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THE BLUFFS AT BALLYOWEN, LLC v. TOLL BROS.

November 30, 2010

THE BLUFFS AT BALLYOWEN, LLC, PLAINTIFF-RESPONDENT,
v.
TOLL BROS., INC., DEFENDANT-APPELLANT.



On appeal from the Superior Court of New Jersey, Law Division, Sussex County, Docket No. L-0068-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 4, 2010 - Decided

Before Judges R. B. Coleman, Lihotz, and

J. N. Harris.

This is a breach of contract action involving the development of real property in the municipalities of Hamburg and Hardyston. The parties' agreement provided that defendant, Toll Brothers, Inc. (Toll), would acquire in contemplation of construction, nearly all of the residential lots owned by plaintiff, The Bluffs at Ballyowen, LLC (The Bluffs), after a number of sequenced closings. Toll also agreed that it would construct so-called common improvements on the premises, including a clubhouse and a pool. At issue in this appeal is Toll's contractual duty to build such common improvements after bowing out of the agreement prior to the first scheduled closing.

After a bench trial, and notwithstanding its concession that it breached the agreement, Toll contends on appeal that the Law Division erred in molding an overly-broad remedy relating to the common improvements that was beyond the contemplation of the contracting partners. Toll also takes issue with the court's award of a judgment to The Bluffs for compensatory damages, interest, costs, and attorneys' fees in the aggregate amount of $2,505,706.40. Because we share Toll's concern that the Law Division did not impose a remedy consonant with the parties' intention, we reverse and remand for a limited proceeding -- with or without testimony, and subject to the managerial control of the Law Division -- for a consideration of the appropriate remedy, if any, to now be imposed for Toll's breach of the contractual duty to construct the common improvements.

I.

In June 2004, The Bluffs acquired undeveloped land in Hamburg and Hardyston that had previously been approved for residential development. The Bluffs intended to use the property to build a sixty-seven unit, age-restricted condominium development, along with shared amenities including a clubhouse and a pool. After obtaining amendments to the preliminary major site plan approval, The Bluffs began construction of ten "spec homes."

In late summer 2005, The Bluffs began discussions with Toll about its possible acquisition of the property. In early October 2005, Toll presented a letter of intent to The Bluffs containing the initial profile of Toll's proposal, including reference to the construction of the common improvements as a condition of sale. Soon thereafter, the parties agreed to move forward with contract drafting without finalizing the letter of intent.

A final agreement between The Bluffs and Toll was executed on December 14, 2005. The agreement provided that Toll would purchase the entire property -- contemplated at that time to include sixty-seven residential units -- at a price of $14,740,000. The purchase price was based upon an allocation of $220,000 per residential unit, and was to be paid at two closings.*fn1 The agreement required Toll to make an initial deposit of $250,000, to be held in escrow, followed by an additional deposit of $400,000 at the conclusion of a sixty-day due diligence period. The first closing was scheduled to occur "on the later of (a) the date which is twenty (20) days after the expiration of the Due Diligence Period, and (b) the date Seller is in receipt of all governmental permits and approvals for the First Closing Units."

The parties' agreement regarding the common improvements was addressed in several paragraphs of the agreement. Paragraph 16, entitled "Operations Pending Settlement," set forth the respective responsibilities of Toll and The Bluffs as the property entered various stages of development. In general, the duty to maintain the property, any units under construction, and common improvements "between the Effective Date and the First Closing," belonged to The Bluffs, after which point Toll would obtain sole and exclusive control over both the first closing units and the common improvements.*fn2 The Bluffs would retain maintenance duties and control over the second closing units until the second closing.

Paragraph 16(h) specifically addressed the construction of the common improvements, which were defined to include the pool and clubhouse; sidewalks; landscaping; signage; street lights posts; grading and seeding; the main gas, electric, cable, phone lines; and the top course of paving on the roads. The paragraph further stated,

After the First Closing, Buyer, at its sole cost and expense, shall be responsible for the construction of the amenities for the Project, such as the clubhouse and pool

and shall be responsible for all other improvements not yet built which are required by the Final Plan[.]

The paragraph obligated Toll to present The Bluffs with a construction schedule for the common improvements at least ten days prior to the expiration of the Due Diligence Period, "time being of the essence," with a completion date no later than seven months after issuance of the building permit for such common improvements.

Upon Toll's purchase of the first closing units, it agreed that it would "use commercially diligent efforts to apply for the building permits for the [c]ommon [i]mprovements on the earliest possible date." If after sixty days following the first closing, "time being of the essence," Toll failed to acquire building permits for the common improvements, The Bluffs was permitted to apply for the permits and charge Toll with all "out of pocket costs in connection therewith."

Lastly, paragraph 16 stipulated that in the event The Bluffs was required in connection with governmental approvals to complete any of the common improvements prior to the first closing, Toll would be obliged to reimburse The Bluffs for the actual cost of same at the first closing.

Paragraph 8 of the agreement, captioned "Buyer's Default," provided that in the event Toll defaulted, and after providing an opportunity to cure, The Bluffs, "as its sole and exclusive remedy, may terminate this Agreement on written notice to Buyer and retain the Deposit for such breach as liquidated damages." The paragraph further provided, however, in the event that Buyer fails to construct the [c]ommon [i]mprovements in accordance with the Common Improvements Construction Schedule . . . Seller may, . . . in addition to the right to retain the Deposit as described in the preceding sentence, bring an action for specific performance against Buyer.

Additionally, if The Bluffs "commences an action for specific performance and . . . ultimately prevails," it would be entitled to receive attorneys' fees and out-of-pocket litigation costs from Toll. The agreement also noted that the remedies described "are a material inducement to Seller . . . [which] would not have entered into this Agreement without such remedy."

The "Survival" provision of the agreement, paragraph 18, stated:

Notwithstanding anything in this Agreement to the contrary, Buyer's obligation to construct the [c]ommon [i]mprovements shall survive Closing and any breach or termination of this Agreement.

Paragraph 24, governing the Public Offering Statement for the development, contained similar language, stating that at the expiration of the due diligence period, Toll would amend the Public Offering Statement through the New Jersey Department of Community Affairs (DCA), as required by law, to reflect Toll's sole responsibility, at its sole cost and expense, for the construction of the common ...


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