Symphony Space, Inc. v. Pergola Properties, Inc.

669 N.E. 2d 799 (1996)

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Nature of the Case

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Facts

Broadwest Realty Corporation owned a building in New York and had been unable to secure a permanent tenant for the building’s theater which was 58% of the total building space. Symphony Space, Inc. (P) was a not-for-profit entity devoted to the arts. P had previously rented space from Broadwest for one-night engagements. Broadwest also owned two adjacent properties and had been operating its properties at a net loss. In 1978, Broadwest sold the building to P for a below market price of $10,010 and leased back the income producing commercial property excluding the theater for $1 per year. Broadwest maintained liability for an existing mortgage of $243,000 as well as maintenance. As a condition of the sale, P for consideration of $10 granted to Broadwest an option to repurchase the entire building. This arrangement was accomplished in order for P to seek a property tax exemption for the entire property as they were a non-profit. This was to reduce Broadwest's real estate taxes by $30,000 per year and permitted Broadwest to retain the rental property income which produced $140,000 per year. A contract was executed. The option period specified in the contract allowed Broadwest to exercise its option at specified calendar years. The option agreement was unconditional and was not to be impaired in any way by Broadwest's performance or nonperformance, of any obligations to be performed under the lease. The option was to be a covenant running with the land. After P obtained a tax exemption, Broadwest sold its interest in the lease, option, mortgage, mortgage note and its ownership interest in the contiguous properties for $4.8 million to Pergola Properties (D), Swett, Casandium Limited, and Darenth Consultants as tenants in common. Ds converted the buildings to co-ops, and the values of the properties increased substantially. By August of 1988, the value has risen to $27 million, but without the option, they were worth $5.5 million. Due to P's alleged default on the mortgage note, defendant Swett served P notice that it was exercising the option on behalf of all Ds. P disputed that it was in default and sued for a declaratory judgment arguing that the option agreement violated the Rule Against Perpetuities. P's motion for summary judgment was granted; the open option violated the Rule. D's counterclaim for rescission of the agreements based on mutual mistake and that was dismissed. The appeals court agreed; the commercial option was subject to the Rule and rescission was inappropriate.