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Claims of Active Concealment and Misrepresentations in Real Estate Sale Survive Dismissal Motion

Apr 16, 2024Litigation & Dispute Resolution

In the recent decision of the Appellate Division, Second Department, in New Hackensack Realty, LLC v Lawrence Dev. Realty, LLC, 2024 NY Slip Op 01933 (2d Dep’t Decided April 10, 2024), the court addressed two reoccurring subjects: (1) whether representations contained in the subject contract can form the basis of fraud claims; and (2) the parameters for a claim of active concealment in real property sale transactions.

New Hackensack

The facts in New Hackensack were fairly straightforward. Plaintiffs were the purchasers of real property on which a shopping center was located and for which certain leases existed. In the contract of sale, a rider contained certain representations regarding the property, including with regard to the leases, the landlord-owner’s compliance with work requirements thereunder, and rental income. The contract provided that those representations survived the closing.

After the transaction closed, plaintiff-purchaser allegedly discovered that the seller had misrepresented the amount of rental income that was being paid by tenants of the shopping center, the potential for additional development of the property, and the condition of the septic system for the property.

Plaintiff brought an action alleging breach of the sale contract as well as claims for fraud, fraudulent inducement, active concealment and unjust enrichment. Defendants moved to dismiss under CPLR 3211(a)(1) and (7). The lower court dismissed all claims except for breach of contract. As to the fraud claims, the court ruled that to the extent the fraud claims were based upon any contractual representations, they were subsumed into the breach of contract claim and thereby dismissed. As to alleged representations regarding the future development of the real property, the court found that plaintiff had not justifiably relied on such representations because documentary evidence showed there could be no assurance of such future development.

Read the full blog here.