Metropolitan Transp. Authority v. Bruken Realty Corp.

• Decision Date: 01 April 1986
• Citation: 492 N.E.2d 379,67 N.Y.2d 156,501 N.Y.S.2d 306
• Parties: , 492 N.E.2d 379 METROPOLITAN TRANSPORTATION AUTHORITY et al., Appellants, v. BRUKEN REALTY CORPORATION et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 306

501 N.Y.S.2d 306

67 N.Y.2d 156, 492 N.E.2d 379

METROPOLITAN TRANSPORTATION AUTHORITY et al., Appellants, v. BRUKEN REALTY CORPORATION et al., Respondents.

Court of Appeals of New York.

April 1, 1986.

Max R. Shulman and Robert N. Feltoon, New York City, for appellants.

Patricia M. Hynes and Jeremy Heisler, New York City, for Bruken Realty Corp., respondent.

OPINION OF THE COURT

SIMONS, Judge.

In 1966 the State of New York, acting through the Metropolitan Commuter Transportation Authority (now plaintiff Metropolitan Transportation Authority [MTA] ) bought all the capital stock of plaintiff Long Island Railroad from the Pennsylvania Railroad for $65 million. Included among the assets acquired were 65 acres of real property in Queens which had been used by the Long Island Railroad as a freight yard. As part of the consideration, to reduce the purchase price, the State conveyed air rights above this property to Delbay Corporation, a subsidiary of Pennsylvania, together with an easement permitting it to erect columns, piers or foundations and to install utility services necessary to support and service improvements within the air rights. It also executed an "option agreement" granting Delbay the right to purchase 12 lots in the freight yard at market value if MTA subsequently determined that the property was "no longer necessary for [its] transportation operations". The option expired if Delbay, or its successors or assigns, did not exercise it within 99 years. The issue presented on this appeal is whether that option agreement violated the prohibition against remote vesting stated in New York's Rule against Perpetuities (see, EPTL 9-1.1[b] ).

On April 16, 1982 MTA notified Delbay that it no longer required six of the lots and that Delbay could acquire them. Delbay thereafter assigned its right to two of the lots to a real estate developer, defendant Bruken Realty Corporation, and Bruken, by letter dated July 13, 1982, notified MTA of its election to purchase them. Although the original agreement provided for arbitration of the market value, the parties agreed to attempt to negotiate the price after obtaining separate appraisals. The air rights conveyed to Delbay had since been acquired by the City of New York in a tax foreclosure proceeding, however, and, with the air rights and the ground rights in separate ownership, the parties were unable to reach agreement. Accordingly, they selected arbitrators and submitted the determination of market value to them. Before hearings could start, plaintiffs instituted this action requesting that the court enjoin the arbitration proceeding and declare that the conveyance to Delbay of the right to acquire the freight yard lots was void. Plaintiffs subsequently moved for summary judgment and Supreme Court denied the motion on alternative legal grounds (125 Misc.2d 497, 479 N.Y.S.2d 646). The Appellate Division affirmed, without opinion, 112 A.D.2d 508, 492 N.Y.S.2d 508, and the matter is before us on a certified question by its leave. We now affirm.

I

The rules limiting the right of owners to indefinitely control title to property developed because of the natural antagonism between society's interest in promoting the free and ready transfer of property and the desire of property owners to control the future disposition of their holdings. Originally intended to restrict family dispositions, usually dispositions by royalty or the landed gentry, the rules have antecedents as old as any known to the common law. Their purpose is to ensure the productive use and development of property by its current beneficial owners by simplifying ownership, facilitating exchange and freeing property from unknown or embarrassing impediments to alienability (see, De Peyster v. Michael, 6 N.Y. 467, 494). The rules are legal prohibitions, based on the public policy of the State. They may not be waived, as could rules enacted for the benefit of the parties alone. When an owner attempts to exert control over the transferability of his property for too long a time, the courts will step in, invalidate the restricting provisions, and permit transfer to take effect uninhibited by the restraint.

In New York an owner's power to dispose of property is limited by three rules. The first two, known as the Rule against Perpetuities, are found in subdivisions (a) and (b) of EPTL 9-1.1. The Rule declares that no estate in property shall be valid (1) if the instrument conveying it suspends the power of alienation for a period longer than lives in being at the creation of the estate plus 21 years and (2) unless it must vest, if at all, before expiration of the same period. Although the statutory period is lives in being plus 21 years, in this case the parties to the agreement were corporations and, inasmuch as no measuring life or lives were stated in the instruments, the permissible period is 21 years (see, Rohan, Practice Commentary, McKinney's Cons.Laws of N.Y., Book 17B, EPTL 9-1.1, 1986 Cum.Ann.Pocket Part, p. 213; see also, Matter of Griffin, 45 App.Div. 102, 107, 61 N.Y.S. 139, revd. on other grounds 167 N.Y. 71, 60 N.E. 284). The third rule regulating dispositions is established by common law and invalidates conveyances which impose unreasonable restraints on alienation.

The statutory rule prohibiting remote vesting and the common-law rule against unreasonable restraints serve the same general purpose by limiting the power of an owner to create uncertain future estates. The statutory rule does so indirectly by limiting the time when future interests must vest. The rule against unreasonable restraints on alienation does so directly by forbidding owners to impose conditions on conveyances which block the grantee from freely disposing of the property. While the statutory rule is inflexible, measured solely by the passage of time, the common-law rule is applied by considering the reasonableness of the restraint. Whether a restraint on the disposition of property is unreasonable is a question of fact depending upon its purpose, duration and, where applicable, the designated method for fixing the purchase price (see, Allen v. Biltmore Tissue Corp., 2 N.Y.2d 534, 161 N.Y.S.2d 418, 141 N.E.2d 812; see also, Ann., 40 ALR 3d 920, 926). It is generally said that the reason for the common-law rule is that ownership of property cannot exist in one person and the right of alienation in another (De Peyster v. Michael, 6 N.Y. 467, 492-494, supra; Witt v. Disque, 79 A.D.2d 419, 425, 436 N.Y.S.2d 890), but the same general policy concerns underlying the rule against perpetuities also favor a rule against unreasonable restraints.

II

Plaintiff contends that the State's agreement gave Delbay an option to buy the freight yard lots, that options are subject to the rule against remote vesting under the holding of Buffalo Seminary v. McCarthy, 86 A.D.2d 435, 451 N.Y.S.2d 457, affd. on opn. below 58 N.Y.2d 867, 460 N.Y.S.2d 528, 447 N.E.2d 76) and that since Delbay's option might not be exercised within the statutory period, it is void. Whether the provision is void or not requires a determination first of the nature of the interest created--whether it is an option or, as Bruken claims, a preemptive right--and, second, if it is a preemptive right, whether the rule applies to it.

Preliminarily, it is clear that before enactment of EPTL 9-1.1 in 1965 Bruken's right to acquire the lots, whatever its nature, would not be invalid under the New York laws governing perpetuities. We so held in Matter of City of New York (Upper N.Y. Bay), 246 N.Y. 1, 29-30, 157 N.E. 911; see also, Buffalo Seminary v. McCarthy, supra, 86 A.D.2d pp. 440-443, 451 N.Y.S.2d 457; 5A Powell, Real Property p 792[6], at 704-705). In 1965, however, the New York Legislature revised the statute, intending by the amendment to incorporate into New York law the American common-law rules governing perpetuities (see, 1965 N.Y.Legis.Ann., at 206-207; Buffalo Seminary v. McCarthy, supra, p. 442, 451 N.Y.S.2d 457). Although American jurisdictions were divided on the question (see, 5A Powell, Real Property p 792[6], at 704-705; Pre-emptive Rights to Realty as Violation of Rule against Perpetuities or Rule Concerning Restraints on Alienation, Ann., 40 A.L.R.3d 920), we affirmed the Appellate Division's decision in Buffalo Seminary (supra) on the opinion of Justice Hancock, as he then was, and held that an unlimited option in gross, i.e., an option to buy another's property not joined with any other interest in the property, violated the rule against remote vesting and was therefore void. Preemptive rights differ significantly from options, however, and we have not yet decided whether they are subject to that rule.

A

The right acquired by Delbay, though called an option by the parties, was a preemptive right to buy the freight yard property. An option grants to the holder the power to compel the owner of property to sell it whether the owner is willing to part with ownership or not. A preemptive right, or right of first refusal, does not give its holder the power to compel an unwilling owner to sell; it merely requires the owner, when and if he decides to sell, to offer the property first to the party holding the preemptive right so that he may meet a third-party offer or buy the property at some other price set by a previously stipulated method (see, Garcia v. Callender, 125 N.Y. 307, 311, 26 N.E. 283; 5A Powell, Real Property p 771[1], at 72-68). Once the owner decides to sell the property, the holder of the preemptive right may choose to buy it or not, but the choice exists only after he receives an offer from the owner. If the holder decides not to buy, then the owner may sell to anyone (see generally, 6 American Law of Property § 26.64, at 507 [Casner ed. 1952]; 1A Corbin, Contracts § 261; Ann., 40 A.L.R.3d 920, 924).

The instrument invalidated in Buffalo Seminary (supra) was an option. It granted the holder an unlimited right to buy the owner's land...