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Lee v. Tenafly Associates, LLC

A-0144-09T1 (N.J. Super. App. Div. 2010) (Unpublished)

CONTRACTS; EXTENSIONS — Where a party has the right to extend a closing date if it gives certain notices under the contract, such an extension will not be enforced if the notices are not given even if the conditions precedent to exercising the extension right have been satisfied.

A buyer entered into a contract for the purchase of a to-be-constructed condominium for $1,500,000. She gave a deposit of $150,000. The contract set an anticipated closing date, but gave the seller the right to postpone the closing for up to six months if it could not deliver by the closing date. The seller had to notify the buyer in writing that the closing had been postponed. Another contract clause required the buyer to timely select furnishings and accessories for the unit. At the seller’s option, the closing date could be extended for a period of time equal to the buyer’s delay in making a timely selection. This clause did not contain a notification provision; however, another contract provision captioned “Notices” required any notice, option, election, demand or other communication pursuant to the agreement to be in writing.

The closing did not occur on the anticipated closing date, but notice of the seller’s right to postpone was not sent. The seller took the position that no notice was required because the buyer had failed to timely make her selections, thereby delaying construction. The buyer asserted that notice was required as the result of the “Notices” paragraph and that her selections were timely made. The seller contacted the buyer’s attorney in an effort to establish a closing date. The buyer responded that she did not want to pursue the purchase of property and wanted to recover her deposit plus amounts spent toward upgrades because completion of the unit had been delayed for a period in excess of six months from the anticipated closing date. The seller responded that it was entitled to an extension of the closing date for the time it took the buyer to select furnishings (one year and seven days), and so it was within time to close. Subsequently, a certificate of occupancy was issued. Prior to its issuance, the seller notified the buyer of a time of the essence closing date, but the closing did not take place. However, the buyer ordered a title search and received a preliminary mortgage commitment. The buyer’s lender ultimately did not approve the loan.

The buyer sued the seller when the seller refused to return the deposit and selection costs, claiming the amounts were due it as liquidated damages. The lower court granted summary judgment for the seller on a motion for reconsideration, finding that the buyer’s selection delay resulted in the creation of a newly anticipated closing date rather than a postponed date. The court said that when the buyer failed to close, it breached the contract and triggered the seller’s right to liquidated damages (the security deposit and furnishing expenditures) under the contract. The buyer appealed.

The Appellate Division reversed, finding that the seller did not validly extend the closing date pursuant to the contract because it did not provide notice of the exercise of its option to extend as required under the “Notices” paragraph. The Court held that interpretation of contract principles required a finding that the “Notices” paragraph also applied to the seller’s intention to postpone a closing date for the length of time that the buyer took to select furnishings. The Court remanded the matter for trial to determine the effect of the seller’s failure to provide this notice. The Court also remanded for consideration whether the contract’s liquidated damages clause could be enforced in light of the seller’s ability to quantify the damages that it allegedly sustained.


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