Summary of The Symphony Space, Inc. v. Pergola Properties, Inc., Court of Appeals of NY (1996)
Parties: PL is a not-for-profit entity who entered into an agreement with the owner of a building; DF is asignee Pomander Walk and Heatley Building’s transferee (who contemporaneously conveyed all rights from first transaction to DF as well).
Cause of action/remedy sought: Symphony is seeking declaratory judgment against Pergola for Pergola’s exercising of an option that violated the Rule against Perpetuities.
Procedural History: Trial court summary judgment for Symphony, concluding that NY’s RAP statute applied to the commercial option contained in the parties agreement, that the option violated the RAP and that Symphony was entitled to exercise its equitable right to redeem the mortgage. Appellate Division affirmed. Judgment for Symphony affirmed in NY Court of Appeals.
Facts: The option stated: (a) at any time after July 1, 1979, so long as the Notice of Election specifies that the Closing is to occur during any of the calendar years 1987, 1993, 1998, and 2003.
New York statute sets forth the suspension of alienation rule and deems void any estate in which the conveying instrument suspends the absolute power or alienation for longer than lives in being at the creation of the estate ply 21 years. No estate in property shall be valid unless in must vest, if at all, not later than 21 years after on or more lives in being at the creation of the estate and any period of gestation involved.
The last year of the option is 2004 which is 24 years after the creation of the option in 1978. Under common law, options to purchase land are subject to the rule against remote vesting. This creates a disincentive for the landowner to develop the property and hinders its alienability.
DF’s argue (1) the statutory prohibition against remote vesting doesn’t apply to commercial options;
(2) that the option here cannot be exercised beyond the statutory period;
(3) and this Court should adopt the “Wait and See” approach to RAP.
Issue(s): Under property law, are options to purchase commercial property exempt from the prohibition against remote vesting embodied in NY’s RAP?
Holding: No. The court said because an exception for commercial options finds no support in NY law, all commercial option agreements are not exempt from the statutory RAP.
Court’s Rationale/Reasoning: The Court, in considering the first contention of DF, says subjecting option contracts to RAP is “a step of doubtful wisdom.” Businesses do not know 21 year period for which to wait for property to vest in another, and case law has held the same (Buffalo Seminary example, pg. 318 top). This court also said that previous legislation intended the rule to be applied as such. So, eliminating business would be in effect eliminating what the Legislature put into effect. Only in the minor restraint in governmental transactions in the rule not used, as the preemptive rights are ordinarily subject to the statutory rule against remote vesting.
This is not an appurtenant agreement either, so there does not exist a situation where the tenant was living in the whole place; it was living in just a part of the place, and changing the rule would discourage anyone who is involved with an optionee in a non-appurtenant situation.
The court also refused to use “the saving statute,” b/c as Professor Brown reminds us “unless there is contrary information which shows us otherwise, if there is no intent shown to shorten the option, then the option is perceived under common law to be for the duration mentioned in the agreement,” which is for 24 years, and over the limit stated in the rule. So, the saving statute is inapplicable.
Contracts entered into under mutual mistake of facts is generally subject to rescission, however when relief is sought, it may not be merely denied because the mistake is one of law and not of fact. Damages are not recoverable where options to acquire real property violate the Rule against Perpetuities.
Rule: The statutory RAP measures exclusively by the passage of time, while the common law rule evaluates the reasonableness of the restraint based on its duration, purpose and designated method for fixing the purchase price (latter method is used to consider the option agreement).
Did court avoid issues?: The doctrine of separability states that the court in Symphony Space could have treated each potential vesting period as a separate option, so instead of one option with four possibilities, there could have been four separate options. Note that in Symphony Space the court had the authority to simply strike out the offending clause of the option.
Dicta: The court will not use the “wait and see” doctrine, as the option could have vested after expiration of the 21-year RAP, as it offends the rule.