Commercial Division Blog
Reverter Provision Unenforceable if not Recorded within 30 Years; Action for Injunctive Relief or Money Damages can Proceed Regardless
On August 21, 2014, Justice Grays of the Queens County Commercial Division issued a decision in The Roman Catholic Diocese of Brooklyn, N.Y. v. Christ the King Regional High School, 2014 NY Slip Op. 32389(U), granting a motion to dismiss in part.
In 1976, the plaintiff Diocese of Brooklyn conveyed real estate to the defendant by deed, which provided that the defendant would retain the property "so long as the grantee continues the operation of a Roman Catholic High School upon the premises described herein, upon the cessation of which [title] shall revert to the grantor." A simultaneously-executed agreement contained similar provisions, including provisions that the defendant would use the entire property only for a Catholic high school, and providing for automatic reverter if the plaintiff ceased to "operate said high school."
In 2010, the defendant leased part of its property to a non-sectarian charter middle school. When the Diocese objected, the defendant asserted that the reverter was unenforceable. The Diocese then commenced the action, seeking declaratory judgments that the reverter was enforceable and also that the defendant had breached the contract, and the defendant moved to dismiss.
Judge Grays dismissed the first cause of action and held that the reverter was unenforceable because of "plaintiff's failure to record a declaration of intention to preserve the restriction within the time specified therefor in Real Property Law § 345." RPL 345 requires such a provision to be recorded within 30 years, which the Diocese failed to do. Judge Grays also rejected the Diocese's argument that RPL 345 barred only the reverter in the deed, and not the reverter in the agreement, holding that RPL 345 applies to all reverters "regardless of the manner in which they came into being."
On the other hand, Judge Grays refused to dismiss the second cause of action. She found that the language in the agreement regarding the use of the property "creates a restriction on use without a reversionary right that is distinct from the condition subsequent . . ." and that RPL 345 permits an action for injunctive relief or money damages to enforce such a covenant. Judge Grays also refused to apply—at least on the motion to dismiss—the general rule that an agreement of sale merges into a deed and cannot be enforced after closing of title:
In view of the language of the agreement showing the parties' purpose in entering into the agreement, and considering that the obligation at issue could only be performed after the closing of title and that the agreement was executed the same date as the deed, the documentary evidence proffered does not demonstrate the absence of issues of fact as to whether the parties intended the use restriction to survive the closing.
Judge Grays rejected the argument that the statute of limitations in RPAPL 612 barred the second cause of action, because RPAPL only applies to claims for reverter, and that the six-year contract statute of limitations applied. Because the specific breach complained of—leasing part of the property to the charter school—happened in 2010, the Diocese was within the time limit.