Breach of Boilerplate
There has been a recent flurry of interest in the so-called “covenant against grantor’s acts” contained in the commonly used bargain and sale deed (Statutory Form CC found in RPL §258). In Schottland, et al. v. Brown Harris Stevens Brooklyn LLC, et al., 2013 NY Slip Op 03982, (2nd Dept., June 5, 2013), the Court refused to dismiss a claim for breach of the covenant, even though the grantee had (at least) constructive notice of the prior encumbrance.
This holding really breaks no new ground. As early as 1889, the Court of Appeals made it clear that even actual knowledge of the easement was no defense to a breach of covenant action--“the covenant against incumbrances [sic] is broken by an outstanding easement of any kind...and...knowledge by the grantee of the existence of the easement...makes [no] difference.” Huyck v. Andrews, 113 N.Y. 81, 85 (1889). If there is a lesson here, it’s that “boilerplate” provisions should be seriously considered during the drafting stage. Such provisions that are incompatible with the intent of the parties should be stricken or modified accordingly.
What will make this case interesting is the manner in which damages, if any, are determined. Typically, damages in an easement case are determined by the difference in value of the burdened property with and without the easement. In Schottland, the encumbrance was a “façade” easement granted to the National Architectural Trust, Inc. It may turn out that the easement actually increased the value of the parcel precisely because it restricted its alteration. Constructive Notice subscribers might remember that the Second Department recently gave its blessing to such an approach in Nastasi v. County of Suffolk. In addition, were the grantee actually aware of the easement during the pre-purchase negotiations, the price paid may reflect the value of the parcel as burdened, resulting in no net loss to the grantee. We’ll have to see where the evidence leads.