New York Law Review

Tag: Land Disposition Agreement

  • Strauss v. Henry Phipps Plaza West, Inc., 6 N.Y.3d 783 (2005): Third-Party Beneficiary Rights and Intent to Benefit

    Strauss v. Henry Phipps Plaza West, Inc., 6 N.Y.3d 783 (2005)

    Parties asserting third-party beneficiary rights under a contract must establish that the contract was intended for their direct benefit, not merely an incidental benefit, indicating an assumption by the contracting parties of a duty to compensate them if the benefit is lost.

    Summary

    A group of tenants sued Henry Phipps Plaza West (HPPW), seeking to enforce purported third-party beneficiary rights under a Land Disposition Agreement (LDA). The tenants argued that the LDA required HPPW to remain in the Mitchell-Lama program longer than it did. The New York Court of Appeals held that the tenants lacked standing because the LDA explicitly negated any intent to permit its enforcement by third parties, thus the contract was not intended for their direct benefit. The decision clarifies the requirements for establishing third-party beneficiary rights in New York.

    Facts

    In 1964, New York City adopted an Urban Renewal Plan for Bellevue South, intending to redevelop the area for low- and moderate-income housing. The plan stipulated that redevelopers must devote the land solely to the uses specified within the plan for 40 years. In 1973, the City conveyed land to HPPW under a Land Disposition Agreement (LDA) to construct a residential apartment complex. Section 504(a) of the LDA required HPPW to use the site for purposes defined in the Urban Renewal Plan, with the covenant expiring on September 10, 2004. HPPW financed the project through the Mitchell-Lama program, receiving financial benefits in exchange for income and rent restrictions. HPPW withdrew from the Mitchell-Lama program in 2003 after receiving a no-objection letter from the Division of Housing and Community Renewal (DHCR).

    Procedural History

    A group of tenants sued HPPW, claiming third-party beneficiary rights under the LDA, seeking to enforce the Mitchell-Lama participation until at least September 10, 2004, or reformation of the LDA to extend the covenant until May 20, 2011. The Supreme Court dismissed the case for lack of standing. The Appellate Division affirmed the dismissal, and the tenants appealed to the New York Court of Appeals.

    Issue(s)

    Whether the tenants of Henry Phipps Plaza West have standing as third-party beneficiaries to enforce the Land Disposition Agreement (LDA) between the City of New York and HPPW.

    Holding

    No, because the LDA explicitly negated any intent to permit its enforcement by third parties, meaning it was not intended for the direct benefit of the tenants.

    Court’s Reasoning

    The Court of Appeals affirmed the lower courts’ decisions, emphasizing that to claim third-party beneficiary rights, plaintiffs must demonstrate: (1) a valid contract between other parties, (2) that the contract was intended for their benefit, and (3) that the benefit is sufficiently immediate, rather than incidental. The court found that Section 505 of the LDA explicitly negated any intention to allow enforcement by third parties like the tenants. Therefore, the tenants failed to establish that the LDA was intended for their benefit. The court cited Burns Jackson Miller Summit & Spitzer v. Lindner, 59 NY2d 314, 336 (1983), stating that parties must show “that the benefit to [them] is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate [them] if the benefit is lost”. Since the LDA contained language disclaiming any intent to benefit third parties, the tenants’ claim failed, and they lacked standing to sue. The court distinguished this case from situations where intent to benefit a third party is clear within the contract’s terms, solidifying the principle that explicit contractual language governs the determination of third-party beneficiary rights.

  • Kenford Co., Inc. v. County of Erie, 67 N.Y.2d 905 (1986): Enforceability of Agreement to Cooperate in Contract Law

    Kenford Co., Inc. v. County of Erie, 67 N.Y.2d 905 (1986)

    A party can be held liable for breach of contract if it fails to act in good faith and cooperate with the other party to fulfill the contract’s objectives, even if ultimate approval rests with a third party or the contract allows for termination.

    Summary

    Kenford Co. sued Erie County for breach of contract, alleging the county failed to cooperate in developing a Land Disposition Agreement (LDA) as designated. The county moved to dismiss for failure to state a cause of action. The Court of Appeals held that Kenford sufficiently pleaded causes of action for breach of contract. Even though the Board of Estimate had final approval and the county could terminate the agreement, the county had a contractual obligation to cooperate in good faith. The court found the allegation of bad faith ‘dedesignation’ sufficient to state a claim.

    Facts

    Erie County, through its Department of Housing Preservation and Development (HPD), selected Kenford Co. to negotiate a Land Disposition Agreement (LDA) for the sale and development of urban renewal areas. This selection was formalized through designation agreements. Kenford was to prepare the LDA for submission and approval, and the County agreed to cooperate in the process. Kenford alleges it fulfilled its obligations and incurred substantial expenses in preparing the LDA. However, the County, acting in bad faith and without good cause, “dedesignated” Kenford, thus breaching the agreement.

    Procedural History

    Kenford sued Erie County for breach of contract. The County moved to dismiss the complaint under CPLR 3211 (a) (7) for failure to state a cause of action. The trial court denied the motion. The Appellate Division affirmed the trial court’s decision. The County appealed to the New York Court of Appeals, which affirmed the Appellate Division’s order.

    Issue(s)

    Whether the plaintiff sufficiently pleaded a cause of action for breach of contract based on the defendant’s alleged failure to cooperate in good faith, despite the fact that final approval of the Land Disposition Agreement rested with a third party (the Board of Estimate) and the defendant had the right to terminate the agreement.

    Holding

    Yes, because the County undertook a contractual obligation to cooperate with Kenford in preparing the LDA for submission and approval, and the allegation that the County acted in bad faith by “dedesignating” Kenford without cause was sufficient to state a claim for breach of contract.

    Court’s Reasoning

    The Court of Appeals reasoned that the claims rested upon an alleged breach of the obligation undertaken by Erie County, acting through HPD, to cooperate with Kenford in preparing the necessary LDA for approval. The court stated that the fact that the city might have refused to continue negotiations, that only the Board of Estimate was authorized to finally approve the LDA, or that HPD could “dedesignate” Kenford before the LDA was approved were immaterial on a motion addressed to the face of the pleadings. “The allegation is that defendant acted without cause and for improper motives in ‘dedesignating’ plaintiff in violation of its good-faith contractual obligation to cooperate.”

    The court acknowledged that Kenford might not be able to recover damages resulting from the County’s failure to sell the sites or approve the LDA because no agency with the authority to act on behalf of the city was bound by the designation agreement. However, the court emphasized that the County, through HPD, did undertake to cooperate with Kenford in the preparations and negotiations leading to the LDA submission and approval. The court stated that Kenford did not assume the risk of bad faith by the County or of its unexcused breach of its contractual obligation. The court stated that “Similarly immaterial on a motion addressed to the sufficiency of the pleading is defendant’s claim that plaintiff cannot recover all of the items of damage claimed.”