Was “Right” Barred by New York EPTL Rule Against Perpetuities?
In a declaratory judgment action, pursuant to Real Property Actions and Proceedings Law Article 15, Max Protetch sought to compel JOCAR Realty Co., Inc. to complete the sale of real property pursuant to an option provision of a purchase agreement. Realty moved to dismiss Protetch’s complaint, asserting that documentary evidence clearly established a defense as a matter of law; the claims were time-barred; and failure to state a cause of action.
On February 19, 1993, Protetch and Realty entered into a purchase agreement for two residential condominium units, Unit 5SF and Unit 5SR, at 262 Mott Street, New York, NY. On June 4, 1993, the purchase agreement was modified because Unit 5SR was occupied by a residential tenant (Richard Keene), pursuant to Article 7C of the Multiple Dwelling Law. Since Realty could not deliver the unit vacant, the purchase agreement was modified to state in relevant part:
Paragraph 26 of the Purchase Agreement states: This Purchase Agreement, together with the Plan, as the Plan may be amended from time to time, constitutes the entire agreement between the parties as to the subject matter hereof and supersedes all prior understandings and agreements.
Paragraph 7 of the Rider to the Purchase Agreement states: Upon the Closing, the Seller shall deliver the Units to the Purchaser vacant, free of all occupants or tenants, and the rights of any tenants or other persons in and to the Units.
Paragraph 8A of the Rider to the Purchase Agreement states: As Seller is unable to deliver vacant possession of Unit 5SR at the closing hereof, the Purchaser shall only purchase Unit 5SF and the purchase price hereunder shall be reduced to $153,123.15; the percentage interest in the common elements shall be reduced to .012429%; the amount of the purchase price to be financed shall be $141,500.00; and the Purchaser shall have the option to purchase Unit 5SR at the time the seller shall be able to deliver vacant possession thereof on all of the same terms and conditions as contained herein, except for the following terms and conditions:
a. The purchase price for Unit 5SR shall be $176,876.85; and
b. The amount of the purchase price to be financed shall be $141,500.00; and
c. The percentage interest in the common elements shall be .014357. [emphasis added]
On April 12, 2006, Realty purported to convey fee title to Unit 5SR to one of its principals, Joseph A. Chinnici. No consideration was paid for the conveyance. Upon his death, the unit was conveyed to STATE5SR, also for no consideration.
During that time, Keene continued to live in the Unit but died in September 2021. On September 16, 2021, Protetch’s attorney notified Realty that Protetch elected to exercise the option and demanded STATE5SR, as the purported fee owner, to close the sale to Protetch pursuant to the terms of the purchase agreement. Realty refused and this lawsuit ensued.
Realty moved to dismiss Protetch’s complaint on the grounds that the purchase agreement option was barred by New York’s rule against perpetuities, pursuant to Estates, Powers and Trusts Law § 9-1.1 and was time barred by CPLR 213.
EPTL 9-1.1(a), commonly referred to as the rule against perpetuities, sets forth the suspension of alienation rule and deems void any estate in which the conveying instrument suspends the absolute power of alienation for longer than lives in being at the creation of the estate, plus 21 years. Under the statutory rule against remote vesting, an interest is invalid ‘unless it must vest, if at all, not later than twenty-one years after one or more lives in being. That is, an interest is void from the outset if it may vest too remotely.
There was no dispute as to the authenticity of the purchase agreement and Protetch and Realty stipulated that the purchase agreement with rider represented the complete agreement between the parties, the contract qualified as “documentary evidence” .
Under the terms of the purchase agreement, the option vested and must be exercised at the time Realty was able to deliver vacant possession of the unit. Protetch argued that, since the unit was occupied by Keene at the time the option was created and Keene was the apparent holder of the possessory interest to be extinguished in order for Realty to be able to obtain and convey vacant possession, it was indisputable that Keene was a ‘life in being’ for the purpose of applying EPTL 9-1.1 to the option. However, Protetch did not cite to any case law that allowed the Court to simply re-write the contractual terms of the purchase agreement to include Keene as a measuring life. And the Court could not by construction add or excise terms, nor distort the meaning of those used and thereby ‘make a new contract for the parties under the guise of interpreting the writing’. An option such as the one here, containing no limitation in duration, demonstrated the parties’ intent that it last indefinitely,. And EPTL 9-1.3, the “saving statute”, did not permit an extensive rewriting of the option agreement so as to make it conform to the permissible period.
Where an option agreement contains no limitation on duration nor words suggesting that the parties intended the extent of its life to be anything other than indefinite, the agreement violates the rule against remoteness in vesting. Without a measuring life or any temporal limitation, the option violated the New York state rule against perpetuities. EPTL 9-1.3 (d) provides that where vesting requires “any specified contingency, it shall be presumed that the creator of such estate intended such contingency to occur, if at all, within twenty-one years from the effective date of the instrument creating such estate.” Here, the option was contingent on the vacancy of the unit, an event that was not certain to occur within 21 years of the purchase agreement. And, in fact, vacancy of the unit did not occur within the statutory period of the rule against perpetuities. As such, no option existed or was available to Protetch. raised by defendants.
Realty’s motion to dismiss Protetch’s complaint was granted.