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My new condo isn't what it seemed. How do I go about suing the developer?

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Question:

All was not as it seemed when I moved into my apartment, and I blame the developer. How do I go about suing the developer, and can I sue people involved with the company as individuals?

Answer:

When buying in a condo building, particularly new construction, it's not always possible to catch every problem through research before closing.

 

"If it’s a brand-new building and you’re the first person to occupy the building, you walk through and see this beautiful, brand-new apartment, you say, 'This is fabulous,' but you have no idea what’s going on sight unseen beneath those beautiful finishes," says Bonnie Reid Berkow, a founding partner at the real estate law firm Wagner Berkow. "It’s important to, if you can, have an expert review the plans, look through as much as they can of the building, to walk through the building and see if there are any obvious issues. But a lot of times leaks you won’t see for some time. Floors buckling due to heat and humidity, that’s a very common problem. They used the wrong material for a skylight. And you might not know that for some time until leaks or other damages develop."

 

Berkow notes that the housing merchant implied warranty may provide protection for homes in co-ops and condos that are five stories or less, but the warranty may be limited by the developer, referred to as the "sponsor" in legal-ese, in the offering plan. Notice of any defect must be given to the sponsor within 30 days of the end of the warranty period, so action must be taken promptly.

 

"In the event that there are construction defects in the building, the cooperative corporation or the board of managers on behalf of the unit owners in a condominium will frequently take legal action against the sponsor entity to compel the sponsor entity to repair or pay for repairs in the defective areas," she says.  Claims may be brought for breach of contract, orcommon law fraud, under certain common law or statutory warranties or other things, based on the facts of a particular case and the court in which it is brought.

 

When considering your options, Berkow advises to not wait to start repairs, because holding off for a lawsuit to be resolved can cost you more in the long run. In a lawsuit, she explains, "The sponsor will likely seek to blame the contractors and add all the contractors who worked on the building to the lawsuit. The lawsuit will take years. Everybody will go through extensive discovery. You’ll spend all this money on legal bills and by the time it’s over it will have cost a fortune." And meanwhile, the repair problem has only gotten worse and the damages are increasing.  Also, legal fees are generally not recoverable, so the cost of the litigation needs to be considered.

 

Instead, she continues, "It’s a better idea to demand the sponsor make the repairs. If the sponsor does not respond promptly, then make the repairs yourself (assuming it is financially possible), and, if the sponsor will not step up to pay the costs involved, then bring a lawsuit to compel the sponsor to pay for the repairs. That way, the problem is solved, the amount of the monetary damage is fixed, and it is easier to settle the case and get reimbursed by the sponsor."

 

As for problems that have to do with deception by the sponsor, your options are somewhat limited. First and foremost, you can't sue for fraud over a misrepresentation in a condo or co-op offering plan, because under New York's Martin Act the Attorney General's Office is responsible for reviewing and approving offering plans, and investigating irregularities in them. So for example, Berkow says, if a condo plan says you're getting a specific type of roof and the final building ends up with a different kind, the AG's Office would be the one to take action to compel the sponsor to fulfill its obligations and representations under the offering plan. You could, however, sue the sponsor for breach of contract for failure to provide what was promised.

 

Then again, if there is an affirmative representation or deception outside of the offering plan, it may be possible to sue for common law fraud or deceptive advertising. Suing for fraud requires the sponsor to take an action beyond just not disclosing something, which would fall under the Martin Act.

 

For instance, if there's a crack in the foundation of the building, you couldn’t sue for fraud for failure to disclose the crack in the offering plan. However, "If they put a bunch of decorative rocks in front of the crack to hide the crack, that would be a claim for fraud because they did something affirmatively," Berkow says.

 

As for misleading advertising, buyers who can show they've been injured by deceptive practices can sue to stop the offender from continuing the deception, depending on where they live. The appeals court covering Manhattan and the Bronx has decided that the law governing deceptive practices in advertising does not apply to the advertising and sale of residential condominium or cooperative apartments, whereas the court for Brooklyn, Queens, and Staten Island says that it does.

 

An action can be brought against the sponsor for breach of contract based on failure to comply with its obligations under the offering plan or purchase agreement. The question of whether it's possible to also personally sue the executives behind the sponsor entities for breach of contract was formerly divided, depending on which borough you were in, but both appeals court departments now agree that the individuals should be protected from personal liability, so only the companies involved can be sued for breach of contract.

 

Whatever angle of recourse you're considering, be sure to keep records of all the problems, your communications with the sponsor, board, and/or building management, 311 calls, contractor payments, and the like. It'll be key to proving your case.

 


New York City real estate attorney Bonnie Reid Berkow is a founding partner of Wagner | Berkow with more than 30 years of experience litigating in state and federal courts in New York state, including cases involving breach of contract, fraud and breach of fiduciary duty, in addition to real estate disputes and commercial actions. To submit a question for this column, click here. To ask about a legal consultation, send an email or call (646) 780-7272.

 

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