If you sign a contract to purchase real estate, and the seller turns around and announces that he or she does not plan to honor that agreement, this is known legal terms as an “anticipatory breach.” Once such an anticipatory breach occurs, you are generally relieved of any further obligation to perform under the agreement. A New York appeals court recently examined a different formulation of this issue: Namely, whether an anticipatory breach occurs when one party to a real property sale sues the other prior to the closing date specified in the agreement.
Buyer's Lawsuit Comes Back to Bite
The underlying subject of this dispute is a 23-acre parcel of undeveloped land in Staten Island. For many years, the property was classified as a toxic waste site by New York State authorities. After performing extensive remediation work, the property owner decided to sell the property.
In 2004, a buyer signed a contract to purchase the property for approximately $35 million and provided a down payment of just under $1.9 million. The closing was conditioned on the seller obtaining all necessary approvals from New York City to begin development on the land. The closing date was 30 days following such approval, but no later than an “outside closing date” of 18 months from the signing of the contract.
Nature intervened in 2005 in the form of Hurricane Katrina, which did additional damage to the property. State officials said additional remediation was necessary, which necessarily extended the time for obtaining development approval. Based on this new information, the buyer and seller signed an amended contract in 2006, which among other things set a new outside closing date for July 2007 and increased the buyer's down payment to around $4 million. This closing date was pushed back several more times by the parties to July 2008.
However, about a month before this final closing date, the buyer sued the seller in Manhattan Supreme Court. The buyer claimed it was misled into signing the 2006 amendments due to the seller's misrepresentations. The buyer therefore asked the court to nullify the 2006 amendment and restore the terms of the original 2004 contract.
Not only did the courts reject the buyer's lawsuit, they ultimately agreed with the seller that by even bringing such a complaint prior to the final closing date, the buyer committed an “anticipatory breach” The Appellate Division, First Department, noted this was not a lawsuit designed to clarify the parties' rights under the contract, but instead an attempt to “nullify the agreement entirely.” That made it an anticipatory breach, which in turn relieved the seller of any further duty to perform under the agreement.