Court Opinion

ID: 5486575
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:15:08.663665+00
Date Added: 2024-06-11T08:33:32.376048
License: Public Domain

Graffeo, J. (dissenting).
I write separately because I believe that the majority’s broad rule exempting all options to renew leases from the statutory rule against perpetuities cannot be reconciled with the text of EPTL 9-1.1 (b) and is inconsistent with the analytical framework that we adopted in Symphony Space v Pergola Props. (88 NY2d 466 [1996]).
The rule against perpetuities has been codified in New York since the early 1800s (see id. at 475). It is premised on the belief that “it is socially undesirable for property to be inalienable for an unreasonable period of time” (id.). As a result, the rule’s purpose is “ ‘to ensure the productive use and development of property by its current beneficial owners by simplifying ownership, facilitating exchange and freeing property from unknown or embarrassing impediments to alienability’ ” (id., quoting Metropolitan Transp. Auth. v Bruken Realty Corp., 67 NY2d 156, 161 [1986]).
The majority correctly observes that, in the early twentieth century, we held that an option to renew a lease was outside the scope of New York’s rule against perpetuities if the lease clearly manifested an intent to create a right to renew in perpetuity (see e.g. Burns v City of New York, 213 NY 516, 520 [1915]; Hoff v Royal Metal Furniture Co., 117 App Div 884 [2d Dept 1907], affd 189 NY 555 [1907]; see generally Leach, Perpetuities in a Nutshell, 51 Harv L Rev 638, 662 [1938]). By the early 1900s, New York had a statutory rule against perpetuities, but it was drafted so narrowly that it covered “only contingent remainders on terms of years and fees limited upon prior fees upon contingencies” (Buffalo Seminary v McCarthy, 86 AD2d 435, 440 [4th Dept 1982], affd 58 NY2d 867 [1983], citing, inter alia, Real Property Law §§ 46, 50, formerly 1 Rev Stat of NY, part II, ch I, tit II, §§ 20, 24 [1st ed]; Matter of Wilcox, 194 NY 288, 298 *285[1909]).1 Because an option to renew a lease was not encompassed within these two categories of property interests, the decisions in Burns and Hoff were consistent with the statutes then in effect.
The more widely accepted American common law at that time, in contrast, utilized a broader definition of the rule against perpetuities: “No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest” (Buffalo Seminary, 86 AD2d at 441 n 4 [internal quotation marks omitted]). On its face, the American rule covered all interests in real property, including options and leases. In 1965, the Legislature recognized this principle when it enacted Real Property Law former § 43 with the specific intent “to incorporate the American common-law rules governing perpetuities” and thereby expanded the rule beyond the restrictive reach previously applied (Symphony Space, 88 NY2d at 478).
EPTL 9-1.1 (b) is the current version of New York’s rule against perpetuities. It was enacted in 1966 and similar to its predecessor, the statute provides that “[n]o 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.” We have determined on several occasions that section 9-1.1 (b) applies to options in real estate (see e.g. Symphony Space, 88 NY2d at 477 [“It is now settled in New York that, generally, EPTL 9-1.1 (b) applies to options”]; Wildenstein & Co. v Wallis, 79 NY2d 641, 648 [1992] [“the rule (is) applicable to options in real estate transactions”]; Buffalo Seminary, 86 AD2d at 442 [“options are within the New York rule”]).
Based on this history, I do not believe that options to renew leases should be categorically exempt from EPTL 9-1.1 (b). The majority reasons that “because the rule against perpetuities has not applied to options to renew leases under the American *286common law ... it follows that options to renew leases also fall outside of the scope of EPTL 9-1.1 (b)” (majority op at 277). To the contrary, there was no common-law principle in New York— the early twentieth century decisions that the majority relies on were grounded on the absence of a statutory prohibition that applied to perpetual leases (see generally Buffalo Seminary, 86 AD2d at 443). Buffalo Seminary made this very point (see id.).
This Court’s pre-1965 authorities were superceded when the Legislature adopted the American rule that covered all interests in real property and did not contain an exception for an option to renew a lease. Symphony Space, Wildenstein and Buffalo Seminary emphasized that the current statute—EPTL 9-1.1 (b)—applies to all real estate options. As Judge Read observes in her concurrence, the authorities relied on by the majority discuss perpetual lease renewals, which are not at issue in this case. I therefore defer to the language of the statute and this Court’s prior discussions on the applicability of the rule against perpetuities to options on real estate in holding that an option to renew a lease is subject to EPTL 9-1.1 (b).
In Symphony Space, however, we recognized a limited exception to the strict application of the statutory rule against perpetuities for certain “options appurtenant” to a lease. We described an option appurtenant as one that (1) “originates in one of the lease provisions,” (2) “is not exercisable after lease expiration” and (3) “is incapable of separation from the lease” (88 NY2d at 480). An option appurtenant “is valid even though the holder’s interest may vest beyond the perpetuities period” because it “encourage[s] the possessory holder to invest in maintaining and developing the property by guaranteeing the option holder the ultimate benefit of any such investment” and “thus further[s] the policy objectives underlying the rule against remote vesting” (id.). Both courts below correctly employed the option appurtenant exception as the applicable legal principle in this case and other courts that have dealt with options to renew leases have used similar reasoning (see e.g. Double C Realty Corp. v Craps, LLC, 58 AD3d 480 [1st Dept 2009]; Warren St. Assoc. v City Hall Tower Corp., 202 AD2d 200 [1st Dept 1994], appeal withdrawn 84 NY2d 865 [1994]).
There are important reasons why our Court should adhere to this limited exception to EPTL 9-1.1 (b) instead of creating a new category of interests in real property immunized from the rule against perpetuities. First, an option to renew a lease, whether for successive periods of time or in perpetuity, does not *287have to be contained in the lease itself and may instead be created in a separate written document executed by the parties, perhaps after the lease has commenced or prior to expiration of the lease. If so, it could be drafted so that the ability to exercise the option is independent from the lease and unaffected by the tenant’s nonperformance (see Symphony Space, 88 NY2d at 480). Since this arrangement would not qualify as an option appurtenant under Symphony Space, the majority is incorrect when it states that an option to renew a lease is always “exercisable pursuant to the lease agreement and, thus, inherently appurtenant to the lease” (majority op at 278).
Second, even if an option is set forth in a lease, it could be worded to allow the option to be exercised after the initial term of the lease has expired. This, of course, would provide a disincentive to the property owner to expend money for improvements to the leased space after the expiration of a tenancy since the option holder could wait until improvements were completed before exercising the option and retaking possession of the improved property at the price that was predetermined in the former lease. It would also impose a significant impediment to the owner’s ability to sell the property at a fair market price because the tenant would have the power to resurrect the expired lease (if the required renewal notifications are not issued by the owner), thereby impeding a potential purchaser’s ability to use and develop the property. The rule against perpetuities was designed to deter such barriers to transferability (see Symphony Space, 88 NY2d at 480-481).
These are just examples of the reasons why I believe Symphony Space presciently articulated the limited, three-prong “options appurtenant” exception to EPTL 9-1.1 (b). Applying that test to the facts of this case, the option to renew in the lease at issue violates the statutory rule against perpetuities for the reasons stated by the Appellate Division: the lease expressly provided that it would expire and the tenancy would become month-to-month if the renewal provisions were not exercised before the end of the lease’s term; once that occurred, each month-to-month tenancy did not extend the period of the lease terms (see 120 Bay St. Realty Corp. v City of New York, 44 NY2d 907, 909 [1978]; Kennedy v City of New York, 196 NY 19, 23-24 [1909]); and the option nevertheless permitted the tenant to renew the lease after it had expired. The majority acknowledges this fact, noting the parties’ agreement that the “renewal option could be exercised even after the original lease term had *288expired” (majority op at 275). Under the Symphony Space test, I conclude that the option is void.2
Consequently, I would affirm the order of the Appellate Division.
Chief Judge Lippman and Judges Ciparick, Smith and Pigott concur with Judge Jones; Judge Read concurs in result in a separate opinion; Judge Graffeo dissents and votes to affirm in another opinion.
Order reversed, etc.

. Both section 20 of the cited provision of the first Revised Statutes and former section 46 of the Real Property Law stated that
“[a] contingent remainder shall not be created on a term of years, unless the nature of the contingency on which it is limited, be such that the remainder must vest in interest, during the continuance of not more than two lives in being at the creation of such remainder, or upon the termination thereof.”
Section 24 of the cited provision of the first Revised Statutes and former section 50 of the Real Property Law applied this standard to the other type of property interest described in Buffalo Seminary.

. I would also hold that the tenant’s argument premised on EPTL 9-1.3 is meritless.