Brief Fact Summary.
Broadwest owned three adjacent buildings in New York. Plaintiff purchased one of the buildings owned by Broadwest and gave Broadwest a repurchase option to the building. Later, Broadwest transferred its interest in the three buildings to Defendant. Defended tried to exercise the repurchase option to purchase the building owned by Plaintiff. Plaintiff brought suit against Defendant deeming the option to be void under New York law. The trial court held in Plaintiff’s favor, and the intermediate court affirmed the trial court, but certified the question for review by the appellate court.
Synopsis of Rule of Law.
An interest is void if it does not vest within twenty-one years, after a life in being, which is measured from the time of creation of the estate.
Broadwest Realty Corporation (“Broadwest”) was the owner of three adjacent buildings located in New York. One of the buildings had a space designated as a theater. Because Broadwest was not able to find a permanent tenant for this building, Broadwestdeemed it to be a loss. Later, in 1978, Broadwest sold the building with the theater area to The Symphony Space, Inc. (“Plaintiff”) $10,010, which was below the market value.Plaintiff leased the non-theater portion of the building back to Broadwest for $1 each year in exchange for the building. Also, Broadwest paid Plaintiff $10 to create an option for Broadwest to repurchase the building. Under the repurchase option, Broadwest had the right to exercise the repurchase so long as the closing took place during a specific time frame, which included 2003. Thereafter, Broadwest transferred it interests in the all three adjacent properties to Pergola Properties, Inc. (“Defendant”) and others as tenants in common. In 1987, Defendant presented its intent to exercise the repurchased option to the Symphony Space building. Plaintiff instigated this action requesting the court to declare the repurchase option void under New York’s statute, which forbid remote vesting. The trial court held for Plaintiff, and the intermediate appeals court affirmed. The intermediate court certified the question to the appellate court.
Whether an interest is void if it does not vest within twenty-one years after a life in being, which is measured from the time of creation of the estate.
Yes, an interest is void if it does not vest within twenty-one years after a life in being, which is measured from the time of creation of the estate.
The courts discourage remote vesting because remote vestingcreates a disincentive for property owners to improve their property because the owner would know that another party may claim the property at a later time, creating the sale of the property to be more difficult.Further, this practice of remote vesting, such as the addition of options on commercial leases, is void under New York law, due to that reason. Here, the option operates in the exact manner that is against the law because, in effect, the option discourages Plaintiff from improving the property knowing that Defendant, at any point, may purchase the property back at a dramatically reduced price. Due to the fact that the lease is between corporations and the lease does not state a measuring life, the perpetuities period is 21 years. Moreover, since the face of the document illustrates the option to repurchase may be exercised as late as 2003–24 years after the execution of the document, the conveyance document violates the law against remote vesting. In this case, the parties were under a misapprehension of the law when contracting this agreement.Although, generally, mutual mistake of law is grounds to rescind a contract under New York law, rescission is discretionary. Likewise, the invalid option does not void the original transaction. Therefore, the intermediate court’s certified question is answered in the affirmative and the decision is affirmed.