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Watch Those Emails

A New York court has recently found that e-mail correspondence between a buyer and a seller can serve as a contract in a real estate transaction.

The case of Naldi v. Grunberg centered on whether the seller of 15-19 West 55th Street violated the buyer’s pre-contract right of first refusal when it sold the property to a third party.

During initial negotiations, the seller’s broker acknowledged the plaintiff buyer’s offer to purchase the property for $50 million, made a counteroffer for $52 million, and granted the buyer a 30-day right of first refusal if the seller wished to sell the property to a third party.  All the foregoing took place via e-mail between the brokers.

After that e-mail correspondence, the buyer proceeded to perform due diligence on the property at a significant cost.  The buyer brought the subject lawsuit after the seller sold the property to a third party for $52 million without giving the buyer a chance to exercise its right of first refusal.

Although the Appellate Division ultimately ruled that no contract was formed under the particular circumstances of the case (there was no meeting of the minds as to the terms of the proposed right of first refusal), the Court did state that the buyer’s right of first refusal was not barred by the statute of frauds simply because it was memorialized only in e-mail.

In support of this finding, the Court rejected the seller’s argument that amendments to §5-701(b) of the General Obligations Law, which permit e-mail signatures in certain “qualified financial contracts,” are not applicable to real estate transactions (which are governed by §5-703).  The Court said:

“This argument might have had some plausibility as a matter of statutory construction when GOL §5-701(b) was first enacted.  Sixteen year later, however, with e-mail omnipresent in both business and personal affairs, it is too late in the day to accept it.”

This finding could certainly have far reaching consequences for real estate professionals accustomed to negotiating deals via e-mail.  One suggestion would be to include the following statement in all e-mail communications concerning the purchase, sale or lease of real property:

“The provisions contained in this communication are not to be considered binding upon either party unless and until fully executed copies of a complete [contract/lease] are signed and exchanged between the parties.”

Nahum Palefski

Nahum is an associate attorney at the Law Offices of Jerome J. Strelov and concentrates on real estate matters.

Category: Email Issues, News, The Buyers World, The Sellers World Comment »

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