Cooperatives & Condominiums

Vague Purchase Contract
Bohensky v. 3912 Rainspring, LLC
NYLJ 3/3/17, p. 37, col. 4
AppDiv, Second Dept.
(memorandum opinion)
In an action to foreclose a mortgage on a condominium unit, the unit's occupants appealed from Supreme Court's order striking their affirmative defense alleging that mortgagee was not a bona fide encumbrancer. The Appellate Division affirmed, holding that although occupants' possession placed mortgagee on inquiry notice, inquiry would have revealed that occupants had no claim to the subject unit.

In 2008, Kenner, a member of 3912 Rainspring, the sponsor of the condominium complex, executed a note to mortgagee, secured by a mortgage on unit A-3, located at a specified street address. Occupants had been in possession of the apartment since November 2007. When, in 2013, mortgagee brought this action to foreclose on the mortgage, occupants contended that their rights were superior to those of the mortgagee, relying on a contract they had signed with 3912 Rainspring before taking possession. Supreme Court awarded summary judgment to mortgagee, and occupants appealed.

In affirming, the Appellate Division conceded that, even though the occupants had not recorded any instrument giving them title to the unit, their possession served as notice to the world of any right the occupants were able to establish. But the court then held that occupants could establish no right to the unit They had never received a deed to the unit, and the purchase contract on which they relied did not satisfy the statute of frauds because it did not provide a street address for unit A-3, did not set forth the time or terms of payment, the required financing, the closing date, the quality of title to be conveyed, or the risk of loss during the sale period. Moreover, the court held that the partial performance exception to the statute of frauds was not applicable because the payments made by occupants were not unequivocally referable to the agreement between the parties.

COMMENT

To satisfy the statute of frauds, a real estate purchase agreement must adequately designate the parties, identify and describe the subject matter, and state all of the “essential terms” of a complete agreement so that one reading it can understand what the agreement is. A contract that omits essential terms nevertheless satisfies the statute of frauds if the contract provides a mechanism for ascertaining the content of those terms. For instance, the contract in Marder's Nurseries, Inc. v. Hopping, 171 A.D.2d 63, did not include a purchase price, but it set forth a cognizable formula by which the price could have been reasonably ascertained (“fair market value”), and a mechanism for determining fair market value (arbitration). As a result, the contract was not so indefinite as to render the contract void. Id. Furthermore, the potential need for third-party intervention should not be considered fatal to an agreement. In 166 Mamaroneck Ave. Corp., 78 N.Y.2d 88, the Court of Appeals held a lease renewal option enforceable even though the option provided that an essential term of the contract — the renewal rent — would be left to an arbitrator. The court held that conferring power to make a final determination on a third party is an intention to commit to and be bound by the third party's determination. Id.

By contrast, an agreement does not satisfy the statute of frauds if it neglects to include an essential term that cannot be implied by law or otherwise ascertained. A contract is not enforceable if, for example, a material element of the contract is left to future negotiations. Thus, in Ashkenazi v. Kelly, 157 A.D.2d 578, the purchaser was not entitled to enforce a sale contract that explicitly required the parties to agree to the purchase price in the future.

Restrictions on Rentals and Pets
Olszewski v. Cannon Point Association, Inc.
2017 WL 923125, 3/9/17
App Div, Third Dept.
(Egan, J.)
In condominium owners' combined article 78 proceeding and action seeking a declaration that rental restrictions are unenforceable and seeking to enjoin enforcement of those restrictions, the homeowners' association appealed from Supreme Court's grant of unit owners' summary judgment motion. The Appellate Division affirmed, holding that the homeowners' association had exceeded its authority.

Owners' units are in a condominium community consisting of two 24-unit condominium associations and a homeowners' association. Each association is governed by a declaration and a set of bylaws. The homeowners' association managed the community's common areas. In 2014, the homeowners' association board of directors advised all condominium owners that the board had unanimously approved a set of house rules and regulations that prohibited rentals for periods less than two weeks, barred all renters from access to the community's club house, precluded tenants who rented units for less than 30 days from having guests or pets on the property, and imposed a rental fee and an administrative fee on all owners who rented their units.

Unit owners brought this combined action and proceeding to challenge the 2014 regulations as inconsistent with the condominium association's bylaws, which provided that any home “may be conveyed or leased by its … [o]wner free of any restrictions.” Supreme Court awarded summary judgment to unit owners and the homeowners' association appealed.
In affirming, the Appellate Division acknowledged that the bylaws of each or the three associations included provisions entitling the association to “make reasonable rules and regulations” and to amend those rules and regulations. But the court held that this rulemaking power was limited by the express language in the bylaws barring restrictions on sale or rental of units. The association was entitled to make rules governing rentals, but only to the extent the rules did not conflict with the bylaws. The court closed by noting that if members of the board were concerned about short-term rentals, they could amend the bylaws to deal with the problem.

Vague Purchase Contract
Bohensky v. 3912 Rainspring, LLC
NYLJ 3/3/17, p. 37, col. 4
AppDiv, Second Dept.
(memorandum opinion)
In an action to foreclose a mortgage on a condominium unit, the unit's occupants appealed from Supreme Court's order striking their affirmative defense alleging that mortgagee was not a bona fide encumbrancer. The Appellate Division affirmed, holding that although occupants' possession placed mortgagee on inquiry notice, inquiry would have revealed that occupants had no claim to the subject unit.

In 2008, Kenner, a member of 3912 Rainspring, the sponsor of the condominium complex, executed a note to mortgagee, secured by a mortgage on unit A-3, located at a specified street address. Occupants had been in possession of the apartment since November 2007. When, in 2013, mortgagee brought this action to foreclose on the mortgage, occupants contended that their rights were superior to those of the mortgagee, relying on a contract they had signed with 3912 Rainspring before taking possession. Supreme Court awarded summary judgment to mortgagee, and occupants appealed.

In affirming, the Appellate Division conceded that, even though the occupants had not recorded any instrument giving them title to the unit, their possession served as notice to the world of any right the occupants were able to establish. But the court then held that occupants could establish no right to the unit They had never received a deed to the unit, and the purchase contract on which they relied did not satisfy the statute of frauds because it did not provide a street address for unit A-3, did not set forth the time or terms of payment, the required financing, the closing date, the quality of title to be conveyed, or the risk of loss during the sale period. Moreover, the court held that the partial performance exception to the statute of frauds was not applicable because the payments made by occupants were not unequivocally referable to the agreement between the parties.

COMMENT

To satisfy the statute of frauds, a real estate purchase agreement must adequately designate the parties, identify and describe the subject matter, and state all of the “essential terms” of a complete agreement so that one reading it can understand what the agreement is. A contract that omits essential terms nevertheless satisfies the statute of frauds if the contract provides a mechanism for ascertaining the content of those terms. For instance, the contract in Marder's Nurseries, Inc. v. Hopping, 171 A.D.2d 63, did not include a purchase price, but it set forth a cognizable formula by which the price could have been reasonably ascertained (“fair market value”), and a mechanism for determining fair market value (arbitration). As a result, the contract was not so indefinite as to render the contract void. Id. Furthermore, the potential need for third-party intervention should not be considered fatal to an agreement. In 166 Mamaroneck Ave. Corp., 78 N.Y.2d 88, the Court of Appeals held a lease renewal option enforceable even though the option provided that an essential term of the contract — the renewal rent — would be left to an arbitrator. The court held that conferring power to make a final determination on a third party is an intention to commit to and be bound by the third party's determination. Id.

By contrast, an agreement does not satisfy the statute of frauds if it neglects to include an essential term that cannot be implied by law or otherwise ascertained. A contract is not enforceable if, for example, a material element of the contract is left to future negotiations. Thus, in Ashkenazi v. Kelly, 157 A.D.2d 578, the purchaser was not entitled to enforce a sale contract that explicitly required the parties to agree to the purchase price in the future .

Restrictions on Rentals and Pets
Olszewski v. Cannon Point Association, Inc.
2017 WL 923125, 3/9/17
App Div, Third Dept.
(Egan, J.)
In condominium owners' combined article 78 proceeding and action seeking a declaration that rental restrictions are unenforceable and seeking to enjoin enforcement of those restrictions, the homeowners' association appealed from Supreme Court's grant of unit owners' summary judgment motion. The Appellate Division affirmed, holding that the homeowners' association had exceeded its authority.

Owners' units are in a condominium community consisting of two 24-unit condominium associations and a homeowners' association. Each association is governed by a declaration and a set of bylaws. The homeowners' association managed the community's common areas. In 2014, the homeowners' association board of directors advised all condominium owners that the board had unanimously approved a set of house rules and regulations that prohibited rentals for periods less than two weeks, barred all renters from access to the community's club house, precluded tenants who rented units for less than 30 days from having guests or pets on the property, and imposed a rental fee and an administrative fee on all owners who rented their units.

Unit owners brought this combined action and proceeding to challenge the 2014 regulations as inconsistent with the condominium association's bylaws, which provided that any home “may be conveyed or leased by its … [o]wner free of any restrictions.” Supreme Court awarded summary judgment to unit owners and the homeowners' association appealed.
In affirming, the Appellate Division acknowledged that the bylaws of each or the three associations included provisions entitling the association to “make reasonable rules and regulations” and to amend those rules and regulations. But the court held that this rulemaking power was limited by the express language in the bylaws barring restrictions on sale or rental of units. The association was entitled to make rules governing rentals, but only to the extent the rules did not conflict with the bylaws. The court closed by noting that if members of the board were concerned about short-term rentals, they could amend the bylaws to deal with the problem.