Bleecker Street Tenants Corp. v. Bleeker Jones LLC , 16 N.Y.3d 272 ( 2011 )

OPINION OF THE COURT

Jones, J.

The appeal before this Court presents the novel question whether options to renew a commercial lease are subject to EPTL 9-1.1 (b), New York’s rule against perpetuities. We hold that the rule against perpetuities does not apply to options to renew leases.

Plaintiff Bleecker Street Tenants Corp. is owner of a six-story walkup on Bleecker Street, which was converted to cooperative ownership in September 1983. Plaintiff leased the building’s first-floor commercial space to defendant Bleecker Jones Leasing Company, defendant Bleeker Jones LLC’s predecessor in interest. The lease agreement was contemporaneous with the co-op conversion.

The lease, in relevant parts, provided for an initial lease term of 14 years, with nine consecutive options to renew for a 10-year-period. Each renewal option term was to “commence on the first day of the calendar month immediately following the expiration of the immediate preceding term of this lease.” The lessee could exercise the renewal options together or successively and by giving written notice to the lessor at least six “months prior to the expiration date of each immediately preceding term.” If the lessee did not timely exercise a renewal option and the lessor did not provide notice of the existence of an option within seven months prior to the date of each expiring term, then each renewal option remained in effect until the lessor notified the lessee in writing of its right to exercise each option. The lessee then had 60 days to exercise such renewal option. Lastly, “[i]f the term shall have expired, [Lessee shall remain in possession as a month-to-month tenant until” lessor complied with the notice requirements. The parties agree that, under these provisions, a renewal option could be exercised even after the original lease term had expired, during the month-to-month tenancies resulting from the absence of written notice.

In August 1997, the initial 14-year lease term expired. Defendant Bleeker Jones did not exercise any lease option thereafter. It remained in possession as a month-to-month tenant until plaintiff commenced this action in December 2007, seeking to void the lease renewal options under EPTL 9-1.1 (b) and the common-law rule against unreasonable restraints on alienation. Defendants moved and plaintiff cross-moved for summary judgment.

Supreme Court granted defendants’ motion for summary judgment dismissing the complaint while denying that of plaintiff (2008 NY Slip Op 32263[U]). The court concluded that the renewal options were appurtenant to the lease, exercisable during the lease term and, therefore, valid. The Appellate Division reversed (65 AD3d 240 [2009]), declaring the renewal options clause void under EPTL 9-1.1 (b). The court determined that the lease term had expired prior to any renewal option having been exercised and, thus, concluded that the option could not be appurtenant to the lease. We now reverse.

“No estate in property shall be valid unless it must vest, if at all, not later than twenty-one years after one or more lives in being at the creation of the estate and any period of gestation involved” (EPTL 9-1.1 [b]). This rule—a “prohibition against remote vesting”—codified the American common-law rule (Symphony Space v Pergola Props., 88 NY2d 466, 471, 475 [1996]).¹ Traditionally, the rule sought to limit an owner’s right to control title of property indefinitely, commonly known as a landowner’s dead-hand control (see 88 NY2d at 475; Metropolitan Transp. Auth. v Bruken Realty Corp., 67 NY2d 156, 160 [1986]). Both in their early and modern forms, rules restricting future dispositions of property were founded on the “principle that it is socially undesirable for property to be inalienable for an unreasonable period of time” (Symphony Space, 88 NY2d at 475). The underlying objective of the rule remains: to protect the alienability of property (see 1965 NY Legis Ann, at 206-207; see also Berg, Long-Term Options and the Rule Against Perpetuities, 37 Cal L Rev 1, 2 [1949]).

“Under the common law, options to purchase land are subject to the rule against remote vesting” (Symphony Space, 88 NY2d at 476; see also Leach, Perpetuities in a Nutshell, 51 Harv L Rev, 638, 660 [1938]). Though scholars proposed that commercial transactions be exempted from the rule against perpetuities, in Symphony Space, the Court held that EPTL 9-1.1 (b) applies to all options to purchase (88 NY2d at 477). An option to purchase land “grants to the holder the power to compel the owner of property to sell it whether the owner is willing to part with ownership or not” (Bruken, 67 NY2d at 163). If the option to purchase does not comply with the rule against perpetuities, that interest could be exercised, or vest, at a time remote to the acquisition of such right. As the Bruken Court noted, the option to purchase in Buffalo Seminary v McCarthy (86 AD2d 435 [4th Dept 1982], affd 58 NY2d 867 [1983]) “granted the holder an unlimited right to buy the owner’s land at any time” (67 NY2d at 163). It is that uncertainty of title which renders the property “inalienable for an unreasonable period of time” (Symphony Space, 88 NY2d at 475). The Symphony Space Court reasoned: “Inasmuch as the common-law prohibition against remote vesting applies to both commercial and noncommercial options, it likewise follows that the Legislature intended EPTL 9-1.1 (b) to apply to commercial purchase options as well” (id. at 478).

The Symphony Space Court also recognized that certain options to purchase land, options appurtenant or appendant to a lease, are not invalid under the rule against perpetuities if the option “originates in one of the lease provisions, is not exercisable after lease expiration, and is incapable of separation from the lease” (id. at 480; see also Metropolitan Transp. Auth. v Bruken Realty Corp., 67 NY2d 156, 165 [1986]; 3 Simes and Smith, The Law of Future Interests § 1244 [3d ed]). The Court reasoned that such options “encourage the possessory holder to invest in maintaining and developing the property by guaranteeing the option holder the ultimate benefit of any such investment. Options appurtenant thus further the policy objectives underlying the rule against remote vesting and are not contemplated by EPTL 9-1.1 (b)” (Symphony Space, 88 NY2d at 480).

We now turn to whether EPTL 9-1.1 (b) applies to options to renew leases.

Under the common law, “it [was] well settled that perpetual options to renew leases have always been held valid” (Leach, Perpetuities in a Nutshell, 51 Harv L Rev at 662; accord Abbot, Leases and the Rule Against Perpetuities, 27 Yale LJ 878, 883 [1918] [“There seems to be no question . . . that such an option is good”]; Burns v City of New York, 213 NY 516, 520 [1915] [expressly-stated continual lease renewal covenants are valid; it “was the law in England and has been frequently stated by writers and in opinions by the courts both in England and in this country”]; Hoff v Royal Metal Furniture Co., 117 App Div 884, 885 [2d Dept 1907] [concluded that covenants for perpetual renewals “are lawful and in general use”]; see also Perpetual lease or covenant to renew lease perpetually as violation of rule against perpetuities or the suspension of the power of alienation, 3 ALR 498 [1919]; Berg, 37 Cal L Rev at 22) .² Thus, because the rule against perpetuities has not applied to options to renew leases under the American common law and EPTL 9-1.1 (b) codifies the American common law, it follows that options to renew leases also fall outside of the scope of EPTL 9-1.1 (b).

Moreover, an option to renew, like a purchase option appurtenant to a lease, furthers the policy goals of the rule against remote vesting. At the same time, lease renewal options or covenants for perpetual lease renewals are wholly distinguishable from purchase options in two respects: an option to renew a lease (1) is exercisable pursuant to the lease agreement and, thus, inherently appurtenant to the lease and (2) lacks the power to divest title of that property to the option holder. It also has been noted that these “covenants” are often part of commercial leases, rendering the lease more attractive and readily alienable than less so (3 Simes and Smith, The Law of Future Interests § 1243 [3d ed]; Berg, 37 Cal L Rev at 23). Thus, lease renewal options appropriately remain valid.

Here, the parties expressly agreed upon nine consecutive renewal options to the 14-year lease term, exercisable according to particular notice requirements. They are not inconsistent with the purpose of the rule against perpetuities because they continue the tenant’s possession of the property without interruption, thus encouraging the efficient use of the property. The dissent argues that excluding renewal options from the rule’s coverage will undermine the purposes of the rule, suggesting the possibility of a former tenant “retaking possession of the . . . property” after its lease has expired (dissenting op at 287). But our holding does not leave open this possibility, for an option exercisable by a former tenant no longer in possession is not a renewal option: it is an option to enter into a new lease. In the present case, it is clear from the lease that, so long as the renewal options existed, the tenant would remain a tenant, lawfully in possession of the property, at least on a month-to-month basis. There is no sound reason of policy to invalidate such a tenant’s option to renew.

Accordingly, the order of the Appellate Division should be reversed, with costs, the motion of defendants Bleeker Jones LLC and Bleecker Jones Leasing Company for summary judgment granted and judgment granted declaring in accordance with the opinion.

1 . The Legislature “intended to make clear that the American common law rule against perpetuities has been and now is in force in New York” (Mem of Temporary Commission on the Law of Estates, 1965 NY Legis Ann, at 206).

2 . Although scholars have questioned whether the validity of such renewal options is excepted or exempted from the rule against perpetuities, they have agreed that those interests are valid, without reservations or limitations (see Abbot, 27 Yale LJ at 884; see also Berg, 37 Cal L Rev at 22). The option to renew “has been consistently sustained for over 200 years in England,” in most cases with “no discussion of the rule . . . Moreover several of the American cases do expressly consider the validity of such covenants under the rule and uphold them none the less. But whether the rule be actually discussed or not, the mere weight of decision seems sufficient to establish the result” (Abbot, 27 Yale LJ at 883-884). Additionally, the concurring and dissenting opinions dispute our reading of the authorities; but neither cites any authority of any kind from any jurisdiction that either says or holds that lease renewal options are subject to the rule against perpetuities.