Post-Closing Adjustments

Today we wanted to draw your attention to a recent case which highlights the importance of the specific language you use in your contracts to define the Purchaser’s and Seller’s respective obligations regarding post-closing adjustments for real estate tax refunds. The relevant facts of 69 Pinehurst LLC v. Sixty Nine Pinehurst Avenue Associates LLC, 2022 NY Slip Op 30681, decided March 1, 2022 are described below.

Following a real estate tax audit, the Defendant, which had sold the affected real property to the Plaintiff in 2016, received a refund for tax years prior to the closing (emphasis added). The Seller, a limited liability company, was alleged to have deposited the check and then dissolved. The Plaintiff sued, claiming that it was entitled to the refund. Under the Purchase and Sale Agreement between the parties, real estate taxes and assessments were to be apportioned “on the basis of the fiscal year for which assessed”, and any real estate tax refund or credit “attributable to the fiscal tax year during which the Closing Date occurs [they] shall be apportioned between Seller and Purchaser.” Representations and warranties in the PSA merged into the deed. However, the Bill of Sale stated that the Seller conveyed “all of the assets and all of Seller’s rights, whether at common law or otherwise, claims, including the proceeds of any claims which may or may not be assignable, and causes of action arising out of any transaction occurring on or prior to the date hereof with respect to the premises.”

The Supreme Court, New York County, granted the Defendants’ motion to dismiss the complaint. According to the Court, “[t]he PSA provisions provide that real estate taxes shall be apportioned based upon the fiscal year in which they were assessed [citation omitted]. To the extent that the PSA refers to refunds [of real estate taxes] issued after closing, it only applies to those attributable to the fiscal year of the closing [citation omitted]. Here the parties do not dispute that the tax assessment being refunded was assessed prior to the fiscal year of the closing. To read the broad language of the Bill of Sale as assigning claims relating to the apportionment of real estate taxes from earlier fiscal years would render the apportionment provisions meaningless…Moreover, the plain language of the Bill of Sale concerns claims related to the premises [and] the entitlement to a refund runs to the person who paid the tax, rather than the property upon which the tax is assessed.”

This case can be viewed by clicking the below link:
69 Pinehurst LLC v. Sixty Nine Pinehurst Avenue Associates LLC, 2022 NY Slip Op 30681, decided March 1, 2022, is posted at https://www.nycourts.gov/reporter/pdfs/2022/2022_30681.pdf.