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The Second Department Holds That Specific Performance Is Not Available When Seller Cancels Contract Due To Buyer’s Failure To Timely Obtain Government Approvals As Required By The Contract

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  • Posted on: Mar 19 2021

The nature of the equitable remedy of specific performance as related to litigation concerning real estate contracts has been explained by this BLOG [here] and also addressed, inter alia, [here] and [here].  Suffice it to say, specific performance is an equitable remedy requiring the breaching party to perform under a contract and is frequently awarded in situations where the subject matter of a contract is unique – making an award of money damages inadequate.  Sokoloff v. Harriman Estates, 96 N.Y.2d 409 (2001).  It is generally accepted that “the equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique.”  Alba v. Kaufman, 27 A.D.3d 816, 818 (3rd Dep’t 2006) (citations and internal quotation marks omitted).

On March 17, 2021, the Second Department decided B&A Realty Management, LLC v. Gloria, a case in which the buyer sought to enforce a real estate contract.  Defendant seller owned undeveloped property in Upstate New York and, in 2014 contracted to sell same to plaintiff buyer.  Pursuant to the contract, purchaser had two years from the end of a 90-day due diligence period to obtain all necessary governmental approvals for the contemplated development project.  “Paragraph 7(b) of the agreement conferred on either party the right to cancel the agreement if all necessary approvals were not obtained [within the time-frame set forth in the agreement (the “Time-frame”)].”  The Time-frame expired on October 1, 2017.

While “most” governmental approvals were obtained within the Time-frame, all were not.  Accordingly, on September 28, 2017, buyer’s counsel wrote to seller’s counsel to advise that the final approvals were expected within 60 to 90 days.  However, on October 2, 2017, defendant cancelled the contract pursuant its cancellation provisions and directed his counsel to return the down payment to the plaintiff.  “In response, by letter dated October 3, 2017, [buyer] declared time to be of the essence, waived the contractual contingency of obtaining all governmental approvals, and stated that it was ready, willing, and able to close.”

Buyer commenced an action for specific performance and moved for a preliminary injunction.  Seller’s cross-motion to dismiss the complaint was granted by supreme court and buyer’s motion for a preliminary injunction was denied and the decision was affirmed by the Second Department.

The Court found that the complaint should be dismissed pursuant to CPLR 3211(a)(1) because the contract “clearly and unambiguously provided that ‘Seller or Purchaser may terminate this Agreement’ if ‘Purchaser has not satisfied this contingency to secure the governmental approvals by the end of the [Time-frame] as extended.’”  (Some brackets omitted some added.)  Relying on W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157 (1990), the Court noted that “the issue of whether or not a writing is ambiguous is a question of law to be resolved by the courts, and a clear and complete writing will be enforced according to its terms.”  The Court further noted that:

Contract language which is clear and unambiguous must be enforced according to its terms (see [W.W.W.] at 162). Where, as here, a condition in a real estate contract relating to government approval expressly grants to the seller the right to cancel the contract in the event that the requisite approval is not obtained, the seller may properly exercise its right to terminate the contract if such approval is not timely obtained (see B.S.P. Dev. Corp. v Orphan Asylum Socy. of City of Brooklyn, 165 AD2d 850; Oak Bee Corp. v Blankman & Co., 154 AD2d 3, 7). However, the seller may, orally or by its conduct, waive its contractual right to cancel the contract (see Ehrenpreis v Klein, 260 AD2d 532; Dellicarri v Hirschfeld, 210 AD2d 584; Kaufman v Haverstraw Rd. Lands, 158 AD2d 675).

As it was undisputed that purchaser failed to timely obtain all necessary governmental approvals, the Court “agree[d] with Supreme Court that the [seller] properly cancelled the agreement on October 2, 2017, in accordance with paragraph 7(b) thereof.”  The Court further found that buyer “did not allege any words or conduct of the [seller] reflecting an intent to waive his contractual right to cancel the agreement.”  

The Court also rejected buyer’s argument that it could “unilaterally waive the governmental approval contingency in the contract” because “that contingency was not inserted solely for its benefit.”  (Citations omitted.) 

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