Symphony Space, Inc. v. Pergola Properties, Inc.

New York Court of Appeals · 1996 · Property

Propertyfuture interestsoptionrule against perpetuitiescommercialRule Against PerpetuitiesEPTL 9-1.1(b)remote vesting

Facts

In 1978, Symphony bought a Manhattan building from Broadwest for a below-market price as part of a sale-leaseback arrangement designed to secure a tax exemption for the theater portion of the property. In a separate option agreement, Symphony gave Broadwest an unconditional right to repurchase the entire building at fixed prices during stated exercise periods extending as late as 2003, and the option was made to run with the land for Broadwest's successors and assigns. Broadwest later assigned its rights to defendants, who attempted to exercise the option in 1985 and again in 1987. Symphony then sought a declaration that the option was invalid because it could vest more than 21 years after its creation.

Issue

Does New York's statutory Rule Against Perpetuities, EPTL 9-1.1(b), apply to commercial options to purchase real property, and if so, is this option unenforceable because it could be exercised beyond the 21-year perpetuities period? Also, may the court save the option by construction, by a wait-and-see approach, or by rescinding the underlying sale transaction?

Rule

Under New York law, EPTL 9-1.1(b) applies to options to purchase real property, including commercial options, unless the interest falls within a limited category such as certain preemptive rights in governmental or commercial transactions or an option appurtenant to a lease that encourages development and is inseparable from the lease. An option is void from the outset if, at the time of creation, it may vest beyond the perpetuities period; where corporations are parties and no measuring lives are stated, that period is 21 years. EPTL 9-1.3 is only a rule of construction and cannot rewrite an unambiguous instrument, and New York does not adopt a judicial wait-and-see approach.

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In 2001, Lakefront Arts Center, Inc. sold a mixed-use building in Buffalo to Erie Plaza Holdings, LLC. In a separate recorded agreement, Erie granted Lakefront an unconditional option to repurchase the entire building at a fixed price at any time through December 31, 2025; both parties are business entities, and the agreement names no measuring lives.

Under New York law, is the repurchase option enforceable?

Explanation. The majority held that New York does not recognize a blanket exemption for commercial purchase options. Options to purchase real property are subject to EPTL 9-1.1(b). When the parties are entities and no measuring lives are stated, the relevant period is 21 years. Because this option could be exercised beyond 21 years from creation, it is void from the outset.