Where a property (or a portion of the property) is condemned when it is under contract, there are a number of different possible scenarios. Assuming that the contract does not specifically address the situation of condemnation – in which case the contract totally controls – the result would be governed by the General Obligations Law (GOL) which provides that where a property is under contract and the entire property or a substantial portion of the property is taken and performance of the contract becomes impossible, the contract is deemed cancelled and the purchaser is entitled to the return of the down payment and the seller is entitled to make the condemnation claim. Alternatively, to the extent that the seller recovers in condemnation, the purchaser would have a claim or lien against the award to the extent of the down payment.
A more complicated situation arises where the taking is partial. For example, where only a small piece of land is taken for a road widening while the property is in contract. Here, again, assuming the contract does not specifically address it, the GOL applies and provides for a proportionate reduction in the purchase price to reflect a reduction in the amount of property which now can no longer be conveyed at closing. Of course, this is simply stated, but hard to apply since the taking of a small portion of a property can have a disproportionate effect on the remainder property and the purchaser may not be willing to pay an amount reduced by a mathematical proportion of the taking to a whole. Therefore, it is always good practice in a contract where there is a possibility of condemnation occurring between a contract date and closing to provide for a specific arrangement in the event of a taking so that any disputes can be avoided.
Posted in: Condemnation