Uncooperative Tenants and Specific Performance of a Contract for the Sale of Real Estate
Print Article- Posted on: Aug 9 2024
As noted in prior BLOG articles, specific performance is an equitable remedy used to compel a party to perform under a contract. McGinnis v. Cowhey, 24 A.D.3d 629 (2nd Dep’t 2005). The remedy is frequently used to enforce rights under a real estate contract, where monetary damages are typically insufficient to make the non-breaching party whole due to the uniqueness of real property. EMF General Contracting Corp. v. Bisbee, 6 A.D.3d 45 (1st Dep’t 2004). This BLOG has discussed specific performance on numerous occasions. See, e.g., [here], [here], [here], [here], [here] and [here].
In January of 2021, this BLOG [here] discussed W Equities Acquisitions, LLC v. Wyckoff Heights Properties, LLC, 190 A.D.3d 881 (2nd Dep’t 2021). W Equities involved a real estate sales contract. The seller could not deliver the premises free of all tenancies due to two tenants that refused to execute surrender agreements despite generous financial and other incentives. This presented a “title defect” beyond the seller’s control. Consistent with the provisions of the contract, because title could not be delivered seller offered “[purchaser] the choice of either accepting such title as the [seller] was able to convey, with a credit no greater than the maximum amount specified in the contract, or terminating the contract with a refund of the down payment and reimbursement of the net cost of title examination.” W. Equities, 190 A.D.3d at 882. Because the seller complied with the terms of the contract, the purchaser’s insistence on closing and its action for specific performance was unsuccessful.
The Second Department, on August 7, 2024, decided Special Corp. v. 3RF, LLC. Special is an action much like W. Equities, and, accordingly, the Court relied heavily on W. Equities in rendering its decision. The plaintiff in Special entered into a contract to purchase a $3,000,000 building from the defendant and, upon signing, made a $200,000 down payment. Among other provisions, the contract provided that if the seller:
shall be unable (as opposed to unwilling) to convey title to the Premises at the Closing in accordance with the provisions of this Agreement, Purchaser, nevertheless, may elect to accept such title as Seller may be able to convey without any credit against the monies payable at the Closing or liability on the part of Seller. If Purchaser shall not so elect, Purchaser may terminate this Agreement, which termination shall be subject to the provisions of §13.06. Seller shall not be required to bring any action or proceeding or to incur any expense in excess [$10,000]to cure any title defect.
The contract also limited the purchaser’s remedies to the cancellation of the contract and the return of the down payment. The seller represented that accurate lease information regarding all tenants was provided to the purchaser and that it would deliver to the purchaser, lease modifications and estoppel letters from each tenant. One tenant refused to deliver the requested documents and, accordingly, the seller was unable to deliver to the purchaser clean title to the premises. It was also noted that a rider extending the term of the hold-out tenant’s tenancy, was not provided to the purchaser until after the execution of the contract.
Relying on the undisclosed rider, the purchaser requested a reduction in the purchase price. The seller responded by offering three solutions to the purchaser: (1) a return of the security deposit and cancellation of the contract; (2) an offer to spend up to $10,000 to convince the holdout tenant to deliver the requested documents; or, (3) a $20,000 reduction of the purchase price. The purchaser viewed the seller’s inability to convey title as an “anticipatory breach” and threatened to commence an action for specific performance of the contract and seek an abatement of the purchase price. [Eds. Note: this BLOG has previously addressed anticipatory breach. See, e.g., [here] and [here]. The seller viewed the purchaser’s rejection of the contract terms as a termination of the contract.
The purchaser commenced an action for specific performance and an abatement of the purchase price. The seller, in its answer, asserted a counterclaim to retain the down payment. Thereafter, the motion court granted the seller’s motion for summary judgment and dismissed the purchaser’s complaint and awarded the seller judgment on its counterclaim. The Second Department affirmed. In dismissing the purchaser’s complaint, the Court stated that:
the record reflects that, because the [purchaser] refused to accept title to the building with the title defects, and because the [purchaser] failed to agree to allow the [seller] to further negotiate with the holdout tenant, its sole remaining remedy pursuant to [the contract] was to terminate the contract. Pursuant to [the contract], the only relief available to the [purchaser] upon termination of the contract was a return of its down payment. Contractually, the [purchaser] was not entitled to specific performance or an abatement in the contract price.
Further, the Court found that the motion court properly granted summary judgment to the seller on its counterclaim because the seller “acted within its rights pursuant to [the contract], and it is the [purchaser] —not the [seller] —that breached the contract by failing to elect one of the remedies offered to it by the [seller] pursuant to [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.
