, especially because seller had granted. The court explained that seller gave notice after granting purchaser several adjournments of the original closing date. and, thus, 21 days constituted sufficient time for the purchaser to perform. Similarly, the court in 76 North Associates v. Theil Management Corp. , 132 A.D.2d 695 (1987), held that 32 days constituted a reasonable amount of time for purchaser to perform after seller had already granted purchaser. In that case, purchaser requested an additional 90-day adjournment after initially being granted a two month adjournment of the closing date. Seller responded with a 32-day extension and made time of the essence. The court held that 32 days was a reasonable amount of time for purchaser to obtain the funds necessary to consummate the deal in light of the fact that the contract stated that this was to be an all cash deal and seller had already extended the closing date a period of two months prior to serving the notice.

 

Deed Language Does Not Establish Equal Division of Co-Owned Property

Cheslow v. Huttner

NYLJ 11/8/06, p. 22, col. 1

Supreme Ct., N.Y. Cty

(Richter, J.)

In an action for partition and sale of a single-family town house, plaintiff co-tenant sought summary judgment. The court granted the motion in part, but ordered a hearing to determine how the sale proceeds should be divided.

The two co-tenants, Cheslow and Huttner, filed for a certificate of domestic partnership in 2003, and bought the subject town house later that year for several million dollars. The deed conveys the property to the two co-tenants as 'tenants in common, a one-half undivided interest to each.' The relationship between the parties deteriorated, and as a result of the animosity between them, it became impossible for them to live together in the town house. Co-tenant Cheslow moved out and then brought this action for partition and sale. She contended that no hearing was necessary with respect to division of the proceeds because the deed establishes that the co-tenants each have a one-half interest in the property. Co-tenant Huttner contended, however, that the sale proceeds should not be divided equally because she paid the bulk of the down payment and all renovation costs, and also has made almost all of the mortgage, tax and insurance payments.

In ordering a hearing, the court rejected Cheslow's contention that the deed language conclusively established that the sale proceeds should be divided equally. The court noted that partition is an equitable proceeding, and indicated that a variety of factors should be considered in dividing the proceeds, including the respective contributions of the parties, their relationship, and whether Huttner had intended to make a gift to Cheslow when she agreed to deed language giving Cheslow a one-half interest in the town house.

 

Money Damages Adequate Remedy for Blocked Easement By Necessity

Hossain v. A to Z Properties

NYLJ 11/2/06, p. 23, col. 3

Supreme Ct., Kings Cty

(Saitta, J.)

In an action by landlocked owner to prevent neighboring owners from blocking access from the landlocked parcel to the street, landlocked owner sought a preliminary injunction. The court denied the preliminary injunction, holding that no easement ran across some of defendants' land, and with respect to the parcel over which landlocked owner had established an easement by necessity, landlocked owner might be limited to money damages as a remedy.

The subject landlocked parcel is an interior lot in Brooklyn that does not front on any street. At various points, access to the parcel has been available over a number of neighboring lots, some of which were in common ownership with the interior lot. Landlocked owner initially sought to establish an easement by necessity over lot 58, but subsequently amended the complaint to seek a similar easement over lot 45. Because the court concluded that the transaction that landlocked the interior parcel was a sale of lot 45 in 2000, the court concluded that landlocked owner could not establish an easement by necessity over lot 58.

With respect to lot 45, the court held that landlocked owner had established the requisites for an easement by necessity. In particular, the court noted that subsequent purchasers of lot 45 were on inquiry notice of the easement because it was open and obvious that an interior lot would require access to the street. But the court also noted that a building had been built on lot 45 since its severance from the landlocked parcel, and injunctive relief would require destruction of the building. Moreover, the court noted that a building could not be built on the interior lot because applicable zoning ordinances required street frontage. As a result, the court held that the appropriate remedy for landlocked owner was not an injunction, but rather money damages measured by the difference between the value of the property with and without the easement.