Eminent Domain FAQ

View Eminent Domain/Condemnation FAQ
Eminent Domain FAQs about Eminent Domain Condemnation Law.

When a condemnation occurs after closing on a contract or lease, the buyer or lessee may seek to rescind the sale or lease based on fraud because the seller concealed that fact that all or part of the property was to be condemned; or, alternatively, the buyer may seek damages for the alleged concealment. However, as a general rule, in the absence of a specific and contractual provision governing the situation, there is no basis to rescind the sale or lease or obtain damages; even if the seller or lessor was supposedly personally aware of the pending taking.

In Brockton Associates, Inc. v. Weinbaum, 23 Misc.2d 109, 198 N.Y.S.2d 675 (1960), the court held:

‟. . . it has been held that the seller is under no duty to speak; the parties deal at arm’s length. The mere silence of the seller without some act or conduct which deceives the purchaser does not amount to a concealment that is actionable as an active fraud. See Perin v. Mardine Realty Co., 5 A.D.2d 685, 168 N.Y.S.2d 647 (2d Dept. 1957) (buyer alleged that seller failed to volunteer the facts, but the seller did not have a duty to speak).”

The same rule applies to title insurers. In L. Smirlock Realty Corp. v. Title Guarantee Co., 52 N.Y.2d 279, 437 N.Y.S.2d 57 (N.Y. 1981), the Court of Appeals held that the existence of the condemnation was readily ascertainable and therefore the insured had “no duty to disclose the publicly available information.” The Court held that the policy would not be void:

‟This case, there was no showing that plaintiff’s agent, Tucker, intentionally failed to disclose the information concerning the Carvel Place condemnation. In fact, it would appear that defendant was at least put on notice as to the existence of condemnations affecting the Bass Rock property by the recital in the sales contract assigning all condemnation awards to plaintiff and by the discussion of the condemnation of the small southwest parcel which took place at the closing.
In any event, it is undisputed that the existence of the St. George Street and Jeanette Avenue condemnations was readily ascertainable from the public records available at the Nassau County Clerk’s Office. Defendant, having failed to avail itself of this information, now attempts to avoid its obligation under the policy by claiming plaintiff failed to disclose material information concerning title to the property. However, because the plaintiff was under no duty to disclose this publicly available information to defendant, the policy will not be rendered void pursuant to the misrepresentation provision found therein.”

Essentially, the controlling principle of law in the State of New York is the “Caveat Emptor” rule.

In the case of Beach 104th St. Realty, Inc. v. Kisselew-Mazel Realty, LLC, 76 A.D.3d, 661, 906 N.Y.S.2d 614 (2nd Dept. 2010), the Appellate Division, Second Department, recently summarized the applicable law and held:

“New York adheres to the doctrine of caveat emptor and imposes no duty on the seller or the seller’s agent to disclose any information concerning the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller or the seller’s agent which constitutes active concealment” (Matos v. Crimmins, 40 A.D.3d 1053, 1054, 837 N.Y.S.2nd 234, quoting Jablonski v. Rapalje, 14 A.D.3d at 485, 788 N.Y.S.2d 158; see Laxer v. Edelman, 75 A.D.3d 584, 585-586, 905 N.Y.S.2d 649; Daly v. Kochanowicz, 67 A.D.3d 78, 87, 884 N.Y.S.2d 144; Simone v. Homecheck Real Estate Serv., Inc., 42 A.D.3d 518, 520, 840 N.Y.S.2d 398).
“The mere silence of the seller, without some act or conduct which deceived the purchaser, does not amount to a concealment that is actionable as a fraud” (Rozen v. 7 Calf Cr. LLC, 52 A.D.3d at 593, 860 N.Y.S.2d 155; see Daly v. Kochanowicz, 67 A.D.3d at 91, 884 N.Y.S.2d 144; Simone v. Homecheck Real Estate Serv., Inc., 42 A.D.3d at 520, 840 N.Y.S.2d 398).
“To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill [its] responsibilities fixed by the doctrine of caveat emptor” (Jablonski v. Rapalje, 14 A.D.3d at 485, 788 N.Y.S. 2d 158; see Laxer v. Edelman, 75 A.D.3d 584, 585-586, 905 N.Y.S.2d 649; Commander Terms, LLC v. Commander Oil Corp., 71 A.D.3d 623, 897 N.Y.S.2d 151; Daly v. Kochanowicz, A.D. 67 A.D.3d at 92, 884 N.Y.S.2d 144).

Furthermore, given the fact that the City had to publish its intent to seek condemnation of the properties, held public hearings regarding the condemnation, and filed the Planning Commission’s resolutions approving the applications with the Office of the Speaker of the City Council and the Queens Borough President in accordance with section197-d of the New York City Charter, the knowledge of the condemnation was not a matter within the peculiar knowledge of the defendants and therefore, could have been discovered through the exercise of due diligence (see Daly v. Kochanowicz, 67 A.D.3d at 94, 884 N.Y.S.2d 144).

See also, Khindri v. Getty Petroleum Marketing, Inc., 33 Misc.3d 1208(A), 2011 NY Slip Op. 51818(U) (2011).

This type of situation where the sale has actually closed is to be distinguished from the situation where a condemnation occurs between the time of contract and the closing. In that circumstance, in the absence of a specific contractual provision to the contrary, there is a statutory ‟catch-all” provision which governs. Specifically General Obligations Law Section 5-1311 which provides in relevant part:

§ 5-1311. Uniform vendor and purchaser risk act

1. Any contract for the purchase and sale or exchange of realty shall be interpreted, unless the contract expressly provides otherwise, as including an agreement that the parties shall have the following rights and duties:

a. When neither the legal title nor the possession of the subject matter of the contract has been transferred to the purchaser: (1) if all or a material part thereof is destroyed without fault of the purchaser or is taken by eminent domain, the vendor cannot enforce the contract, and the purchaser is entitled to recover any portion of the price that he has paid; but nothing herein contained shall be deemed to deprive the vendor of any right to recover damages against the purchaser for any breach of contract by the purchaser prior to the destruction or taking; (2) if an immaterial part thereof is destroyed without fault of the purchaser or is taken by eminent domain, neither the vendor nor the purchaser is thereby deprived of the right to enforce the contract; but there shall be, to the extent of the destruction or taking, an abatement of the purchase price.” (Emphasis Added)

Obviously, standards such as “immaterial” and “abatement” are terms which lend themselves to subjective interpretation and potential litigation. It is therefore recommended that before entering into any contract of sale (or major lease) that the practitioner exercise due diligence to ascertain whether any condemnations – especially partial takings such as road widenings – are contemplated by the State or locality. Further, the contract or lease should contain a “condemnation clause” to govern the economic rights (i.e., allocation of the award or right to rescind) of the parties in the event of condemnation.

For questions or to discuss items presented in this topic, please contact Saul Fenchel.