Commercial Division Blog
Waiver of Contingency in Real Estate Contract Must be Clear
On October 9, 2015, the Fourth Department issued a decision in Pohlman v. Madia, 2015 NY Slip Op. 07379, holding that the defendants were not obligated to preform a real estate sales contract when the plaintiffs' attorney had not given clear, unconditional approval of its terms as required.
In Pohlman, the parties signed a contract under which the defendants were to sell real property to the plaintiff'. "The contract was contingent upon approval by the parties' respective attorneys. Plaintiffs' attorney . . . approved the contract on the condition that defendants sign an addendum requiring them to, among other things, provide plaintiffs with a Phase I Environmental Assessment Report . . . and a warranty representing that defendants had no knowledge of any environmental problems with the property. Defendants' attorney . . . conditionally approved the contract as well," but rejected the plaintiffs' attorney's "request for a Phase I report and an environmental warranty." In response, the plaintiffs attorney notified the defendants' attorney that plaintiffs had "ordered" a Phase I report and a structural analysis of the property, adding that, assuming these reports come back reasonably OK, which we anticipate, we're good to go" and, "[s]ix days later," told the defendants' attorney that "should a Phase II environmental report become necessary based on the results of the Phase I report, plaintiffs expected defendants to pay for it." The defendants once again refused. Almost a month later, the plaintiffs' counsel wrote the defendants' counsel "that the environmental and structure report inspections have been completed, and that plaintiffs had agreed to proceed with the purchase." The defendants refused.
The trial court held that the defendants were bound by the contract. The Fourth Department reversed, explaining:
As the Court of Appeals has stated, clarity and predictability are particularly important in the area of law dealing with attorney approval of real estate contracts. Here, we conclude that, although plaintiffs could have unilaterally waived the environmental conditions that [his counsel] placed on his approval of the contract inasmuch as those conditions benefited only him, [his counsel did not] clearly and unequivocally d[o] so. Thus, the contract was never unconditionally approved by plaintiffs' attorneys.
Contrary to plaintiffs' contention, [their counsel] did not waive any conditions or unconditionally approve the contract in his October 16, 2013 letter. Instead, [he] merely stated that the environmental and structural reports had been completed and that plaintiff wished to proceed with the purchase. Although it may reasonably be inferred from the letter that the Phase I report had shown no environmental problems with the property and that a Phase II report was therefore unnecessary, no mention was made of the environmental warranty previously requested by plaintiff. Considerations of clarity, predictability, and professional responsibility weigh against reading an implied limitation into the attorney approval contingency. If [the plaintiff's counsel] intended to waive the conditions [he had] placed . . . on his approval of the contract, he should have done so expressly and not left anything for inference, or he should have stated that he, as plaintiff's counsel, unconditionally approved the contract as proposed by defendants. Because he failed to do so, we conclude that there was not a valid contract between the parties and that the court erred in directing defendants to sell the property to plaintiffs.
(Internal quotations and citations omitted).