Purchaser Had Constructive Notice of Easement Even Though Easement Was Not Indexed to Lot

On September 3, 2019, the First Department issued a decision in Akasa Holdings, LLC v. 214 Lafayette House, LLC, 2019 NY Slip Op. 06447, holding that the purchaser of a lot had constructive notice of an easement even though the easement was not indexed in connection with the lot, explaining:

A bona fide purchaser of real property — one who purchases land in good faith and for a valuable consideration — takes the property free and clear of any prior conveyance, encumbrance or servitude of which the purchaser did not have actual or constructive notice at the time of the purchase. The question presented by this appeal is whether plaintiff, in purchasing a parcel of land in Manhattan, had constructive notice that the property (57 Crosby Street, a vacant lot) was burdened by a prior express easement that had been granted for the benefit of the parcel (214 Lafayette Street) diagonally to its rear. This question arises because, although the easement had been properly recorded and indexed upon its creation in 1981, the process of finding it through a title search at the time of plaintiff's purchase in 2011 was complicated by a change that had been [*2]made in 1984 to 57 Crosby's lot number on the Tax Map of the City of New York.

. . .

[W]e conclude that plaintiff purchased 57 Crosby with constructive notice of the 1981 easement and, therefore, lacks standing as a bona fide purchaser to void that encumbrance. . . . .

We begin by observing that defendant, in support of its summary judgment motion, established, prima facie, that, as owner of 214 Lafayette, it holds title to the 1981 easement. Specifically, defendant made out a prima facie case that the 1981 easement, as set forth in the declaration creating it, is an easement appurtenant to its parcel at 214 Lafayette.

An easement appurtenant occurs when the easement (1) is conveyed in writing, (2) is subscribed by the creator, and (3) burdens the servient estate for the benefit of the dominant estate. The easement passes to subsequent owners of the dominant estate through appurtenance clauses, even if it is not specifically mentioned in the deed. Once created, the easement runs with the land and can only be extinguished by abandonment, conveyance, condemnation, or adverse possession.

Defendant also established — and plaintiff has not disputed — that the 1981 easement was properly recorded and indexed against Lot 30 — which then encompassed both the servient estate (57 Crosby) and the dominant estate (214 Lafayette) — upon its creation in 1981. The question presented, therefore, is whether plaintiff, when it purchased 57 Crosby in 2011, had constructive notice of the 1981 easement, notwithstanding that the indexing of the easement had not been changed by the City Register when 57 Crosby was subdivided from Lot 30 in 1984 and reassigned its previous designation of Lot 9.

At this point, it should be noted that the answer to the foregoing question does not turn on whether the 1981 easement would have been found in a search in 2011 of the direct chain of title to 57 Crosby. Almost 40 years ago, the Court of Appeals held that the rule limiting constructive notice to recorded conveyances that are within the purchaser's direct chain of title does not apply to instances in which the purchaser had access to a block and lot or tract indexing system, such as the one in use in New York City. Pursuant to the holding of Andy Associates, in counties using a block and lot indexing system, a purchaser is charged with record notice of all matters indexed under the block and lot numbers corresponding to the purchaser's property, regardless of whether such information also appears in his or her direct chain of title. Thus, although (contrary to defendant's assertions) the 1981 easement was not recorded within plaintiff's direct chain of title, that circumstance has no bearing on the outcome of this appeal.

The principle that is determinative of the resolution of this appeal is a familiar one:

The intended purchaser of real property must be presumed to have investigated the title, and to have examined every deed or instrument properly recorded, and to have known every fact disclosed or to which an inquiry suggested by the record would have led. If the purchaser fails to use due diligence in examining the title, he or she is chargeable, as a matter of law, with notice of the facts which a proper inquiry would have disclosed.

. . .

When the doctrine of inquiry notice is applied to the facts of this case, two questions emerge. First, would the results of a search for title records indexed against Lot 9 in March 2011 have indicated to a reasonably prudent purchaser that it was necessary to expand the inquiry beyond documents indexed against Lot 9 to locate the records of all conveyances affecting 57 Crosby over the previous 40 years? If this question is answered in the affirmative, the next question is, would the 1981 easement have been revealed by a further "reasonable inquiry, as suggested by the facts obtained from the initial search? As indicated at the outset of this opinion, we answer both questions in the affirmative.

(Internal quotations and citations omitted).

We frequently litigate disputes over the sale or leasing of commercial property. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding a commercial real estate transaction.