By: Israel A. Katz
An equitable vendee’s lien is an often-underutilized and little-known common law doctrine that offers significant protection to purchasers of real property in New York. It arises when a buyer purchases property from a seller, but the seller fails to convey clear title to the property or otherwise breaches a material provision of the purchase agreement, which entitles the purchaser to terminate or rescind the agreement and demand the return of its contract deposit. The equitable vendee’s lien is a legal remedy that allows the purchaser to assert a claim against the real property being conveyed up to the amount of its contract deposit in order to secure the re-payment of the contract deposit from the seller.
The real value and power of this equitable doctrine is that it affords the purchaser the ability to file a notice of pendency against the property in dispute. A notice of pendency may only be filed if the relief sought in the complaint would affect title or possession to real property. This is why the equitable lien doctrine is such a game changer: The doctrine converts the purchaser’s claim from one of money damages only (i.e., the return of its contract deposit) into one seeking to foreclose a lien on real property, which is premised on the purchaser filing a notice of pendency against the real property. The novelty of this doctrine is that it applies even if the purchaser takes a seemingly contradictory position seeking rescission or termination of the contract.
In fact, CPLR 3002(f) makes explicit that a vendee’s lien arises even where a purchaser asserts such a contradictory claim of rescission or termination of the contract:
Vendee’s lien not to depend upon form of action. When relief is sought, in an action or by way of defense or counterclaim, by a vendee under an agreement for the sale or exchange of real property, because of the rescission, failure, invalidity or disaffirmance of such agreement, a vendee’s lien upon the property shall not be denied merely because the claim is for rescission, or is based upon the rescission, failure, invalidity or disaffirmance of such agreement
The filing of the notice pendency offers the purchaser significant advantage in negotiations with the seller, as it effectively prevents the seller from selling, transferring or mortgaging the property to anyone else without first satisfying the purchaser’s lien. Faced with those issues, the seller will often be eager to resolve the issue and remove the notice of pendency in order to clear the way for a sale to a third party, or to refinance or obtain new mortgage loans.
Purchasers of cooperative apartments are the exception to this rule. New York courts have consistently held that a notice of pendency may not be filed in connection with a dispute concerning the conveyance of a co-op apartment, because the conveyance of a co-op apartment is not a conveyance of real property. Rather, it is the sale of a proprietary lease for a particular apartment in the building coupled with an ownership interest in the shares of the cooperative that are allocated to the apartment. Because there is no conveyance of real property, no equitable lien arises and no notice of pendency may be placed on the apartment, co-op building or co-op shares while the contract dispute is being litigated.
In sum, an equitable vendee’s lien is a valuable and powerful legal tool that allows buyers of real property in New York to protect their investment and secure repayment of their contract deposits. By seeking the imposition of, and foreclosure on, such a lien and filing a notice of pendency, the buyer can effectively prevent the seller from selling or transferring the property to anyone else, or mortgaging the property, and can thus gain significant leverage in the negotiations and litigation surrounding the contract deposit dispute.
Israel A. Katz is an associate in the Firm’s Litigation Department concentrating in complex commercial real estate litigation matters. Israel can be reached at 212-867-4466 ext.824 (firstname.lastname@example.org).