Law School Case Brief
Symphony Space v. Pergola Props. - 88 N.Y.2d 466, 646 N.Y.S.2d 641, 669 N.E.2d 799 (1996)
New York's current statutory Rule against Perpetuities is found in N.Y. Est. Powers & Trusts Law § 9-1.1. N.Y. Est. Powers & Trusts Law § 9-1.1(a) 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. N.Y. Est. Powers & Trusts Law § 9-1.1(a)(2). The prohibition against remote vesting is contained in N.Y. Est. Powers & Trusts Law § 9-1.1(b).
An options to purchase commercial property is not exempt from the prohibition against remote vesting embodied in New York's Rule against Perpetuities.
In 1978, Broadwest Realty Corporation (Broadwest) owned a building, which housed a theater and commercial space. Broadwest had been unable to secure a permanent tenant for the theater, of which approximately 58% of the total square footage of the building's floor space. Broadwest also owned two adjacent properties, Pomander Walk (a residential complex) and the Healy Building (a commercial building). Broadwest had been operating its properties at a net loss. Plaintiff Symphony Space (Symphony), a not-for-profit entity devoted to the arts, had previously rented the theater for several one-night engagements. In 1978, Symphony and Broadwest engaged in a transaction where Broadwest sold the entire building to Symphony for the below-market price of $10,010 and leased back the income-producing commercial property, excluding the theater, for $1 per year. Broadwest maintained liability for the existing $243,000 mortgage on the property as well as certain maintenance obligations. As a condition of the sale, Symphony, for consideration of $10, also granted Broadwest an option to repurchase the entire building. The purpose of structuring this transaction with the option to repurchase the building was to grant Symphony time to acquire a tax exemption as a non-profit, which is ultimately did obtain.
In the summer of 1981, Broadwest sold and assigned its interest under the lease, option agreement, mortgage and mortgage note, as well as its ownership interest in the contiguous Pomander Walk and Healy Building, to defendants' nominee for $ 4.8 million. The nominee contemporaneously transferred its rights under these agreements to defendants Pergola Properties, Inc., Bradford N. Swett, Casandium Limited and Darenth Consultants as tenants in common.
Due to Symphony's alleged default on the mortgage note, defendant Swett served Symphony Space with notice in January 1985 that it was exercising the repurchase option on behalf of all defendants. Symphony initiated a declaratory judgment action against defendants, arguing that the option agreement violated the New York statutory prohibition against remote vesting and clogged its equity of redemption under the mortgage. The lower courts found that the commercial option was unenforceable under the Rule against Perpetuities and that rescission was inappropriate.
Did the lower courts err in finding the commercial option unenforceable under the Rule against Perpetuities?
The Court held that New York's current statutory Rule against Perpetuities, codified in N.Y. Est. Powers & Trusts Law § 9-1.1, applied to commercial options to purchase real property. Thus, it explained that because an exception for commercial options finds no support in our law, we decline to exempt all commercial option agreements from the statutory Rule against Perpetuities. The Court further held that the option could not qualify as an option appurtenant and significantly deterred development of the property. The Court found plain language of the instrument indicated that the option could potentially be exercised more than 24 years after its creation, which was more than the 21 years permitted under § 9-1.1. The saving statute, N.Y. Est. Powers & Trusts Law § 9-1.3, mandated that unless a contrary intention appeared, it should be presumed that the creator intended the estate to be valid. Given the contrary intention manifested in the instrument itself, § 9-1.3 was inapplicable. The Court found that the remedy of recission could not be applied because there was an irreconcilable conflict in applying a remedy that was designed to void a transaction because it failed to carry out the parties' true intent to a transaction in which the mistake made by the parties was the application of the Rule against Perpetuities, the purpose of which was to defeat the intent of the parties.
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