Page 9 - The Suffolk Lawyer - May 2021 - Vol. 36, No. 3
P. 9

REAL ESTATE DEVELOPMENT • SPECIAL SECTION • REAL ESTATE DEVELOPMENT



              What Are Your Damages Now That Your Real Property Sale Fell Through?

                                                                       By Jarrett M. Behar, Esq.

                 n any real property purchase and sale
                 transaction, there is always the danger
            I that the transaction may fall through.
            Although  the  relevant  agreements  usually
            provide for the loss of a down payment in
            the event of a purchaser’s default and for
            specific performance in the event of a seller’s
            default,  there  are  certainly  circumstances
            where there is no such clause or where it
            may not apply.  In such a case, what is the
            proper measure of damages?
               Typically, a clear and unambiguous con-
            tractual  clause  limiting  damages  in  a  real
            property contract to the forfeiture of a down
            payment or some other specified sum is en-
            forceable absent a special relationship be-
            tween the parties, a statutory prohibition or
            an overriding public policy.   However, when
            the seller of the property fails to perform in
            bad faith or willfully disregards the contract,
            such a clause may not apply.   Moreover, the
            contractual provision must explicitly provide
            that it is a general limitation on liability.
               Thus, in the absence of such a clause or
            where it is rendered inapplicable, the proper
            measure of damages was established by the
            Court of Appeals in White v. Farrell.   In that
            case, the sellers of the real property at issue
            ended up selling the property at a discount
            after the purchasers failed to close.  The sell-
            ers claimed that their measure of damages
            should be the difference between the origi-
            nal contract price and the subsequent lower
            sale price.
               The Court of Appeals rejected that argu-
            ment and instead held that the appropriate
            measure of damages where there is no liq-
            uidated damages provision is the difference      mortgage interest, real estate taxes, repair    contract price as of the date of the breach.
            between the contract price and the market        costs, utilities, for example – are proximately  All of those factors will inform the measure
            value  of  the  property  at  the  time  of  the  caused by the breach.   In the commercial of  damages  available  to  the  performing
            breach, if any.   While a subsequent sale may    context, however, the developer will incur      party.
            be evidence of the market value of the prop-     costs that will reduce its profit margin and
            erty, many factors, including the passage of     that do not provide value to the developer
            time, will affect its relevance.  The import of  because the developer does not use or oc-
            this decision is that in the absence of a liqui-  cupy the property.   As a result, in absence
            dated damages provision, if the market value     of a contractual provision limiting liability,
            of the property is the same or higher as the     consequential damages may be available to
            contract price at the time of the purchaser’s    a  real  property  developer  where  the  pur-
            breach, the seller might not be entitled to      chaser has breached the contract and failed
            any damages.                                     to close.                                                   Jarrett M. Behar
               Another question that arises is whether          Ultimately, the first place to look when                   Partner, Certilman, Balin,
            the seller might be entitled to consequential    determining what damages are available in                       Adler & Hyman, LLP
            damages.  Here, the difference between the       the event that one party to a real property         Jarrett practices in the areas of commercial
            sale of residential and commercial real estate   transaction is in breach is the contract.  The      litigation, real estate development and con-
            becomes important.  Typically, consequential     next step is to consider whether the breach-        struction law. He is a Director of  the Suffolk
            damages are not available to a seller of res-    ing party has acted in bad faith.  Finally, in      County Bar Association, an Officer and Asso-
            idential real estate because the seller retains  the absence of a liquidated damages provi-          ciate Dean of the Suffolk Academy of Law and
                                                                                                                 the  Vice-President  of  the  Commack  Union
            use and enjoyment of the property and it         sion, it must be determined if the market           Free School District Board of Education. Con-
            cannot  be  said  that  the  resulting  costs  --  value of the property has changed from the        tact Mr. Behar at jbehar@certilmanbalin.com

            MAY 2021 EDITION             www.scba.org • The Official Publication of the Suffolk County Bar Association • THE SUFFOLK LAWYER  9
   4   5   6   7   8   9   10   11   12   13   14