Anderson v. 50 East 72nd Street Condominium

• Decision Date: 25 June 1985
• Citation: Anderson v. 50 East 72nd Street Condominium, 492 N.Y.S.2d 989, 129 Misc.2d 295 (N.Y. Sup. Ct. 1985)
• Parties: Thomas B. ANDERSON and Marc P. Schappell, Plaintiffs, v. 50 EAST 72ND STREET CONDOMINIUM, 50 East 72nd Street Associates, Everett R. Cook, David S. Solomon, Victoria M. McHugh Murphy and Patrick O. Murphy, Defendants.
• Court: New York Supreme Court

Page 989

492 N.Y.S.2d 989

129 Misc.2d 295

Thomas B. ANDERSON and Marc P. Schappell, Plaintiffs, v. 50 EAST 72ND STREET CONDOMINIUM, 50 East 72nd Street Associates, Everett R. Cook, David S. Solomon Victoria M. McHugh Murphy and Patrick O Murphy, Defendants.

Supreme Court, Special Term New York County, Part I.

June 25, 1985.

Smith, Steibel, Alexander & Saskor, P.C., New York City, for defendants Victoria M. McHugh Murphy and Patrick O. Murphy.

Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for plaintiffs.

Kellner, Chehebar & Deveney, New York City, for defendants.

EUGENE R. WOLIN, Justice:

Defendants Victoria Murphy and Patrick Murphy are the owners of a condominium unit in premises located at 50 East 72nd Street, New York, New York. Both the offering plan and the by-laws for the condominium provide that in the event an owner of a unit wishes to sell the unit, the Board of Managers (the Board) of the condominium, on behalf of all other unit owners, or its designee must first be given an opportunity to purchase the unit at the same price and on the same terms as offered by the proposed purchaser. The Board must exercise this right within thirty (30) days of notification of an offer to purchase the unit. Pursuant to the deed and the purchase agreement for the unit, the declaration and the by-laws of the condominium are deemed to be incorporated into those documents and are to constitute covenants running with the land. The deed also provides that the covenants are binding upon "any person having at any time any interest or estate in the unit...."

On or about February 8, 1985 plaintiffs entered into a written agreement with the Murphys for the purchase of their condominium unit. The plaintiffs concede that they were informed of the provision in the by-laws giving the Board a right of first refusal. The contract of sale also required the Murphys to seek an "early determination" as to whether the Board intended to exercise its right of first refusal. Plaintiffs proceeded to obtain the necessary financing and a closing date was set for May 25, 1985. In or about the first week of May, 1985, the Murphys formally notified the Board of the purchase price and the terms of the proposed sale. Thereafter at the next regularly scheduled meeting, the Board decided to exercise its right of first refusal and designated another unit owner to purchase the unit at the same price and terms offered by the plaintiffs. The plaintiffs have commenced this action seeking specific performance of their contract of sale. The matter is now before the court on the motion of plaintiffs for an order enjoining the defendants, pendente lite, from selling the condominium unit to anyone other than plaintiffs.

On the motion, plaintiffs have advanced two arguments; that the Murphys have breached the contract by their failure to obtain an early determination from the Board with respect to its decision to exercise its right of first refusal; and that in any event the right of first refusal is void and unenforceable because it violates the rule against perpetuities (EPTL § 9-1.1(b)).

Pursuant to Section 339-g of the Real Property Law, each condominium unit "together with its common interest, shall for all purposes constitute real property." Thus it is argued that the right of first refusal at issue is an interest in real property which may vest beyond the permissible period (EPTL 9-1.1(b)). In Buffalo Seminary v. McCarthy, 86 A.D.2d 435, 451 N.Y.S.2d 457 affd. 58 N.Y.2d 867, 460 N.Y.S.2d 528, 447 N.E.2d 76, the Appellate Division held that an unlimited purchase option created a contingent equitable estate (86 A.D.2d 435, 443 n. 6, 451 N.Y.S.2d 457) and thus was subject to the rule against perpetuities. This analysis was adopted by the Court of Appeals which affirmed for the reasons stated by the Appellate Division. Thus there is support for the position taken by the plaintiffs. However, an analysis of the policy considerations underlying the rule against perpetuities as well as a review of decisions of other jurisdictions which have considered the issue, persuades the court that a mechanical application of the rule against perpetuities to a right of first refusal which is contained in condominium by-laws would be ill-advised.

The present statute (EPTL 9-1.1(b)) is a codification of the common law rule prohibiting remoteness in vesting. The public policy rationale for the rule was the need to avoid fettering real property with future interests dependent upon contingencies unduly remote which isolate the property and exclude it from commerce and beneficial development (Weber v. Texas Co., 83 F.2d 807 cert. den. 299 U.S. 561, 57 S.Ct. 23, 81 L.Ed. 413). Because of the contingent nature of these interests in property, the primary application of the rule against perpetuities is to options and future interests involving indirect restraints on alienation (Witt v. Disque, 79 A.D.2d 419, 436 N.Y.S.2d 890; Robroy Land Co. v. Prather, 95 Wash.2d 66, 622 P.2d 367). Direct restraints on the free transferability of vested interests in property, e.g., provisions in a deed forbidding alienation by the grantee, are subject to a different analysis. In this area the courts have fashioned the rule against restraint on alienation (Matter of City of New York (Upper N.Y. Bay), 246 N.Y. 1, 157 N.E. 911; Witt v. Disque, 79 A.D.2d 419, 436 N.Y.S.2d 890, supra ) which has not been codified. In determining the validity of the direct restraint involved the court must apply the test of reasonableness (Allen v. Biltmore Tissue Corp., 2 N.Y.2d 534, 161 N.Y.S.2d 418, 141 N.E.2d 812; Rowlee v. Dietrich, 88 A.D.2d 751, 451 N.Y.S.2d 467; Witt v. Disque, 79 A.D.2d 419, 436 N.Y.S.2d 890, supra; Metropolitan Transp. Auth. v. Bruken Realty Corp., 125 Misc.2d 497, 479 N.Y.S.2d 646). A reasonable restraint will therefore be upheld. However, within these broad conceptual parameters difficulties arise. An option which creates a contingent estate may present such a slight interference with the free alienability of property that an automatic application of the rule against perpetuities would in essence be contrary to the purpose of the rule. In that event the court should not mechanically apply the rule against perpetuities but should evaluate the nature of the particular restraint with respect to the purpose for which it was intended and the policies behind the rule against perpetuities and then subject the restraint to the test of reasonableness to determine its validity (Metropolitan Transp. Auth. v. Bruken Realty Corp., 125 Misc.2d 497, 505, 479 N.Y.S.2d 646, supra; The Cambridge Co. v. East Slope Investment Corp., 700 P.2d 537).

An option in gross, i.e., an option to purchase property is subject to the rule against perpetuities (Buffalo Seminary v. McCarthy, 86 A.D.2d 435, 451 N.Y.S.2d 457 affd. 58 N.Y.2d 867, 460 N.Y.S.2d 528, 447 N.E.2d 76, supra; Neustadt v. Pearce, 145 Conn. 403, 143 A.2d 437; Restatement, Property, Vol. IV § 413; Powell, Real Property, Vol. 4B, par. 633.14(2)). The right of first refusal at issue here can be classified as a preemptive option and would therefore be subject to the rule to prevent remoteness in vesting (but see,Metropolitan Transportation Auth. v. Bruken Realty Corp., 125 Misc.2d 497, 505, 479 N.Y.S.2d 646, supra ). However there is a substantive distinction between an unlimited option which gives the option holder the right to compel a sale of the property, and a preemptive option which merely allows the option holder to purchase the property at the same price and on the same terms which the property owner has already found acceptable. The preemptive option may only be exercised when the property owner has decided to sell and its practical effect is to provide an additional, albeit preferred, purchaser. While the exercise of the option may disrupt the plans of a third party purchaser, the option itself does not present a significant restraint on the power of the property owner to convey a fee interest in the property. Nor will the existence of the option be a deterrent to the beneficial use or improvement of the property. The cost of the improvements will be recovered in a sale of the unit to either a third par...