The United States District Court for the Eastern District of New York recently held that title to a property reverted to the government when the purchaser was unable to meet the deed’s conditions subsequent due to zoning restrictions that prevented the purchaser from opening a homeless shelter. See United States v. Overcoming Love Ministries, Inc., 2018 WL 4054867 (E.D.N.Y. Aug. 24, 2018). As part of the McKinney-Vento Homeless Assistance Act, the government conveyed a property to defendant in 2011 so that defendant could convert it into a 200-unit housing facility for homeless families. The conveyance was via a quitclaim deed that contained conditions subsequent, including a requirement that the property be used for “health purposes” for 30 years and that defendant place the property into use within three years of the date of the deed. The deed—which defendant never signed—further provided an automatic right of reversion to the government if defendant failed to abide by any of these conditions. After the sale, however, defendant learned that the property was zoned “Industrial/Commercial” and was unable to rezone it despite spending over $200,000 in attempting to do so. Although the government allowed defendant to make additional proposals for how to utilize the property, it ultimately brought this action seeking reversion of the property. Defendant responded by arguing that the government breached the implied covenant of good faith and fair dealing by offering the property for a purpose that was legally impossible to comply with, and that it waived the conditions subsequent.

The government moved for summary judgment, and the Court granted the motion. First, it found that the government had not breached the implied covenant of good faith and fair dealing because the deed includes a reversionary right to the government if defendant breached a condition subsequent, and the Court will not imply any obligation inconsistent with the express contractual terms. Additionally, “the Deed explicitly states that Defendant bears the risk of nonperformance in the event of legal impossibility.” Second, the Court held that the government did not waive its rights, as the deed contains an express condition that “the failure of [the government] . . . to insist in any one or more instance upon complete performance of any of the said conditions subsequent shall not be construed as a waiver of or a relinquishment of the future performance of any of said conditions subsequent.” Finally, the fact that defendant never signed the deed did not result in a waiver because the Court found that the deed was presented and accepted by defendant, who submitted it for recording. “In fact, the more logical effect, if any, of the missing signature page would be that Defendant never accepted the Deed, and that the Property never transferred to Defendant in the first place.”