This is an action by sellers of a Florida apartment complex, "Portofino," to recover a $4.5 million deposit as liquidated damages because, despite a time of the essence provision in the contract, the purchasers refused to close on the scheduled closing date. The underlying action also seeks attorneys' fees for this breach and to recover $10 million that plaintiffs claim they paid over and above the agreed upon price for New York properties.

Plaintiffs, sellers, move for partial summary judgment seeking a declaration that the purchasers' failure to close triggered a default provision that entitles plaintiffs to the deposit currently held in an escrow account and attorneys' fees as provided for in the sales contract.Defendants (other that SS Sontag QI LLC) oppose the motion contending that they were not obligated to purchase Portofino because plaintiffs breached their obligation to maintain Portofino in a commercially reasonable manner and argue that, at a minimum, they are entitled to discovery in connection with their affirmative defense that plaintiffs materially breached the [*2]Portofino Agreement.

Laurence Gluck is the principal individual representing plaintiffs, and Leslie Westreich is the principal individual representing defendants. (Plaintiffs include the "Gluck Parties" and the "Portofino Sellers," and defendants include the "Westreich Parties" and the "Portofino Purchasers").

For the reasons stated below, plaintiffs' motion for partial summary judgment is granted.

Background:

Portofino consists of five ten-story apartment buildings with 866 apartments, an exercise facility, two pools and on grade parking. A sign advertising Portofino stands on nearby property leased by the Portofino owners, but owned by the Florida East Coast Railway L.L.P. (the "Railway"). That placement makes the sign visible to drivers on Biscayne Boulevard.

The parties have been engaged in court battles in New York and Florida concerning enforcement of real estate contracts to purchase and sell properties in New York and Florida for several years. The agreement at issue here, dated March 17, 2005, involved the sale of Portofino (the "Portofino Agreement"). The other (the "Option Agreement") concerned the sale of six Mitchell Lama buildings in New York City. A Supplemental Agreement connected the two deals. In an effort to resolve these disputes and the prior litigations in New York and Florida, the parties executed an agreement entitled "Agreement Amending Option Agreement, Portofino Agreement and Supplemental Agreement" dated April 3, 2006 (the "Settlement Agreement"), which amended certain provisions of the Option and Portofino Agreements and declared the Supplemental Agreement null and void. While the original Portofino Agreement stated that Florida law governed, the Settlement Agreement states that New York law governs.

i. Contract Provisions:

The relevant provisions of the Settlement and Portofino Agreements are discussed below.

Under Sections 1.1 and 1.2 of the Settlement Agreement, the Westreich and Gluck Parties, respectively, released each other from claims under any existing lawsuits. However, Section 1.4 of the Settlement Agreement states, "Nothing in this Agreement shall be deemed to relieve or release any of the parties hereto from their respective continuing obligations under the Option Agreement and the Portofino Agreement, as each such agreement is amended herein, arising from the date of the execution of this Agreement forward."

The Portofino Agreement provides that the Purchasers agree that Portofino is

CONVEYED IN AS IS' CONDITION ON A WHERE IS' BASIS AND WITH ALL FAULTS,' WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WHETHER STATUTORY OR OTHERWISE, AND WITHOUT ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR, OR PURCHASER'S INTENDED, USE OR PURPOSES ... WITHOUT LIMITING THE FOREGOING, PURCHASER, UPON CLOSING, SHALL, EXCEPT FOR THOSE MATTERS EXPRESSLY STATED TO SURVIVE THE CLOSING (AND SUBJECT TO THE LIMITATION ON SURVIVAL PROVIDED HEREIN) BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER PARTIES FROM AND AGAINST ANY AND ALL MATTERS ARISING OUT OF LATENT OR PATENT DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF APPLICABLE LAWS AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS AFFECTING THE PROPERTY ... [*3]PURCHASER FURTHER ACKNOWLEDGES THAT SELLER HAS OWNED THE PROPERTY FOR A LIMITED TIME AND SELLER'S KNOWLEDGE AS TO THE CONDITION THEREOF IS ACCORDINGLY LIMITED.

The Portofino Purchasers acknowledged under Section 2.2(d) of the Portofino Agreement that they conducted and concluded all due diligence deemed necessary as of the closing date, reviewed and approved leases and contracts, and examined and investigated all facts and circumstances relating to Portofino. Section 2.2(d) also provides that the Portofino Purchasers are relying solely upon their own due diligence and not relying upon the Portofino Sellers' representations, except as provided in Section 5.2.

Section 54.2 of the Settlement Agreement states that the "Portofino Seller hereby agrees to deliver to the Portofino Purchaser within ten (10) days after the date hereof each of the items listed on Schedule 2 hereto." The items listed in Schedule 2 include: (A.) leases such as the Railway Lease, (B.) financial data such as the general ledgers and operating and cash flow statements for 2005 and 2006 year to date, (C.) service contracts, (D.) list of vendors, (E.) list of utility companies, (F.) management and personnel information, (G.) pending litigation papers, (H.) tax bills, (I.) construction and renovation reports including capital expenditure reports for 2005 and 2006, and (J.) code compliance permits and licenses. Section 6.16 of the Portofino Agreement provides:

TIME IS OF THE ESSENCE under this Agreement and each and every provision hereof; all of the other documents, instruments and certificates executed in connection herewith; and the performance by each party of its obligations hereunder. This Section 6.16 shall survive the closing of the transactions contemplated hereby and/or the termination of this Agreement.

Section 4.3 of the Portofino Agreement states that it "is a condition precedent to Purchaser's obligation to close that the representations and warranties of Seller shall be true and correct as of the date of the Closing." The Representations and Warranties relevant to this action include 5.2(l) of the Portofino Contract, which states that seller represents it "has not entered into any Contracts or Leases affecting all or any portion of the Property other than the Leases and Contracts," and Section 5.2(m), which states that no agreements or commitments have been made that would impose an obligation upon the purchaser to construct improvements on or off the premises.

Section 4.4 of the Portofino Agreement entitled "Future Operations," states

Seller will use commercially reasonable efforts to: (a) maintain the Property and utility systems substantially in their present condition, in a manner generally consistent with past practices, subject to normal wear and tear.

In Section 53.1 of the Settlement Agreement, the parties agreed to simultaneously close Portofino and the first group of New York properties. Section 52.2 gives the Portofino Sellers the right to adjourn the Portofino Closing Date and states that "in no event shall Portofino Seller have the right to adjourn the Portofino Closing Date beyond June 15, 2006, except as provided in Section 52 of this Agreement, TIME BEING OF THE ESSENCE as to Portofino Seller's obligations to consummate the sale of Portofino." [*4]

Section 52.3 of the Settlement Agreement provides that the Portofino Purchasers

shall have the right to one or more adjournments of the Portofino Closing Date for

any reason whatsoever, provided however that in no event shall Portofino Purchaser have the right to adjourn the Portofino Closing Date beyond the later of (x) June 15, 2006 and (y) ten business days following any adjourned Portofino Closing Date pursuant to Section 52.2 above and, in either case, except as provided in Section 52 of this Agreement, TIME BEING OF THE ESSENCE as to Portofino Purchaser's obligations to consummate the sale of Portofino.

Section 6.2 of the Portofino Agreement provides that upon default, the non-breaching party is entitled to the $4.5 million deposit. It states:

If Purchaser breaches any of its ... obligations hereunder ... at or prior to Closing, then ownership of the Deposit shall be immediately vested in Seller and the Deposit shall be released and paid over to Seller, as its sole and exclusive remedy, as liquidated damages for Purchaser's breach of this Agreement.

Section 6.21 of the Portofino Agreement states:

in the event of any litigation between the parties under this Agreement, the prevailing party (i.e., the party to which the judgment or decisions shall be more favorable on all significant issues) shall be entitled to reasonable attorneys' fees and court costs at both the trial and appellate levels.

ii. Closing Preparations:

Defendants inspected Portofino in March 2005. They also reviewed the Property Condition Assessment Report dated September 14 and 20, 2004 prepared by HiRise Engineering, P.C. (the "2004 HiRise Report"). That report stated that immediately needed repairs, including gate repair and Americans with Disability Act compliance measures, would cost an estimated $10,050, and that recommended capital expenditures, including pavement maintenance, roof replacement, window repairs, and exterior painting, would cost an estimated $1.2 million.

One week after the Settlement Agreement was signed, on April 10, 2006, plaintiffs' counsel James Hausman furnished the closing documents required by Schedule 2 of the Settlement Agreement to defendants' counsel Rick Allendorf. On April 13, Hausman sent an e-mail to defendants' counsel, stating that he would follow up with additional documents during the following week. Counsel for the parties corresponded via e-mail during April and the beginning of May 2006 ^[FN1] about the completeness of documents submitted pursuant to Schedule 2. On May 5, 2006, pursuant to defendants' request, plaintiffs forwarded to defendants a renewed Railway Lease that obligated the lessee to erect a fence. By May 16, 2006, plaintiffs had delivered the supplemental information and updated copies of previously submitted documents that defendants had requested.

On June 15, 2006, defendants' prior counsel Jonathan Mechanic sent an e-mail to [*5]plaintiffs' counsel Stephen Meister stating that, "As I indicated to you, there were a series of legitimate reasons for Leslie [Westreich] and his partners to elect not to close Portofino." He gave no specific reasons.

On June 22, 2006, Leslie Westreich ("Westreich") and Brian Glicksman ("Glicksman") visited Portofino for the first time since the March 2005 inspection. Westreich met with Janet Bravo, an employee of the Portofino property management company Riverstone Residential Group. Glicksman attests that during his visit, he noticed the following building defects: chipped and cracked concrete on more than half of the balconies, holes in the parking lot that had increased in diameter since the March 2005 inspection, water leakage and intrusion through the building facade and numerous ceilings, unrepaired damage from Hurricane Rita, life safety alarm system problems, and some damage in the stairways.

On June 23, 2006, the Portofino Purchasers filed a lawsuit, Portofino Biscayne, LLC v. Stellar Biscayne, L.P., Case No. 06-12284-CA-06, in the 11th Judicial Circuit Court of Miami-Dade County, Florida for return of the $4.5 million deposit. The Florida Complaint alleges the purchasers are entitled to return of their deposit because of various external defects. The Complaint also alleges that the Portofino Sellers failed to submit completed capital expenditure reports for the years 2005 - 2006, as required by Schedule 2 of the Settlement Agreement,^[FN2] and that the seller violated Representations and Warranties Section 5.2(m) of the Portofino Agreement.

Before the filing of the Florida action, the parties had agreed to adjourn the closing date for sale of both the New York and Florida properties to June 29th. On June 29, 2006, plaintiff entities purchased the New York Properties from defendant entities for $130 million.^[FN3] However, the $95 million Portofino deal did not close. Both parties appeared at the closing, although defendants' counsel had previously advised plaintiffs' counsel that the Westreich Parties did not intend to close Portofino because of the defaults alleged in the Florida Court Complaint. Plaintiffs tendered a signed and notarized deed and other closing documents. Defendants' counsel Neil Berman stated that "the purchaser has the funds to close," but acknowledged that he did not have them with him.

On July 17, 2006, plaintiffs commenced this action seeking a declaration of rights under the Portofino and Settlement Agreements and claiming breach of the Portofino contract that triggers the default provisions. The complaint also alleges fraudulent inducement to enter into the Settlement Agreement and breach of the implied covenant of good faith and fair dealing. This Court denied an application to stay this action in favor of the Florida action because it had been extensively involved in the prior litigation that had culminated in the Settlement Agreement. The Appellate Division [*6]affirmed the stay denial in Town House Stock LLC v. Coby Housing Corp., 36 AD3d 509 (1st Dept. January 23, 2007) based on "this action's connection to the New York litigation."

Contentions:

Defendants argue that they were excused from closing on June 29, 2006 because plaintiffs failed to maintain the property in a commercially reasonable manner, submit all closing documents by April 13, 2006, and timely disclose the fence obligation in the renewed Railway Lease. Defendants contend that the provision in the Settlement Agreement waiving prior claims does not apply to plaintiffs' obligation to maintain the property from March 17, 2005 to the time of the closing in June 2006. The Westreich Parties allege plaintiffs denied them access to Portofino between March 2005 and April 2006, and that the merger doctrine would prevent them from obtaining relief after the property had closed. Defendants further contend that the closing documents that plaintiffs delivered were incomplete and did not include data like floor plans for every floor and employee information. Finally, defendants argue the obligation to erect a fence in the renewed Railway Lease violates Representation and Warranties Sections 5.2(l) and 5.2(m).

Plaintiffs contend that defendants waived claims about maintenance obligations upon execution of the Settlement Agreement, which affirmed the "As Is" clause of the Portofino Agreement and waived all prior defaults. Plaintiffs contend that defendants' alleged excuses for not closing Portofino are pretextual, and that the plummeting condominium market in Miami is the real reason for defendants' failure to close. They point to the fact that defendants did not inspect the premises until June 22, 2006 but repudiated the agreement on June 15, 2006. Plaintiffs also argue that breach of maintenance obligations do not excuse the Purchasers' obligation to close because maintenance obligations are covenants and not conditions precedent. Under Section 4.3 of the Portofino Agreement, the only conditions precedent are the truth of the Representations and Warranties, which do not include maintenance obligations.

Even if the obligation to maintain Portofino were a condition precedent, plaintiffs aver that defendants neither substantiated their claim at or before the closing that the Portofino Sellers failed to maintain Portofino in a "commercially reasonable manner" or that Portofino deteriorated beyond "normal wear and tear," nor requested that any repair work be done. In response to defendants' merger argument, plaintiffs contend that Section 6.2 of the Portofino Agreement permits defendants to sue plaintiffs for breaches of covenants for up to nine months after closing subject to a $1 million cap.

Plaintiffs contend that the adjournment of the closing date extended their time to produce the closing documents, that they furnished all documents required by Schedule 2 well in advance of the closing date, and that defendants demanded plaintiffs disclose information not required under Schedule 2. Plaintiffs note that Schedule 2 neither requires plaintiffs to produce a plan for every floor of every building nor mandates disclosure of information about Portofino employees. Plaintiffs aver that the fence obligation under the renewed Railway Lease is not a violation of any condition precedent because plaintiffs were not contractually required to renew the lease and only did so upon defendants' request. Moreover, had defendants requested it, plaintiffs could have easily constructed the fence.

Discussion and Conclusion: [*7]

New York law governs the Settlement Agreement. In a real estate contract, time of the essence provisions are strictly construed, and a purchaser's failure to close on the scheduled date constitutes a material breach, entitling seller to retain the down payment. Friedman v. O'Brien, 287 AD2d 311 (1st Dept. 2001). Recently discovered defects do not excuse the purchaser's obligation to close unless the purchaser places the seller in default by demonstrating a desire and ability to close and demanding purchaser remedy curable defects in a reasonable time. The purchaser's rejection of the contract and failure to provide the sellers with an opportunity to cure entitles the seller to retain the deposit. Hegner v. Reed, 2 AD3d 683 (2nd Dept. 2003); See Cohen v. Kranz, 12 NY2d 242 (1963).^[FN4]

The issue is whether defendants have raised sufficient factual issues to establish an excuse for not closing on the scheduled date. The offered excuses fall into three categories. They are failure to maintain Portofino, failure to provide documents, and the requirement to construct a fence.

The Portofino Sellers' obligation to maintain the property in a commercially reasonable manner is not an explicit condition precedent to closing. Even if it were a condition precedent, defendants have not substantiated their claim that plaintiffs actually failed to maintain the property in a "commercially reasonable manner" or that the alleged defects are beyond the "normal wear and tear" that the contract allowed. Finally, there is no evidence that defendants ever complained about maintenance problems or requested that repairs be made. In Premier Storage Solutions LLC v. Almar Group, Inc., 303 AD2d 481, 756 NYS2d 617 (2d Dept. 2003), sellers were entitled to summary judgment and awarded the deposit where the real estate sales contract contained a precondition for closing that needed repairs not exceed $50,000, and purchasers failed to provide written estimates of repair costs or substantiate their claims that the property required repairs in excess of $50,000. In Sikander v. Prana-BF Partners, 22 AD3d 242, 802 NYS2d 32 (1st Dept. 2005), sellers were awarded the deposit as liquidated damages where the allegation that purchasers noticed recent defects on the premises just prior to closing did not excuse the obligation to close because the contract provided that the premises were being sold "as is . . . subject to reasonable wear and tear," and purchaser did not adduce any professional opinion or substantiate the nature and extent of the alleged defects.

Defendants have not demonstrated that they are entitled to additional discovery to permit them to substantiate their maintenance claims after the scheduled closing date. It is undisputed that the Westreich Parties could have inspected the property any time after April 3, 2006. Defendants' counsel indicated to plaintiffs' counsel that the Westreich Parties did not intend to close Portofino, but that was before they actually inspected the property. Once Westreich and Glicksman inspected the property on June 22, most of the defects they allegedly discovered were on the building's exterior and obvious to any casual observer. The Westreich Parties have had notice of many of these exterior [*8]conditions since issuance of the 2004 HiRise Report. Moreover, while defendants allege that they were denied access to the property before April 3, 2006, it strains credulity that defendants would sign the Settlement Agreement, containing provisions that waive prior defaults and affirm the Portofino Agreement's "As Is" clause, if they were actually denied access to the property.

Westreich alleges in an affidavit that Janet Bravo, an employee of Portofino's property manager, showed him a report indicating that Portofino required previously undisclosed maintenance. However, Westreich provides no substantiation for this claim, and Janet Bravo's affidavit does not support his claim. Moreover, the Westreich Parties never demanded the Gluck Parties perform any maintenance contained in the alleged report.

With respect to plaintiffs' production of documents, the record reflects that plaintiffs complied with Schedule 2. The latter lists types of documents that plaintiffs must furnish but does not specify the extent of the information that plaintiffs must disclose. Plaintiffs delivered the documents required by Schedule 2 on April 10 and submitted supplemental information by May 16. Defendants' complaints in April and May related solely to the extent of information disclosed in those documents. Defendants did not identify prior to or at the closing any specific documents that remained missing. Although Westreich suggests in his affidavit that the deliverables were important to obtaining financing for the Portofino purchase, there is no claim that plaintiffs' failure to furnish specific documents frustrated the purchasers' ability to finance the deal nor were any such claims made prior to closing. In fact, to the contrary, defendants' counsel Neil Berman stated at the June 29th closing that the Portofino Purchasers had the necessary funds available.

With respect to the Railway Lease, defendants have not raised an issue of fact concerning the fence obligation in the renewed lease. Defendants claim the obligation in the new lease to erect a fence violates Section 5.2(m) because it imposes an obligation to "construct, install or maintain any improvements of a public or private nature on or off the Property." Plaintiffs forwarded the renewed lease to Portofino Purchasers on May 5 after they received it. Defendants had ample opportunity to insist that plaintiffs erect the fence prior to June 29, 2006, but did not do so. Any other claims concerning the Railway Lease are specious in that the provisions of the previous and current lease are identical.

Based on the foregoing, the Portofino Purchasers' failure to close on June 29, 2006 is indefensible and triggers the default provisions in the Portofino Agreement. The Portofino Sellers are thus entitled to the $4.5 million deposit currently being held in escrow by the New York law office of Greenberg Traurig LLC pursuant to Section 6.2 of the Portofino Agreement plus attorneys fees pursuant to Section 6.21 of the Portofino Agreement.

Accordingly, it is

ORDERED that Plaintiffs' motion for partial summary judgment for the sum of $4.5 million is granted, and it is further

ORDERED that the escrow agent shall release the $4.5 million to plaintiffs, and it is further

ORDERED that the portion of plaintiffs' action that seeks the recovery of attorneys' fees is severed, and the issue of the assessment of attorneys' fees incurred in connection with obtaining the [*9]$4.5 million deposit is referred to a Special Referee to hear and determine, and it is further

ORDERED that a copy of this order with notice of entry shall be served on the Referee Clerk (Room 119M) to arrange a date for the reference to a Special Referee.

Settle Order providing for the above on or before March 27, 2007.

DATED: March 12, 2007ENTER:

______________________

Helen E. Freedman, J.S.C.