Real Estate & Finance

Buyers and Sellers Beware: E-Mail Can Now Be Considered a Real Estate Contract

February 1, 2011

A New York appellate court recently ruled that e-mail correspondence can constitute a valid real estate contract. This is an important expansion of New York’s Statute of Frauds (General Obligations Law § 5-703), which requires that a real estate contract, including a lease in excess of one year, be in writing.

In a decision rendered on October 5, 2010, the New York State Supreme Court Appellate Division, First Department decided the case of Naldi v. Grunderg. The facts of the case are simple. The buyer and seller, through their brokers, were negotiating for the proposed conveyance of a Manhattan property. The brokers negotiated the terms of the proposed transfer by e-mail. The buyer’s broker proposed terms that included a right of first refusal for the buyer to purchase the property should the seller want to enter into an agreement to sell to another party. Relying partly on this e-mail correspondence, the buyer commenced due diligence on the property, despite the absence of a signed contract. When the seller attempted to sell the property to a third-party buyer, the buyer sought to enforce its purported first refusal rights. The immediate issue before the First Department was the validity of this right of first refusal. The more significant underlying issue, however, was whether the e-mail correspondence was sufficient to establish a contract for the purchase of real property in compliance with the Statute of Frauds.

The court in Naldi reasoned that permitting a real estate contract to be formed by e-mail was consistent with existing law, including New York’s Electronic Signatures and Records Act. Further, the court stated that the Statute of Frauds was flexible enough to accommodate other forms of electronic writings, most notably facsimile. Therefore, the court decided that the Statute of Frauds should permit the formation of a real estate contract by e-mail. But when applying the particular facts of the Naldi case, the First Department ruled that a contract was not formed by e-mail because offers and counteroffers of $52 million and $50 million were never reconciled. Nonetheless, this case is important because it establishes that e-mail correspondence can constitute “a writing” for purposes of the Statute of Frauds, and therefore form an enforceable contract.

The Naldi decision could have serious implications on the way real estate professionals, and business people in general, negotiate real property contracts, including leases. Parties must now take great care to ensure that their actions do not inadvertently lead to formation of a binding contract.

Please contact a member of Hodgson Russ’s Real Estate & Finance Practice Group if you have any questions about the Naldi decision or to discuss your commercial real estate needs.