Termination of Purchase and Sale Agreement

12 Months Ended

Oct. 31, 2024

Termination of Purchase And Sale Agreement [Abstract]

Termination of Purchase and Sale Agreement

Note 14 - Termination of Purchase and Sale Agreement:

On January 14, 2020, FREIT and certain of its affiliates (collectively, the “Sellers” or “Defendant”), entered into a Purchase and Sale Agreement (as subsequently amended, the “Purchase and Sale Agreement”) with Sinatra Properties LLC (the “Purchaser”, “Sinatra” or “Plaintiff”), which provided for the sale by the Sellers to the Purchaser of 100% of the Sellers’ ownership interests in six real properties held by the Sellers in exchange for the purchase price described therein, subject to the terms and conditions of the Purchase and Sale Agreement. On April 30, 2020, the Sellers delivered written notice to the Purchaser of the Sellers’ termination of the Purchase and Sale Agreement in accordance

with its terms due to the occurrence of a “Purchaser Default” thereunder, based on the Purchaser’s failure to perform its obligations under the Purchase and Sale Agreement and close the transactions contemplated therein.

Upon the execution of the Purchase and Sale Agreement, the Purchaser delivered into escrow a deposit in the amount of $15 million (the “Deposit”), in the form of an unconditional, irrevocable letter of credit in such amount (the “Letter of Credit”). The Purchase and Sale Agreement provides that the Sellers’ exclusive remedy, in the event of a “Purchaser Default” and the termination of the Purchase and Sale Agreement, is the forfeiture of the Deposit to the Sellers as liquidated damages. Accordingly, contemporaneously with the Sellers’ delivery of the termination notice to the Purchaser, the Sellers delivered written notice to the escrow agent requesting that the escrow agent release the Letter of Credit from escrow and deliver same to the Sellers.

Following the Seller's termination of the Purchase and Sale Agreement, litigation ensued between the parties. The Purchaser sought, among other things, a judgment of specific performance compelling the Sellers to convey the properties under the Purchase and Sale Agreement to the Purchaser. The Sellers claimed that the Purchaser breached the Purchase and Sale Agreement and sought, among other things, the release of the $15 million deposit under the Purchase Agreement to the Sellers. Over the course of several years, the parties filed motions and appeals with respect to the various claims asserted in the litigation.

On June 26, 2024, a settlement in the amount of $16.9 million was reached between FREIT and certain of its affiliates and Sinatra and Kushner Companies, LLC, (the “Kushner Parties”) regarding previously reported ongoing litigation. All settlement payments have been received by FREIT and its affiliates.

Legal costs attributed to the legal proceeding between FREIT and certain of its affiliates and Sinatra have been incurred in the amount of approximately $883,000, $966,000 and $1,170,000 for the years ended October 31, 2024, 2023 and 2022, respectively, and are included in operating expenses on the consolidated statements of income.

The litigation settlement, offset by certain adjustments and additional expenses, was included as income in “Litigation settlement, net of fees” on the accompanying consolidated statement of income for the year ended October 31, 2024. The settlement triggered the following items:

● A transaction break-up fee due to the originating third party broker of approximately $605,000 and a four-year litigation management fee of $750,000 due to Hekemian & Co., Inc.

● Reimbursement of costs in connection with this transaction of $166,000 due to FREIT from the Pierre TIC.

● Approximately $2.6 million of the litigation settlement, net of fees, comprising $4.5 million of the gross settlement income, less litigation and certain transaction expenses totaling approximately $1.9 million, was allocated to Westwood Hills, LLC. This allocation was based on the pro-rata share of the contracted sales prices among the selling companies. Of the net amount, approximately $1 million is FREIT’s share based on its 40% ownership of Westwood Hills, LLC.