Development

Supreme Ct., N.Y. Cty.

(Bransten, J.)

In an action by developer for breach of a contract to sell air rights, seller moved to dismiss the complaint and developer sought a preliminary injunction. The court denied the motion to dismiss and granted a preliminary injunction preventing seller from selling or encumbering the air rights, rejecting seller's claims that the contract's best efforts clause was void and that the contract itself violated the Rule Against Perpetuities.

Developer plans to create a mixed-use residential and retail complex on property it owns along 10th Avenue and 28th Street in Manhattan. The project requires developer to acquire additional air rights. After negotiations, developer contracted in March 2012 to buy air rights currently associated with seller's adjacent real estate for $4.6 million. Developer paid a $460,000 down payment. Because seller's parcel is encumbered with a mortgage held by JP Morgan Chase, the contract required seller to obtain a waiver and subordination for JP Morgan within 30 days of the execution of the mortgage. Additionally, the contract required seller to use its “best efforts to obtain the Waiver,” and gave developer the right to seek the waiver if seller was unable to obtain it. The contract also gave developer the right to extend the waiver contingency period and the closing date in its sole discretion in order to permit developer to obtain the waiver. Seller contended that JP Morgan demanded a prepayment penalty of $1.8 million in exchange for the waiver. Developer contended that after seller rejected JP Morgan's demand, seller interfered with developer's contract right to attempt to obtain the waiver. Although developer invoked its right to extend the waiver contingency period, seller sent developer a notice of termination of the contract. Developer then brought this action for breach, seeking specific performance and damages, and also seeking an injunction. Seller moved to dismiss the complaint.

In denying seller's motion to dismiss, the court rejected seller's argument that the best efforts clause in the contract is void because it contains no objective criteria or guidelines against which its efforts can be measured. The court concluded that if the contract itself is ambiguous about the criteria to be used, the court could turn to extrinsic evidence for guidance. Because the precise meaning of the best-efforts provision would be a fact issue, dismissal of the complaint was inappropriate. The court then turned to, and rejected, seller's argument that the contract was invalid under the Rule Against Perpetuities because it permitted the seller to extend the closing date indefinitely. The court invoked EPTL section 9-1.3(d), the statute's savings clause, and held that it should be presumed that the contingency in this case ' whether the parties will obtain the waiver and close ' will be resolved within 21 years. Finally, the court held that developer was entitled to a preliminary injunction against sale or encumbrance of the air rights, emphasizing that developer would suffer irreparable harm if the rights were sold because replacement air rights are not readily available on the market.

ZBA Made Inadequate Efforts to Accommodate Religious Use

Matter of Tabernacle of Victory Pentacostal Church v. Weiss

NYLJ 12/7/12, p. 26, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In a church's article 78 proceeding challenging denial of a special permit and area variance, the church appealed from Supreme Court's dismissal of the proceeding. The Appellate Division reversed and granted the petition, holding that the zoning board of appeals (ZBA) had made inadequate effort to accommodate the religious use.

The parcel owned by the church is split zoned; the front is located in a business district, while the rear is in a residential district. The parcel has no off-street parking. The church sought a special permit to allow religious services to be conducted on the premises, and a variance from the off-street parking requirement. The ZBA denied the application, and Supreme Court dismissed the church's article 78 proceeding.

In reversing, the Appellate Division emphasized that a specially permitted use, unlike a use requiring a variance, is a use that is presumptively consistent with the zoning ordinance. The court also noted that a ZBA must accord religious uses greater flexibility than other uses in the application of the zoning ordinance. In particular, the ZBA is required to suggest measures to accommodate the religious use while mitigating any adverse effects of that use. In this case, the church itself had proposed conditions that would mitigate harm to the neighborhood, and the ZBA had made no proposals of its own. As a result, the court remanded to the board with a direction to grant the special permit and area variance under conditions that would allow the proposed use, while mitigating effects on the surrounding neighborhood.

Clause Requiring Best Efforts to Obtain Waiver From Mortgagee Held Enforceable

Maestro West Chelsea SPE LLC v. Pradera Realty Inc.

NYLJ 11/6/12

Supreme Ct., N.Y. Cty.

(Bransten, J.)

In an action by developer for breach of a contract to sell air rights, seller moved to dismiss the complaint and developer sought a preliminary injunction. The court denied the motion to dismiss and granted a preliminary injunction preventing seller from selling or encumbering the air rights, rejecting seller's claims that the contract's best efforts clause was void and that the contract itself violated the Rule Against Perpetuities.

Developer plans to create a mixed-use residential and retail complex on property it owns along 10th Avenue and 28th Street in Manhattan. The project requires developer to acquire additional air rights. After negotiations, developer contracted in March 2012 to buy air rights currently associated with seller's adjacent real estate for $4.6 million. Developer paid a $460,000 down payment. Because seller's parcel is encumbered with a mortgage held by JP Morgan Chase, the contract required seller to obtain a waiver and subordination for JP Morgan within 30 days of the execution of the mortgage. Additionally, the contract required seller to use its “best efforts to obtain the Waiver,” and gave developer the right to seek the waiver if seller was unable to obtain it. The contract also gave developer the right to extend the waiver contingency period and the closing date in its sole discretion in order to permit developer to obtain the waiver. Seller contended that JP Morgan demanded a prepayment penalty of $1.8 million in exchange for the waiver. Developer contended that after seller rejected JP Morgan's demand, seller interfered with developer's contract right to attempt to obtain the waiver. Although developer invoked its right to extend the waiver contingency period, seller sent developer a notice of termination of the contract. Developer then brought this action for breach, seeking specific performance and damages, and also seeking an injunction. Seller moved to dismiss the complaint.

In denying seller's motion to dismiss, the court rejected seller's argument that the best efforts clause in the contract is void because it contains no objective criteria or guidelines against which its efforts can be measured. The court concluded that if the contract itself is ambiguous about the criteria to be used, the court could turn to extrinsic evidence for guidance. Because the precise meaning of the best-efforts provision would be a fact issue, dismissal of the complaint was inappropriate. The court then turned to, and rejected, seller's argument that the contract was invalid under the Rule Against Perpetuities because it permitted the seller to extend the closing date indefinitely. The court invoked EPTL section 9-1.3(d), the statute's savings clause, and held that it should be presumed that the contingency in this case ' whether the parties will obtain the waiver and close ' will be resolved within 21 years. Finally, the court held that developer was entitled to a preliminary injunction against sale or encumbrance of the air rights, emphasizing that developer would suffer irreparable harm if the rights were sold because replacement air rights are not readily available on the market.

ZBA Made Inadequate Efforts to Accommodate Religious Use

Matter of Tabernacle of Victory Pentacostal Church v. Weiss

NYLJ 12/7/12, p. 26, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In a church's article 78 proceeding challenging denial of a special permit and area variance, the church appealed from Supreme Court's dismissal of the proceeding. The Appellate Division reversed and granted the petition, holding that the zoning board of appeals (ZBA) had made inadequate effort to accommodate the religious use.

The parcel owned by the church is split zoned; the front is located in a business district, while the rear is in a residential district. The parcel has no off-street parking. The church sought a special permit to allow religious services to be conducted on the premises, and a variance from the off-street parking requirement. The ZBA denied the application, and Supreme Court dismissed the church's article 78 proceeding.

In reversing, the Appellate Division emphasized that a specially permitted use, unlike a use requiring a variance, is a use that is presumptively consistent with the zoning ordinance. The court also noted that a ZBA must accord religious uses greater flexibility than other uses in the application of the zoning ordinance. In particular, the ZBA is required to suggest measures to accommodate the religious use while mitigating any adverse effects of that use. In this case, the church itself had proposed conditions that would mitigate harm to the neighborhood, and the ZBA had made no proposals of its own. As a result, the court remanded to the board with a direction to grant the special permit and area variance under conditions that would allow the proposed use, while mitigating effects on the surrounding neighborhood.