When Is a Breach of a Real Estate Contract ‘Material’?
Adam Leitman Bailey and John M. Desiderio explain how New York courts decide whether a buyer’s or seller’s failure to meet a real estate contract obligation is a “material” breach that justifies remedies such as forfeiture of a deposit, rescission, or specific performance.
Whether a default is deemed “material” often determines whether a purchaser forfeits a deposit, whether a seller may retain it, or whether specific performance is available. When a seller or a buyer, at or before the scheduled closing of a Time Is of the Essence real estate contract, fails to demonstrate it is ready, willing, and able to perform its contractual obligations, the other party is entitled to declare the non-performing party in default and enforce the remedies provided to it in the purchase and sale contract. See e.g., Grace v. Nappa, 46 NY2d 560 (1979). See also Bailey and Desiderio, Enforcing the Contract—Obtaining Down Payment or Specific Performance (New York Law Journal, 3/8/2006), and Bailey and Desiderio, What Constitutes “Tender of Performance” on the “Time Is Of the Essence” Closing Date? (New York Law Journal, 10/7/2025).
Where the buyer defaults, it forfeits its down payment deposit; where the seller defaults, the buyer is entitled either to return of its deposit or to commence an action for specific performance. However, in either situation, even where a Time Is of the Essence closing date has not been declared, the “general rule,” in New York, is that “rescission of a contract is permitted for such breach as substantially defeats its purpose. It is not permitted for a slight, casual, or technical breach, but…only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract.” Ma v. Biaggi, 150 AD3d 778, 779 (2d Dept. 2017). (Held: plaintiff materially breached contract by stopping payment on several down payment checks and failing to tender the full $2.6 million down payment amount, and seller was thus entitled to terminate the contract prior to closing and retain plaintiff’s partial deposit payment of $840,000.) (Quoting language from Callinan v. Keensville, Ausable Chasm & Lake Champlain R.R. Co., 199 NY 268 (1910).(Emphasis added)
In addition, as explained in WILJEFF, LLC v. United Realty Management Corp., 82 AD3d 1616, 1617 (4th Dept. 2011),
Generally, the question whether a breach is material is for the finder of fact but “where the evidence concerning the materiality is clear and substantially uncontradicted…[,] the question is a matter of law for the court to decide.”
Such was the case in Maxton Builders, Inc. v. LoGalbo, 68 NY2d 373, 378 (1986), where the Court of Appeals held “that when a contract requires that written notice be given within a specified time, the notice is ineffective unless the writing is actually received within the time prescribed,” and that “for more than a century it has been well settled in this State that a vendee who defaults on a real estate contract without lawful excuse, cannot recover the down payment.” (citing Lawrence v. Miller, 86 NY 131 (1881),
How Courts Determine ‘Materiality’ of a Default
The principle is clear, but determining what is a “material” breach or default is not necessarily clear in all cases. “Material,” defaults, which are “so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract,” and where “the evidence concerning the materiality is clear and substantially uncontradicted,” thus deeming the question “a matter of law for the court to decide,” occur in both pre-closing and post-closing situations.
Indisputable ‘Material’ Breaches of Contract
A party’s breach of a specific contractual obligation (whether the default is of the seller or of the buyer) is self-evidently a “material” breach of a real estate purchase/sale contract. The seller or the buyer either did or did not fulfill the specific obligations it assumed under the purchase/sale contract. The default cannot be anything other than “material.”
A seller’s material default, at closing, of a typical purchase/sale contract (whether for a condominium, cooperative, or private home) can include breaches of specific contract provisions which expressly (a) require seller to provide marketable title to the property, see Klaiber v. Coon, 48 AD3d 856 (3d Dept. 2008) (Held: “Defendants had ample opportunity [but] failed to provide clear title in a reasonable time, [and] we find that summary judgment should have been granted to the plaintiff.”); see also Arzumamyants v. Fragetti, 19 Misc.3d 1134(A) (Civil Ct., Richmond Co., 2008) (Held: seller breached contract by failing to provide marketable title free from encumbrances), (b) require seller to complete other specified contractual obligations, as conditions for buyer performance, such as providing an amended certificate of occupancy (see Rufeh v. Schwartz, 50 Ad3d 1000 (2d Dept. 2008) or require seller to provide estoppel certificates (see Angelo Gordon Real Estate Inc. v. Benlab Realty, LLC, 216 AD3d 420 (1st Dept. 2023), and/or (c) require seller to provide “all plumbing (including water supply and septic systems […], equipment and machinery in the building in working order as of the date of Closing[, and] roof and basement is free of leaks,” and “in working order.” (see Holder v. Watson, 85 Misc.3d 1276 (A) (Sup. Ct., New York Co., 2025) (Held: plaintiff stated a cause of action for specific performance due to seller’s alleged contract breach).
A seller’s willful deception or fraud in negotiating the purchase/sale contract will be treated as a material default, where a seller misrepresents that it could convey marketable title to the property, despite knowing that a third party has not waived its right of first refusal to purchase the property, (see Michael Cipriano v. Glen Cove Lodge #1458, B.P.O.E., 1 NY3d 53 (2023).
In addition, post-sale, sellers may be held liable for violations of the Housing Merchant Implied Warranty (General Business Law, §777-A, et seq.), which is automatically included in purchase/sale contracts for new home sales of a single-family house, or for-sale unit in a multi-unit residential condominium or cooperative building of five stories or less,” and for breach of which “the measure of damages shall be the reasonable cost of repair or replacement and property damage to the home proximately caused by the breach of warranty, not to exceed the replacement cost of the home exclusive of the value of the land, unless the court finds that, under the circumstances, the diminution in value of the home caused by the defect is a more equitable measure of damages.” See Horwitz v. Camelot Associates Corporation, 66 AD3d 1299, (3d Dept. 2009) (Held:. Seller-Developer breached limited warranty when construction failed “to ensure that the home [was] habitable.”); see also Kikorov v. 355 Realty Associates, LLC, 31 Misc.3d 1212(A) (Sup. Ct., Kings Co., 2011) (Demarest, J.) (Held: plaintiff a stated cause of action against developer for breach of offering plan representations that sponsor would “complete the design and construction comparable to the currently prevailing local standards and substantially in accordance with the plans and specifications for the design and construction work filed with the New York City Department of Buildings and other appropriate governmental authorities and general in accordance with the good design and construction standards and practices for firs class, luxury condominiums in Brooklyn.”
A buyer’s material default of the purchase/sale contract can include (a) failure to pay the contract deposit with good checks subject to collection, see Ma v. Biaggi, supra, (b) failure to appear at the closing and/or failure to pay the balance of the contract price at closing (see, Duvernay v. Qiao, 240 AD3d 855 (2d Dept. 2025),and (c) failure, at closing, to proffer good checks subject to collection or either required certified checks or official bank checks payable to seller. (see Ma v. Biaggi, supra, and RR Chester, LLC v. Arlington Building Corp, 22 AD3d 652 (2d Dept. 2005) (Held: “even assuming that the failure [of buyer[s attorney] to deposit the down payment was a material breach, there are triable issues of fact as to whether [seller] was aware, or should have been aware, of this breach before commencement of this litigation [and whether] such knowledge on the seller’s part…waived its right to rely upon the failure to deposit the down payment check as a basis for rescission, or should be estopped from arguing that the failure to deposit the down payment was a material breach.”)
Uncontradicted proof of any of the above default conduct clearly goes to the heart of the parties’ purchase/sale agreements and will necessarily “defeat the object of the parties in making the contract.”
‘Material,’ But ‘Not Substantial’
Nevertheless, depending upon the particular facts and circumstances of a particular case, courts may find that a seller or buyer may indeed have defaulted on an obligation of the parties’ purchase/sale contract, but that, despite the breach, the specified default, if not willful, was not so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. See The Links at North Hills v. Baker, 226 AD2d 279 (1st Dept. 1996) (Held: Although “defendants were entitled to insist that the defective water seepage condition in the basement be corrected and that the recreational facilities be completed, rescission of the contract was not their remedy, as neither the basement leak nor the unfinished recreational facilities constituted material breaches pursuant to [the terms of the parties’] purchase agreement.”) See also RR Chester, LLC v. Arlington Building Corp, supra (Held: “considering all of the circumstances of the case, including the disproportionately small amount of the down payment and the conduct of the parties, we find an issue of fact exists as to whether the failure to deposit the down payment was a material breach.”)
Construction Contract Disclaimers
Purchase/sale contracts for new condominium and co-op units yet to be built often lead to litigation over whether the Sponsor has complied with its obligation to deliver at closing (or post-closing) what it represented to build and deliver to the buyer-vendee.
As is the norm for all newly constructed condos and co-ops in New York, developers offer the properties for sale to the public well before construction of the buildings is completed, and, in some cases, even before construction has commenced. However, no building is ever constructed perfectly and entirely without even minor defects, and, although it is the builder-vendor’s obligation to construct the building “in a skillful manner and free from material defects,” Caceci v. DiCanio Construction Corp., 72 NY2d 52, 56 (1988); but see Fumarelli v. Marsam Development, Inc., 92 NY2d 298 (1998), the developer is not obliged to disclose “‘the normal kinds of problems [encountered] in the course of construction that are described in field reports, project meetings and change orders’ in order to avoid transforming every potential latent construction defect case into a claim for common-law fraud.” Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 12 NY3d 236, 245 (2009).
The developer’s actual promises are set forth in its offering plan (and all amendments thereof) and in the purchase/sale contract, and the purchaser’s rights and the contractual obligations of the developer are fully circumscribed by these two documents. Any dispute arising between the parties, regarding the purchaser’s obligation to accept the unit or the developer’s obligation to “make good” on its promises, are determined by the specific terms and representations contained therein. All the terms of the offering plan are incorporated into developer-drafted purchase agreements which normally declare, in the “No Representations” clause, that:
Purchaser acknowledges that Purchaser has not relied upon any architect’s plans, sales plans, selling brochures, advertisements, representations, warranties, statements or estimates of any nature whatsoever, whether written or oral, made by Sponsor, Selling Agent or otherwise, (Emphasis added)
and that:
This Agreement, together with the terms of the [Offering] Plan, supersedes any and all understandings and agreements between the parties and constitutes the entire agreement between them with respect to the subject matter hereof.
The “No Representation” clause generally precludes the buyer from relying on alleged “precontractual or extracontractual promises.” See, e.g., The Plaza PH2001 LLC v. Plaza Residential Owner LP, 98 AD2d 89, 947 NYS2d 498 (1st Dept. 2012). Nor can purchasers rely upon statements or renderings appearing in ads or in other marketing materials furnished by the developer or its sales agent. Courts readily find such marketing representations to be mere “puffery.” See, e.g., Sirohi v. Lee, 222 AD2d 222 (1st Dept. 1995); Paladino v. Adelphi University, 89 AD2d 85, (2d Dept. 1982); Bader v. Siegel, 238 AD2d 272 (1st Dept. 1997).
Accordingly, anything short of construction defects due “to substantially improper workmanship or construction practices or the use of materials that are substantially and materially at variance with the plans and specifications,” or sponsor’s failure to complete post-closing punch list work, will not qualify as a “material” sponsor default. See Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 50 AD3d 503.504 (1st Dept. 2008):
[P}laintiff fails, as a matter of law, to demonstrate any injury for which it is entitled to hold defendant sponsors liable. Although the purchase agreement obligated defendant sponsors to provide plaintiff with a building and unit constructed “in a good and workman-like manner,” the purchase agreement, through its incorporation of the terms of the offering plan, limited plaintiff’s remedy for any breach of this obligation to the right to require the sponsors to “repair or replace any defective item of construction.” The latter provision necessarily excludes from recoverable damages any diminution in the value of the unit that may result from defective construction [and] [p]laintiff does not allege that it has incurred any expense to repair or replace any defects in the construction of its unit,* * *. (Emphasis added)
Accordingly, unless the purchaser of new condo or co-op construction can show, prior to closing (despite the issuance of a certificate of occupancy for the unit), that the developer has defaulted on specific construction representations made in the offering plan or in the parties’ purchase/sale contract (which could be deemed “so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract”), the purchaser will not demonstrate a “material” breach of the purchase/sale contract. However, except for cases involving purchasers’ failure to close (see, e.g., Uzan v. 845 UN Limited Partnership, 10 AD3d 230 (1st Dept. 2004); Held: purchaser forfeited 25% down payments as a matter of law for failing to appear at October 19, 2001 closing, following the September 11, 2001 (“911”) World Trade Center tragedy), most cases for rescission of condo or co-op contracts are brought post-closing, in which case issues of sponsor compliance with offering plan construction representations are paramount.
In addition, if it is indisputably proven that the purchaser, prior to defaulting at closing, had knowledge of the not “so substantial” matter complained of, see Chateaugay Lake Estates v. Bouyea, 194 Msc. 429 (Sup. Ct, Special Term, New York Co. 1949), and/or, if purchaser’s excuse for not closing is shown to be pretextual (see Donerail Corp. N.V. v. 405 Park LLC, 100 AD3d 131 (1st Dept. 2012), purchaser’s breach will itself qualify as “material” as a matter of law. See WILLJEF, supra.
In a reverse situation, where the developer, as a purchaser of real estate, agreed to construct a church and a condominium unit on the premises, but failed to begin construction, defaulted on loans, and marketed the project to unapproved developers, rescission was found warranted because the developer’s breach was found “so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract.” Movimiento Misionero Mundial, Inc. v. SoBro Development, 238 AD3d 607 (1st Dept. 2025).
Conclusion
The above discussion illustrates the many ways in which New York courts must determine whether a seller or buyer of real estate has materially breached the parties’ contract of sale, because of actions which are so “material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract.” Ma v. Biaggi, supra.
Most cases are determined on motions for summary judgment, when “the evidence concerning the materiality is clear and substantially uncontradicted [and] the question is a matter of law for the court to decide.” WILLJEF, supra.
Accordingly, in drafting contracts of sale and in scheduling closing dates (whether “on or about” or “time is of the essence”),attorneys need to be very careful in how they evaluate the facts supporting either a buyer’s or seller’s contract remedies before they proceed to claim a “material breach” by the other party to their client’s contract. Whether one or the other of the parties may be successfully charged with a material breach is often subject to a delicate balancing of the facts and circumstances, with no certain outcome. A successful motion for summary judgment will be dependent upon how well the attorney is able to orchestrate the steps necessary to completing a successful closing and for his or her client to be perceived as always being ready, willing, and able to close (whether or not the closing is actually expected to occur).
Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C., and John M. Desiderio is a partner and chair of the firm’s real estate litigation group. Niaz Najafi and Ashley Drewal, externs of the firm, assisted in the preparation of this article.