Was There Asbestos in A/C Ducts of Resi Condo? Court Adjudicates Buyer’s Right to Intrusive Testing

This was originally posted on the SGR Blog.

Contracts for the sale of residential property often contain both generic and specific provisions with respect to the purchaser’s right to inspect the premises between the time the contract is signed and the actual closing and transfer of title. But, as a recent case illustrates, the scope of that inspection right may nevertheless be the basis of a dispute.

Oren Mor and Hadar Laor (for convenience, the “Mors”) owned a residential condominium unit 3C at 15 Hubert Street in Manhattan. Jessica Fisher signed a contract to buy the unit for $3,875,000, with a $387,500 deposit. She contemplated making extensive alterations to meet her specific requirements. Fisher suffered from various medical ailments, including allergy-induced asthma, which required her to investigate an apartment’s HVAC units and soundproofing. And alleged that she was promised unfettered access to the apartment prior to the closing so that she could perform various inspections. Despite purported oral representations about her access to the apartment, Fisher claimed that her request for an asbestos inspection was denied. She claimed that this was a routine inspection and required in order to submit any alteration plans.

Fisher alleged that the Mors breached the agreement for the sale of the property and refused to return her down payment. She sued and asserted five causes of action: for a declaratory judgment that she was entitled to a return of the deposit (including interest); breach of the covenant of good faith and fair dealing; breach of a vendee’s lien; unjust enrichment; and breach of contract. And filed a notice of pendency against the unit.

The Mors offered a different account. They claimed that the contract of sale contained specific terms, but immediately after it was signed, Fisher started making numerous demands about the apartment that were not in the agreement. Fisher breached by refusing to close under the terms of the contract. In addition to the dismissal of Fisher’s complaint, the Mors also sought removal of the notice of pendency on the ground that the case would not affect title to the property because Fisher did not want the apartment; she just wanted the deposit back.

The Mors detailed a time-consuming process for the sale of the apartment that involved discussions throughout 2020. Fisher was very interested in the HVAC unit and demanded, on numerous occasions, that it be repaired. A draft contract of sale was provided in April 2020. And Fisher visited the premises a dozen times before she finally signed the contract on August 5, 2020.

The Mors claimed that, after the contract was signed, the building’s’ servicing company inspected the HVAC and found that the system was working properly. Fisher and her contractor came to the apartment on August 13, 2020, and wanted to do an asbestos test, which involved taking samples from the air conditioning duct with a chisel. The request was denied.

Even though Fisher was not so entitled, the Mors’ attorney offered to permit Fisher to do the test on certain conditions, including that Fisher could not use the results of the test as a basis to back out of the contract. Fisher refused the offer. 

Although Fisher visited the apartment 12 times before signing the contract, she never asked to chisel the duct before she signed. Nor did she reserve the right to chisel the duct. And all obligations in the contract with regard to the HVAC system were fulfilled by the Mors.

Both the Mors and Fisher moved for summary judgment. The Mors claimed that Fisher was not entitled to a return of her deposit because she did not close, even after receiving a time of the essence letter. Fisher cross-moved for summary judgment on the ground that the Mors breached the terms of the contract.

The Court’s analysis began with the contract of sale for the apartment—which provided that the Mors “will have the HVAC in the unit serviced by the building’s licensed contractor …and repaired to the original state of working as intended and to investigate if the refrigerant is low. If the refrigerant is low, the HVAC Contractor shall take such steps as are reasonably required to determine if the low refrigerant is a result of a leak in the HVAC system…The cost and expense of the inspection shall be borne by the Seller. Purchaser shall be permitted access for Trademark Mechanical or other HVAC company chosen by Purchaser to confirm that the HVAC is delivered in the condition as set forth herein. Trademark Mechanical or the other HVAC company chosen by Purchaser shall provide all necessary insurance requests to the managing agent and Condominium for the purpose of such HVAC inspection”. 

Nothing in that paragraph, or anywhere else in the contract, required the Mors to permit Fisher to do intrusive testing that required chiseling into the HVAC duct. The contract permitted inspections of the HVAC system by HVAC contractors to make sure the system worked well–but did not allow an asbestos testing company to take samples within the HVAC system. The Court observed that the subsequent HVAC report noted that there was no freon leak, the equipment was fully functional and “up to manufacturers specifications.”

Fisher relied on paragraph 9 of the contract or paragraph 65 of the rider–, but those provisions did not compel the conclusion that Fisher was entitled to do asbestos testing. Paragraph 9 permitted Fisher to perform an inspection and to take measurements. Paragraph 95 allowed Fisher to have a maximum of five visits for inspections and taking measurements. No reasonable interpretation of those paragraphs permitted the intrusive testing Fisher demanded.

Paragraph 7.2 stated that “Purchaser has inspected or waived inspection of the Unit, its fixtures, appliances and equipment, and the Personal Property, if any, included in this sale … and knows the condition therefor and, subject to ¶2.5 accepts the same `as is,’ i.e., in the condition, they are in “.. And the contract contained a merger clause, paragraph 22, which stated the agreement “constitutes the entire agreement between them with respect to the subject matter hereof.” The Court considered the terms of the contract and found that there was no obligation placed on the Mors to permit asbestos testing.

Fisher made clear to the Court that she required certain specifications in her living arrangements because of her disabilities. And the Court recognized that Fisher was completely entitled to make the HVAC system in her future home a priority. She detailed how an HVAC specialist inspected the HVAC unit in the apartment in April 2020 and discovered it apparently had a potential refrigerant leak. But the fact was that the deal was reduced to a writing when she finally signed the contract in August 2020. And the Court found that both parties must be held to that writing.

The Court would not permit Fisher to add provisions to the contract of sale simply because every one of her demands was not immediately heeded. Every buyer has varying demands and “must-haves.” For Fisher, it appeared that she required an apartment that had constant airflow to accommodate her asthma. If that necessitated testing for asbestos, then Fisher should not have signed the contract unless she was given the right to perform the test. She did not. The contract only contained one mention of asbestos: the Mors represented in the second rider that they had no knowledge of asbestos in the unit.

The Court also viewed the timeline of events preceding the signing of the contract. There was no doubt that Fisher was very interested in the HVAC unit from the beginning of the parties’ discussions in early 2020. Throughout the summer, Fisher visited the apartment numerous times, and the Mors made many concessions and accommodations to facilitate a deal for an apartment worth nearly $4 million. The time for making demands to the Mors was before Fisher signed the contract. And Fisher did make many demands — but testing for asbestos was not one of them.

Based on the Court’s reading of the contract, the Court granted the portion of the Mors’ motion to dismiss Fisher’s five causes of action. The Court could not interpret the contract to require the Mors to permit Fisher to perform HVAC asbestos testing. That such testing may have been a necessary part of Fisher’s future alteration plans (the Mors disputed that point) was of no moment. There was no specific provision allowing asbestos testing. A generalized provision about an inspection and taking measurements was demonstrably different from allowing Fisher to potentially damage the property by doing intrusive testing and chiseling to look for asbestos prior to the closing. And the contract did not even provide Fisher with a remedy in the event she found asbestos. So not only did she lack the right to do the testing, she did not have the right to do anything about it based on any test results.

The Mors tried to save the deal. They shared with Fisher that there had been an asbestos-related inspection in March 2019 that found no asbestos-containing materials in the unit. The Mors offered various solutions which allowed the test, but Fisher refused all potential resolutions and instead demanded that she be allowed to do a test that the contract did not allow her to do.

The Court was unable to find that any of Fisher’s causes of action, all of which arose out of the retention of the deposit, survived the Mors’ motion. The facts on the motion demonstrated that Fisher refused to close because the Mors did not permit her to conduct a test that she was not entitled to conduct under the contract.

Because the Court dismissed Fisher’s causes of action, it also vacated the notice of pendency. Even if some of Fisher’s causes of action remained, the Court would still have striken the lis pendens. CPLR 6501 provides that “A notice of pendency may be filed in any action in a court of the state or of the United States in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property.” A notice of pendency is an extraordinary privilege because of the relative ease by which it can be obtained and its powerful effect on the alienability of real property.

The motion for cancellation of a notice of pendency was premised on the ground that the action was not within the scope of CPLR 6501. Determination of the motion was confined to the face of the complaint, not the underlying transaction or the merits of the claim.

Fisher only sought the return of her deposit. That did not affect the title, possession, or use, and enjoyment of the unit. Fisher did not seek to force the closing of the sale for the apartment. She did not want it — she wanted her money back. The filing of the notice of pendency was improper under those circumstances and was vacated.

The Mors sought a judgment directing release to them of the escrowed funds in the amount of $387,500. And damages of $250,000 for slander of title to their unit. 

Fisher’s cross-motion to dismiss the claim for slander of title was granted because a notice of pendency was an undeniably true statement, the filing of which did not give rise to a cause of action for slander of title—even if improperly filed.

The Court recognized that there had not been any discovery exchanged in the case. In fact, there had not even been a preliminary conference. But the case was straightforward. Fisher signed a contract for the sale of an apartment and then refused to close. Fisher’s justification for not closing was based on her demanding testing, which she was not entitled to perform under the contract.

According to the Mors, Fisher’s argument that the testing was necessary for her alteration plans was a red herring because the board of the building would not have approved any alteration plans until after the closing. Fisher undoubtedly had very specific preferences about what she wanted in a new apartment. Many of those seemed to come from her various ailments. That did not permit Fisher or the Court to create new provisions to the contract. If it was truly important to Fisher, she should have added it to all the demands she made before signing the contract. And, if the Mors refused, Fisher should not have signed the contract.

The Court was charged with interpreting the terms of the parties’ agreement. It was not up to the Court to add provisions that were not there. This was not a case where Fisher had the right to cancel if she found asbestos but forgot to include a provision for testing. Here, there was no provision in the contract which allowed asbestos testing. And no provision allowing any remedy if asbestos was found. The Court could not add a provision to the contract that simply was not there. 

Because of issues relating to the Mors remaining counterclaims, the Court did not reach or decide the ultimate issue of whether or not the Mors were entitled to keep the deposit. 

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