Appellate Division of the Supreme Court of New York, Second Department, 2013 NY Slip Op 03982, June 5, 2013: A NY property seller’s covenants against prior acts may require disclosure of a conservation easement.
In or about 2002, the Netzer defendants granted what the court called “a conservation easement” (it was a historic preservation façade easement) on their Brooklyn property to the National Architectural Trust, Inc. The easement was recorded with the land records in 2003. In 2010 the Netzers sold the property to the plaintiffs for $3.2 million. After the sale of the property, the plaintiffs brought suit alleging they learned of the easement for the first time after the sale and seeking damages for fraud and negligent misrepresentation by the Netzers and the brokers. The court dismissed most of the claims saying that in New York the law in this situation is governed by caveat emptor: burden is on the buyer to investigate title, and the seller and the seller’s agent has no duty to disclose (though they may not actively conceal a problem). However, the court also refused to throw out the defendants’ motion to dismiss as to the plaintiffs’ cause of action alleging breach of the “covenant against grantor’s acts” because “the documentary evidence submitted by the Netzer defendants does not conclusively establish a defense to that cause of action as a matter of law.” The deed from the Netzers included the standard covenant that the seller (grantor) had not done anything to encumber the property. (In Massachusetts, for example, a statute provides that when a deed recites that the property is conveyed with “quitclaim covenants,” that is a shorthand for saying that the seller covenants that the granted premises are free from all encumbrances made by the grantor.) The court held that the lower court should not have dismissed the plaintiffs’ complaint which alleged that the Netzer defendants violated the covenant against grantor’s acts.
Decision available at http://www.nycourts.gov/reporter/3dseries/2013/2013_03982.htm