United States: The Impact Of Princes Point v. Muss Development Decision

Sellers of U.S. commercial real estate typically agree to make a number of representations, warranties and covenants in the associated purchase and sale contract. The substance and breadth of those undertakings are usually heavily negotiated by sellers and buyers. This issue was recently highlighted in a decision earlier this year by the New York Appellate Division, First Department, in the case of Princes Point LLC v. Muss Development LLC.

Commercial real estate acquisitions in the U.S. are generally completed on an "as-is" basis premised on the deep-rooted real estate doctrine of caveat emptor (or buyer beware). Sellers as a result tend to resist and stridently argue against making any representation, warranty or covenant about the subject property or properties unless it is considered a material inducement to a buyer's entering into the contract or cannot otherwise be determined by a buyer through inspection and customary due diligence methods. The consequence of this is a limited set of seller representations, warranties and covenants in the contract, which are often weightily relied upon by the buyer in its ultimate decision to enter into the contract and proceed with the transaction.

If a representation and warranty made by the seller when the purchase and sale contract is signed is discovered to be materially false prior to the closing of the transaction, subject to the terms of the purchase and sale contract, the buyer might bring a legal action under common law against the seller seeking to rescind or void the contract on the grounds that the buyer would not have entered into the contract if the falsehood or misrepresentation was known by it at the time of contract execution. However, buyers of New York commercial real estate and their advisors should take caution before bringing an action for rescission prior to the closing date as it might have the unintended and devastating effect of constituting an anticipatory breach by the buyer. The New York Appellate Division, First Department, came to that conclusion earlier this year in Princes Point LLC v. Muss Development LLC. The case, however, is pending review by the Court of Appeals after the non-prevailing buyer's motion to New York's highest court to appeal the decision was recently granted.

Anticipatory breach, also known as repudiation or anticipatory repudiation, is a fundamental and long-standing principle of contract law. It is essentially a statement or an act by a party to a contract that indicates either that party's intent to breach or inability to perform a promise. Anticipatory breach occurs before performance under the contract is due, but is nonetheless deemed a breach as a matter of law.

Some jurisdictions implement different standards for determining when anticipatory breach has occurred. The "relaxed standard" under the Restatement (Second) of Contracts and the Uniform Commercial Code (UCC) requires that the statement or act be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform. This differs from the "traditional standard," which requires that the statement or act be clear and unequivocal. New York has historically followed the traditional standard. In any case, once a party has in effect indicated its intent to breach or inability to perform, an anticipatory breach is deemed to have occurred. The other party is then entitled to seek remedy or rescission. Since there are a multitude of ways in which a party could show intent to breach or inability to perform, whether a particular statement or act constitutes anticipatory breach is susceptible to uncertainty and dispute and therefore litigation. Until Princes Point, however, New York courts have never addressed whether a legal action for rescission can constitute anticipatory breach.

The facts of the Princes Point case are as follows. The subject property, a 23-acre site of waterfront land in Staten Island, had previously been listed as a hazardous waste site by the New York State Department of Environmental Conservation (DEC). In order to delist it, the seller performed work at the property that included building a revetment seawall along the shoreline. The seller achieved delisting in 2001.

In 2004, the seller agreed to sell the property to the buyer for a purchase price of approximately $36m with an initial non-refundable deposit of approximately $1.9m. As a condition to the buyer's obligation to close, the seller had to deliver the property fully entitled with all municipal approvals for development on the land obtained. If the municipal approvals had not been obtained by the closing date, either party could terminate, but the deposit would then be returned to the buyer. In the event the seller terminated, the buyer could waive the municipal approvals condition and close with a reduction in the purchase price. The contract also permitted extensions by the buyer of the outside closing date for up to six times, provided the buyer paid an additional deposit of $200,000 per extension.

The seller experienced difficulty obtaining the municipal approvals. In 2005, after the effects of Hurricane Katrina, the DEC inspected the revetment seawall and determined that it required further work before it would grant the municipal approvals. The seller notified the buyer that it could not obtain the municipal approvals by the outside closing date and intended to exercise its termination option, except that the seller would be willing to extend the outside closing date if the buyer agreed to the following:

  1. an increase in the purchase price to approximately $38m;
  2. an increase in the deposit to approximately $4m;
  3. the reimbursement of half the costs incurred by the seller thereafter to obtain the municipal approvals; and
  4. the waiver by the buyer of any legal action against the seller in the event the municipal approvals were not issued or the work needed to acquire them were not completed by the new outside closing date. The buyer agreed to the revised terms, and in 2006 the parties amended the contract accordingly.

The issues with the revetment seawall continued. Soon after the parties entered into the 2006 amendment, the DEC found material issues with the construction of the revetment seawall. The parties extended the outside closing date several more times. Prior to the new outside closing date and the completion by the seller of the additional revetment seawall work, the buyer brought suit.

The buyer's complaint alleged that the seller had induced the buyer into entering into the contract based on the seller's fraud and misrepresentation that the revetment seawall had been built in accordance with the DEC's specifications. The buyer also claimed that the seller failed to obtain the municipal approvals because the seller had deliberately and willfully failed to construct the revetment seawall in accordance with the DEC-approved design. The buyer therefore sought rescission of the 2006 amendment and specific performance of the 2004 purchase contract.

The seller counterclaimed, arguing that the buyer breached the contract by bringing suit, which was a violation of the buyer's waiver to do so under the 2006 amendment. The buyer's claims were dismissed. The seller's counterclaims, on the other hand, were granted. The Supreme Court, New York County, found that the buyer anticipatorily breached the contract by commencing a rescission action prior to the closing of the transaction, thereby entitling the seller to terminate the contract and retain the full amount of the deposit and payment of significant fees. The buyer appealed the Supreme Court's decision. The issue on appeal was whether the buyer anticipatorily breached by seeking rescission of the contract and, if so, whether the seller was then required to show that it was ready, willing and able to complete the sale in order to retain the deposit and other liquidated damages. The Appellate Division, First Department, affirmed the Supreme Court's decision.

The Appellate Division found that by seeking rescission the buyer evidenced its intent to declare the contract void and eliminate its duty to perform the contract. A rescission action, noted the court, unequivocally evinces the plaintiff 's intent to disavow its contractual obligations, and therefore commencement of such an action before the date of performance constitutes an anticipatory breach. The Appellate Division also found that the seller was not required to show that it was ready, willing and able to complete the sale because the buyer's anticipatory breach relieved it of further contractual obligations.

The decision in Princes Point is noteworthy. The decision could have a chilling effect on real estate buyers seeking to challenge a contract prior to the closing date on the basis of fraud or misrepresentation. This is because buyers of real estate stand to lose their deposits, which in real estate acquisitions can represent a considerable percentage of the purchase price. The Princes Point buyer, for example, had deposited an amount representing approximately 10% of the purchase price.

The court in Princes Point distinguished an action for rescission from other cases involving plaintiffs seeking declaratory relief. Such other cases have held that actions seeking declaratory judgment as to a contract do not constitute anticipatory breach since declaratory judgment suits only serve to clarify the parties' rights. By contrast, the Appellate Division reasoned, in seeking rescission, the buyer sought to nullify the agreement entirely. As such, the Appellate Division found rescission suits to be "markedly different" from declaratory judgment suits, thereby constituting anticipatory breach. Thus, the use of declaratory judgment actions could be viewed as a safe harbor for real estate buyers in bringing claims prior to the closing date.

However, it is unclear based on the Princes Point decision whether a rescission claim will in all cases constitute repudiation. The particular facts in Princes Point seemed to have tipped the scales in favor of the seller. The Princes Point buyer waived all legal claims against the seller for failure to obtain the municipal approvals or complete the work needed to acquire them. The Princes Point buyer also agreed to a number of closing date extensions, even after the issues with the revetment seawall became well known.

The Princes Point buyer could have waited until the new outside closing date to terminate and receive a return of its deposit or waive the condition and close with an abatement to the purchase price should the condition to deliver the property with all municipal approvals had not been satisfied (in lieu of bringing its recession claim in advance of the closing date essentially based on the same concerns). Neither the 2004 purchase contract nor the 2006 amendment contained any representation by the seller in respect of the revetment seawall, or for that matter any representation by the seller as to the physical condition of the property. The 2006 amendment increased the purchase price, increased the deposit and afforded the seller a reimbursement of half the costs incurred in obtaining the municipal approvals likely because both parties were aware of DEC's concerns and that additional work was required to the revetment seawall. These and others were damning facts to the Princes Point buyer's case.

New York follows the "traditional standard," requiring an unequivocal statement or act. While filing suit is suggestive of a refusal to perform, it seems premature to declare that it is in all cases sufficiently unequivocal to constitute repudiation. One could argue that until rescission is granted, barring other facts such as those in Princes Point, the buyer remains able to retract the suit, settle or in some other way perform under the contract.

Other jurisdictions support this view. In California, there is no implied repudiation unless the party actually puts it out of his or her power to perform. As an example of the California rule in practice, a trustee in a bankruptcy does not anticipatorily breach with respect to a promisee's claim if within a reasonable time the trustee elects to perform the contract, even though bankruptcy is presumably strongly suggestive of the promisor's inability to perform. Even the Restatement (Second) of Contracts, which endorses the "relaxed standard," provides that to constitute repudiation, a party's act must be both voluntary and affirmative, and must make it actually or apparently impossible for him or her to perform. This approach seems to thoughtfully balance the aim of protecting the rights of contracting parties and the desire promoted by the principle of anticipatory breach which is to settle disputes early.

The Princes Point holding and its forthcoming conclusion to be decided by the Court of Appeals should be closely studied because it could have a lasting impact in New York on both substantive law and commercial real estate transactions generally. Whether or not a suit for rescission constitutes an anticipatory breach is an interesting legal question, but it also raises important practical concerns as noted herein. As the Court of Appeals deliberates, these issues and others are likely being considered. Until such time there is more certainty with respect to this issue, buyers of New York commercial real estate should restrain from bringing an action for rescission prior to the closing date. Instead, buyers could elect to bring a declaratory judgment action prior to the closing without risking a finding of anticipatory breach.

Otherwise, if an earlier remedy is not necessary, buyers could allege at the closing that the seller failed to satisfy the customary closing condition that all representations and warranties made by the seller remain true and correct in all material respects. In any case, buyers should be ready at closing to perform their contractual obligations while they wait to see if the seller can perform its obligations and avoid taking any actions at or before the closing that would likely suggest an inability or unwillingness to do so.

Previously published in REFI Guest Column

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Archer & Greiner P.C.
Arnold & Porter
Jeffer Mangels Butler & Mitchell LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Archer & Greiner P.C.
Arnold & Porter
Jeffer Mangels Butler & Mitchell LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions