A Sunset Clause In A Real Property Agreement Is Unambiguous Pursuant To New York Law
January, 2010
In Riverside South Planning Corp. v. CRP/Extell Riverside, L.P., et al, No. 171; (Ct. App. Nov. 2009), the Court of Appeals was asked to determine the scope of a sunset clause that appeared in a 1993 Letter Agreement relating to the development of a parcel of real property. A sunset clause is a statement added to the end of a measure which causes the act to "sunset," or become ineffective, after a certain date. Id. The Court of Appeals affirmed the Appellate Division's decision that under the provision in question, the obligations in the agreement ceased in 2003, two years before Extell purchased the property. Id.
In 1984, Penn Yards Associates, a partnership controlled by Donald Trump ("Trump"), purchased the Penn Central Railroad Yards, a 76-acre parcel located on the West Side of Manhattan known as Riverside South. Trump floated two proposed development plans in the late 1980s that were opposed by civic groups. Id. at 398. Eventually forging an alliance with six of the organizations that opposed those plans, in 1991 Trump entered into a Memorandum of Understanding with these groups regarding a new Development Plan. The six groups then formed the Riverside South Planning Corporation ("RSPC"), with Trump's assistance. Id. at 398. The new plan focused on environmental sustainability and design criteria, specified the number, zone and permissible uses of the buildings to be erected. Id. Penn Yards recorded a 284-page Restrictive Declaration with the New York City Register memorializing that approval. Id. On March 31, 1993, Trump entered into a four-page Letter Agreement with the RSPC agreeing to develop the property in substantial conformity to "design guidelines" and would not apply for any major modifications or rezonings without the majority approval of RSPC. Id.
A sunset provision was included on the third page of the four-page 1993 Letter Agreement stating that "[t]he agreements contained herein" will continue for 10 years, unless either of the two conditions were no longer fulfilled, in which case they will cease earlier. Id. In a subsequent paragraph, the developer agreed that if he sells "any Parcel of the Subject Property," he will assign to the purchaser the obligations in the contract. Id. In 1994, Penn Yards sold the Riverside South property to Hudson Waterfront Assoc. L.P. Id. In 2005, Hudson Waterfront sold the Riverside South Property to Extell. Id. Extell signed a document in which it agreed to assume any duties and obligations that continued to exist under the 1993 Letter Agreement, but stated that it was not admitting that there were any continuing obligations or that the contract remained in effect. Id. Toward the end of 2005, Extell announced that it planned to construct a building that contained more glass on the exterior facade than would be consistent with the Design Guidelines and it failed to seek approval from RSPC. Id. Extell then rebuffed RSPC's attempts to participate in the planning process and ultimately declared that it was not bound by the Letter Agreement because, by virtue of the sunset clause, that contract expired in March 2003, ten years after it was signed. Id.
In November, 2007, RSPC commenced a breach of contract action seeking enforcement of the 1993 Letter Agreement, arguing that the contract remained in effect. Extell claimed that it did not purchase the property until two years after the agreement expired, it had no obligations under that contract and therefore could not be sued for its breach. Id. The trial court denied the motion to dismiss, reasoning that the sunset clause was ambiguous because it did not appear at the end of the agreement and, as a result, could be interpreted as applying only to the obligations that preceded it in the document. The Appellate Division reversed and granted Extell's motion to dismiss, finding that the sunset clause plainly established that the Letter Agreement had expired, at the latest, ten years after it was executed, meaning that it was not in force or effect when Extell acquired the property in 2005.
The Court of Appeals stated that New York's rules of contract interpretation are well-established. "When parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms," and this rule is applied with special force "in the context of real property transactions, where commercial certainty is a paramount concern, and where the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length." Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004). Further, courts may not "by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing." Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001). Ambiguity is determined by looking within the four corners of the document, not to outside sources. Kass v. Kass, 91 N.Y.2d 554, 566 (1998). Where the language chosen by the parties has "a definite and precise meaning," there is no ambiguity. Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (2002).
Ultimately, the Court of Appeals concurred with the Appellate Division. Riverside at 398. The contract as it is accompanied by no limiting language suggests that it referred to only some of the obligations. Id. The clause indicated that the contract will remain in effect for ten years and contemplated that it might expire sooner if either of the two listed conditions was not satisfied, e.g. if either the developer no longer owned, directly or indirectly, any part of the Riverside South property. Id. Nor was the clause rendered ambiguous by other language in the contract, such as the assignment clause. Id. Under the clear wording of the sunset provision, the obligations in the 1993 Letter Agreement immediately ceased if Trump no longer owned, directly or indirectly, any portion of Riverside South, and this would be true even if such a sale occurred within ten years. Id. Since the 1993 Letter Agreement was executed in March, 1993, it expired no later than March, 2003, two years before Extell purchased the property from Hudson Waterfront. Id. Thus, Extell had no contractual obligation to RSPC that could give rise to the breach of contract claim. Id.
Learning Point: An entire contract must be reviewed and the intention of the parties considered at the time the contract is executed. If an ambiguity exists, a court will always look within the four corners of the document, not to outside sources. Further, sunset clauses in real property agreements will be enforced, regardless of where they are located within the agreement.
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