No Contract for Sale of $45mm Apt. Bldg. Without Seller Signature

On Friday, the Appellate Division issued an unpublished decision that concluded a seven-year legal battle over whether or not a contract existed for the purchase of a $45,000,000 apartment building.  The case emanated from a 2011 negotiation and bidding process where the defendant owner accepted the plaintiff’s offer to purchase the property for forty-five million dollars, but never signed a written contract.  Defendant’s basis for not signing was that it desired to avoid an extremely large capital gains tax obligation and therefore insisted that it first secure a suitable 1031 exchange property before signing the contract.  After months without signature, plaintiff initiated litigation arguing that a valid, enforceable contract existed. 

The plaintiff alleged claims of breach of contract, breach of the implied covenant of good-faith and fair-dealing, promissory estoppel and fraud.  After five years of litigation in the trial court, all of the claims were dismissed and a two-year appeal process followed.  On February 14, 2019, the Appellate Division affirmed the trial court’s dismissal of all claims.  

While the court acknowledged that in certain circumstances the Statute of Frauds permits enforcement of an oral agreement for the sale of real property, it found that such was not the case in these particular circumstances.  Despite there being what the trial court described as an “avalanche of correspondence”, the court nevertheless found that there was no legally-enforceable contract in the absence of the defendant’s signature.  The court referenced that throughout months of communications regarding the formal written contract, there were frequent statements that the communications were, "not contractually binding on the parties," were, "only an expression of the basic terms and conditions to be incorporated into a formal written agreement, " that, "the parties shall not be contractually bound unless and until they execute a form of contract which contract shall be in form and content satisfactory to each party and its counsel in their sole discretion," and that "[n]either party may rely on this letter as creating any legal obligation of any kind."  This decision should serve as a reminder to purchasers of real property that any due diligence or other actions taken prior to a seller signing a contract are done so at their own risk.  Until the there is a fully-executed contract, there will likely be no legally-enforceable contract except in limited circumstances.  (SDK Troy Towers, LLC v. Troy Towers, Inc.)