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RM Realty Holdings Corp. v. Moore

July 7, 2009


Order, Supreme Court, New York County (Charles E. Ramos, J.), entered June 14, 2007, which, in this breach of contract action, granted plaintiff's motion to reargue and, upon reargument, vacated its prior order dismissing the complaint without prejudice and granted defendants' motion to dismiss the complaint with prejudice, affirmed, without costs.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Mazzarelli, J.P., Buckley, McGuire, DeGrasse, JJ.


Plaintiff is the owner of the penthouse unit (Unit 8) in a condominium building. Outside the penthouse is a 3,200 square- foot terrace. Pursuant to the offering plan, the terrace is a limited common space to which plaintiff has exclusive access. At the same time plaintiff closed on the purchase of the penthouse from defendant 145 Americas LLC, it entered into a "Development Rights Agreement" (DRA) with it and its managing member, defendant Peter Moore. Moore, who owns Unit 4 in the building, also owns all of the building's air rights. Paragraph 1 of the DRA transferred 2,000 square feet of those air rights to plaintiff "immediately adjacent to the terrace on the same level of Unit 8." The DRA expressly reflected the parties' understanding that the purpose of the air rights transfer was to facilitate plaintiff's plan to increase the interior space of the penthouse. The DRA further provided, in paragraph 5, that plaintiff's "authorization will be required in case other owners of air rights want to build in the area immediately adjacent to his unit."

Six months after the DRA was executed, defendants sold certain air rights not transferred by the DRA to a developer that was planning to construct a high-rise hotel on property located west of the condominium building. Between the footprint of the planned hotel and the condominium building is a 50-foot wide public plaza, which the parties appear to agree cannot be developed. Accordingly, when construction of the hotel is complete, its eastern wall will be at least 50 feet away from the western wall of the condominium building.

Sometime after learning of the sale of air rights to the hotel developer, plaintiff commenced this action for breach of contract. It alleged that, among other things, defendants violated paragraph 5 of the DRA by not obtaining plaintiff's authorization before selling air rights to the hotel developer.

Defendants moved to dismiss the original complaint on several grounds, including that they could not have breached paragraph 5 of the DRA because the documentary evidence established that the hotel developer did not intend to "build in the area immediately adjacent to [plaintiff's] unit." In response to the motion, plaintiff served an amended complaint that withdrew all of the claims except the breach of contract cause of action. According to the amended complaint, plaintiff and defendants "intended and agreed that the right of refusal pursuant to paragraph 5 of the [DRA] would apply to all property and buildings immediately adjacent to Unit 8, including the relevant property owned by [the hotel developer]."

Notwithstanding the amendment, the motion court considered the motion to dismiss, and granted it. The court found the words "immediately adjacent" to be unambiguous and that the hotel, when built, would not be "immediately adjacent" to either plaintiff's existing penthouse apartment or the terrace appurtenant to it. Plaintiff moved to reargue, stating that, at oral argument of the original motion, the court erroneously adopted defendants' counsel's statement that, as a limited common element, the terrace appurtenant to plaintiff's penthouse is something in which "everyone in the building shares and shares alike." Thus, plaintiff surmised, the court must have concluded that, because another unit owner in the building could have built on the terrace, DRA paragraph 5 must have been intended to apply to that eventuality. Plaintiff argued that because as a "limited common element" it had exclusive use of the entire terrace, and no unit owner could have built on it, DRA paragraph 5 must have referred to the hotel.

The court granted reargument but adhered to its original decision and dismissed the complaint with prejudice. It stated that counsel for defendants did appear to misstate the definition of the term "limited common element" but it made clear that the original order dismissing the complaint did not rely on that definition. Instead, the court held that plaintiff's contention that the term "immediately adjacent" extended to the air rights over the hotel property was "absurd and contrary to the [DRA] as a matter of law."

A written agreement is ambiguous only if it is reasonably susceptible of more than one interpretation (Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]). In deciding whether an agreement is ambiguous we should " examine the entire contract and consider the relation of the parties and the circumstances under which it was executed. Particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought'" (Kass v Kass, 91 NY2d 554, 566 [1998], quoting Atwater & Co. v Panama R.R. Co., 246 NY 519, 524 [1927]).

Here, the interpretation of paragraph 5 of the DRA offered by plaintiff, that the hotel will be "immediately adjacent" to its penthouse (or even the edge of the terrace), is not reasonable. Had the parties intended to give plaintiff the right to block the construction of a building 50 feet away from the edge of the terrace, it is perhaps plausible that they would have referred to that property as being simply "adjacent" to "the unit," whether "the unit" meant the penthouse alone or the terrace as well. However, it defies logic that they would have added the modifier "immediately," which implies an absence of appreciable space between "the unit" and the structure that is to be "built." Moreover, if, as plaintiff contends, the parties were referring to the hotel, they presumably would have specifically said so in the agreement.

It also strains credulity that defendants would have given plaintiff perpetual carte blanche to block potentially lucrative transfers of air rights to developers in the trendy Soho neighborhood where the condominium building is located. The dissent claims that this "ignores basic economics" and that had plaintiff not insisted on the right to approve the sale of any of Moore's air rights it would have behaved as an "economics rube." However, the dissent then acknowledges the possibility that, if its interpretation of paragraph 5 is correct, plaintiff "got the better of the deal by becoming an equal partner in those air rights." In other words, the dissent recognizes that Moore may have been an "economics rube" by granting plaintiff the unfettered and eternal right, not even limited by the requirement that plaintiff act reasonably, to forever block the sale of any of his air rights. The dissent ultimately disposes of the issue by calling it "irrelevant." However, it is not irrelevant. It is probative as to whether plaintiff's proposed interpretation of the DRA is reasonable.

In any event, an examination of the DRA reveals that its clear intention was to transfer to plaintiff the air rights necessary to permit it to construct an addition to its penthouse apartment. Reading the DRA "as a whole" (Kass, 91 NY2d at 566), it is quite evident that paragraph 5 was included to ensure that defendants would not permit other condominium owners to impede plaintiff's ability to build on the terrace. That no other condominium owner could have built on the terrace due to the terrace's status as a limited common element to which plaintiff had exclusive use does not change the conclusion that paragraph 5 of the DRA is not ambiguous. The only alternative meaning which plaintiff ascribes to paragraph 5, that a hotel 50 feet away is "immediately adjacent" to the terrace, is simply not a reasonable one, and this does not render the provision ambiguous. It is far more reasonable ...

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