Tortious Interference with Sales Contracts in NYC Real Estate Deals

Under New York law, persons and businesses are generally free to enter into various contracts, including selling and purchasing real estate. Further, under New York law, third parties cannot use unlawful means to interfere with an existing or potential contract. If this happens, the third party could be liable for monetary damages. This is what is called “tortious interference with contract” (or “tortious interference with a prospective contract”). The key, of course, is whether the third party used “unlawful means” to interfere with a contract. Generally, competing in the marketplace is not an “unlawful means.” Thus, offering a similar product at a lower price is not considered tortious interference with the contract. If there are sufficient grounds, tortious interference claims will result in litigation.

A Tortious Interference Case in New York

An excellent example of this was recently reported here by the Real Deal media platform. It was also reported here in the Commercial Observer. As reported, a Manhattan developer called Landsea Homes has been sued by a contract purchaser for an 11,200-square-foot retail midtown unit. The purchaser is/was a company called Extell Development. According to the reports, Extell and Landsea were to close the purchase in early June 2022. But, according to Extell, the commercial condominium space had not yet been completed. Further, according to reports, Extell had already found a tenant for the space identified only as a “well-capitalized national bank.”

In its lawsuit, Extell accuses Landsea of “concocting a scheme” to get out of selling the condominium unit and of tortiously interfering with Extell’s potential lease contract with the national bank. As reported, Landsea is accused of “attempting to execute a lease of its own with the tenant…”As reported and alleged, the “scheme” to get out of the sales contract involved false statements by Landsea that the unit finished and “strong-arm” tactics used to force closing on the sale even though Extell was still disputing whether the unit was finished. According to Extell, the “scheme” was to allow Landsea to wrongfully cancel the sales contract, retain possession of the condominium unit, and then lease the unit to the national bank tenant. In this way, Landsea would benefit from the income stream generated by the lease payments.

How will it Play Out?

The lawsuit is pending before a judge in the New York Supreme Court, and the case is just beginning. It is unknown whether Extell can prove the allegations and whether Landsea has a solid legal defense. But, as reported and as the court filings have stated, the case presents an interesting example of alleged tortious interference under New York law. To win, Extell will have to show the following:

  • That it had a legitimate contractual relationship or potential relationship with the national bank
  • That Landsea interfered
  • That the interference caused the contractual relationship to terminate (or be otherwise injured)
  • That some actual injury occurred to Extell — like loss of rental income
  • That Landsea used unlawful means or was not privileged to interfere

It will be interesting to follow the case as it proceeds.

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