Second Department Finds Triable Issue of Fact as to the Question of Seller’s Oral Waiver of Time of the Essence Closing Date in Real Estate Contract
Print Article- Posted on: May 19 2023
By Jonathan H. Freiberger
The question of when parties must close title on a real estate transaction is often answered by another question – has either party sent a “time of the essence” letter? [Eds. Note: this Blog has previously addressed “time of the essence” letters [here].]
The law is settled that when “a contract for the sale of real property does not make time of the essence, the law permits a reasonable time in which to tender performance, regardless of whether the contract designates a specific date for performance.” Revital Realty Group, LLC v. Ulano Corp., 112 A.D.3d 902, 904 (2nd Dep’t 2013) (citations omitted); see also Lashley v. BDL Real Estate Dev. Corp., 212 A.D.3d 800, 800-01 (2nd Dep’t 2023). “A party need not state specifically that time is of the essence, as long as the notice specifies a time on which to close and warns that failure to close on that date will result in default.” Point Holding, LLC v. Crittenden, 119 A.D.3d 918, 920 (2nd Dep’t 2014) (citation omitted).
The reasonableness of the time of performance “depends upon the facts and circumstances of the particular case.” Ben Zev v. Merman, 73 N.Y.2d 781, 783 (1988) (citation omitted); see also Lee v. Robertson, 165 A.D.3d 639,.640 (2nd Dep’t 2018). Factors to be considered in making a “reasonableness” determination include “the nature and object of the contract, the previous conduct of the parties, the presence or absence of good faith, the experience of the parties and the possibility of prejudice or hardship to either one, as well as the specific number of days provided for performance.” Id. (citations omitted). “‘The determination of reasonableness must by its very nature be determined on a case-by-case basis.’” Rodrigeus NBA, LLC v. Allied XV, LLC, 164 A.D.3d 1388, 1389 (2nd Dep’t 2018) (quoting Ben Zev, 73 N.Y.2d at 783).
If a time of the essence letter does not “clearly and unambiguously set a specific date for the closing” a party to a real estate contract cannot be held in default for failing to close. Krishna v. Jasper Old Westbury 66 LLC, 175 A.D.3d 600, 602 (2nd Dep’t 2019) (citations omitted). In Krishna, after purchaser failed to obtain financing within the time set forth in the contract, the seller sent a purported time of the essence letter providing that “‘a closing has been scheduled for December 19, 2016, at 2:00 p.m.,’ and that ‘[u]nless this transaction is closed by the end of business day on December 15, 2016, Purchaser will be held in default of the Contract.’” (Emphasis in original.) Supreme court denied purchaser’s motion for summary judgment seeking the return of the down payment and granted seller’s cross-motion permitting it to retain the down payment. The Second Department reversed; finding that purchaser could not be held in default for failing to appear at closing because the date for closing in seller’s time of the essence letter was not clear.
On May 17, 2023, the Appellate Division, Second Department, decided LG723 v. Royal Dev., Inc., a case addressing time of the essence letters. In LG723, seller and purchaser executed a contract for the sale/purchase of real property that set a closing date but did not make that date time of the essence. Purchaser failed to appear at the closing date set forth in the contract. On April 11, 2019, seller’s counsel sent a time of the essence letter scheduling a closing for May 15, 2019, and advising that buyer would be held in default if it failed to appear. Purchaser averred (in the subsequently filed complaint) that, after receiving the time of the essence letter, purchaser’s managing member “had a telephone conversation with the [seller]’s president who assured [purchaser] that the [purchaser] would not be held in default if it failed to appear for the closing on May 15, 2019.” Purchaser failed to appear at the closing on May 15, 2019, and, later that day, seller’s attorney sent a letter to purchaser’s attorney stating that “the closing had taken place as scheduled, the [purchaser] had defaulted, the [purchaser]’s deposit was being retained as liquidated damages, and the contract was deemed terminated.”
Thereafter, purchaser commenced an action for, inter alia, specific performance of the real estate contract. [Eds. Note: this Blog addressed specific performance of real estate contracts [here], [here], [here], [here] and [here].] After seller interposed an answer, but before any discovery had taken place, seller moved for summary judgment on the specific performance cause of action. Purchaser opposed the motion by reiterating the averment in the complaint that it was told by seller’s president that purchaser would not be defaulted if it failed to appear for the May 15 closing. Purchaser appealed supreme court’s grant of summary judgment in favor of seller.
The Second Department reversed. After discussing the general law on time of the essence letters, the Court noted that seller’s April 11, 2019, letter satisfied all of the requirements “by unequivocally setting May 15, 2019, as the closing date, expressly stating that time was of the essence, and advising the plaintiff that if it failed to appear for the closing on that date, it would be deemed in default of the contract of sale and the down payment would be retained by the defendant.” However, the Court, relying on the “well settled” law that “oral waiver of the time for the sale of real property will be given effect,” stated:
[purchaser]’s assertion, made under the penalties of perjury, that [it] was assured by the [seller]’s president that the [purchaser] would not be held in default in the event that it failed to close the transaction on May 15, 2019, was sufficient to raise a triable issue of fact as to whether the [seller]’s president made a statement to [purchaser] that operated as a waiver of the [seller]’s right to enforce the May 15, 2019 deadline for the closing. Contrary to the [seller]’s contention, in order for such a waiver to occur, it was not necessary that the April 2019 letter be withdrawn in a formal communication from the [seller]’s attorney. A waiver of the right to timely performance under a contract “need not be in writing in order to be valid and enforceable” (Kistela v Ahlers, 22 AD3d 641, 643). Such a waiver may occur even without an oral statement, such as the one that was allegedly made in this case, and may instead be inferred solely from a party’s conduct (see Chaves v Kornfeld, 83 AD3d 522, 523).
Accordingly, the Court found that supreme court should have denied seller’s motion for summary judgment because there were triable issues of fact “as to whether the [seller] waived the deadline for closing the transaction, and thus whether the [seller] had a right to declare the [purchaser] in default and to terminate the contract.”
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
