Cooperatives & Condominiums

No Fraudulent Representations About Golf Club Membership

Mincone v. Greens Golf Club, LLC

NYLJ 6/22/11, p. 25, col. 3

AppTerm, 9th and 10th Districts

(memorandum opinion)

In an action by condominium purchaser seeking a refund of all social membership fees paid to a gold club, the club appealed from District Court's denial of its motion for summary judgment dismissing purchaser's fraud claim. The Appellate Term reversed and dismissed the complaint, holding that purchaser had not produced evidentiary proof in admissible form to establish material issues of fact requiring a trial.

In 2001, purchaser signed a contract to purchase a residential unit, which was still in the process of development. The sale contract said that purchaser agreed to be bound by the offering plan and the proposed declaration of covenants, and that purchaser had not relied on any representations made by seller. At the same time developer was building the residential condominium, it was also developing an adjacent recreational facility, including a golf course. The declaration for the residential condominium, recorded in 2002, and a supplementary declaration, recorded the following year, said that the golf club was a privately owned country club and that all condominium unit owners would automatically be social members required to pay dues to the golf club. The offering plan included similar language. Purchaser closed on the unit in 2004, and subsequently paid dues.

Purchaser nevertheless brought this action, alleging that the club had represented to purchasers that they were obligated to pay membership dues even though the club knew or should have known that the representations were false. District Court denied the club's summary judgment motion, and the club appealed.

In reversing, the Appellate Term indicated that the documents submitted by the club ' the purchase agreement, offering plan, and recorded declaration ' refuted any claims of fraud. Because purchaser's response did not dispute the allegation that the club had made full disclosure, the purchaser had failed to show that any representations were fraudulent, or even false. As a result, the club was entitled to summary judgment.

Unit Owner Entitled to Injunction

Shapiro v. 350 E. 78th Street Tenants Corp.

NYLJ 6/27/11, p. 19, col. 5

AppDiv, First Dept.

(3-2 decision; memorandum opinion; dissenting memorandum by McGuire, J.)

In an action by co-op shareholder against the co-op corporation, the latter appealed from Supreme Court's grant of summary judgment on the issue of liability, and grant of an injunction requiring the corporation to make repairs or improvements necessary to restore shareholder's use of the roof appurtenant to her apartment. A divided Appellate Division affirmed, relying on the proprietary lease provision giving tenant the right to use the roof appurtenant to her apartment.

Shareholder bought the subject penthouse apartment in 1979, and her proprietary lease gave her the exclusive use of the roof, “subject to such regulations as may, from time to time, be prescribed” by the co-op board. The proprietary lease also prohibited planting, fences, structures or lattices on the roof without the consent of the board. In 1993, a leak developed in the apartment of one of shareholder's neighbors. At that time, the co-op board replaced the roof. Then, in 2004, after a series of major leaks in the building, an inspection revealed that shareholder had installed wooden decking on the roof and had installed planters with large trees and shrubs. A roof expert then advised the co-op board that decking is not recommended on flat roofs, and questioned whether decking was permissible under New York City codes. The co-op board then required shareholder to remove the decking, furniture and planters from the roof, and also prohibited shareholder from using or walking on the roof. Shareholder then brought this action challenging that prohibition, and seeking to require the co-op board to repair the roof. Supreme Court awarded summary judgment to shareholder on her claim that the prohibition was invalid, and also enjoined the board to make such repairs as necessary to restore shareholder to her use of the roof space. The co-op appealed.

In affirming, the Appellate Division majority concluded that the injunction granted by Supreme Court did nothing more than restore shareholder's contract rights. The majority noted that Supreme Court had withheld much of the injunctive relief required by shareholder, noting that the scope of shareholder's permitted use rights raised issues of fact for resolution at trial. Justice McGuire, dissenting for himself and Justice Andrias, argued that the court could not order such repairs as necessary to restore shareholder to her use of the roof space without first determining what rights shareholder had to use that roof space. The dissenters concluded that the injunction was impermissible vague, and argued that it was therefore improperly granted.

Condo Board Lacks Standing to Raise ILSA Claim

Board of Managers of the Mason Fisk Condominium v. 72 Berry Street, LLC

NYLJ 7/6/11, p. 25

U.S. Dist Ct., E.D.N.Y.

(Cogan, J.)

In an action by the condominium board against the sponsors for violations of the Interstate Land Sales Full Disclosure Act (ILSA), the sponsor moved to dismiss for lack of standing. The court granted the sponsors' motion, holding that only the individual unit owners, not the board had standing under the statute.

The sponsors converted a factory building into 26 residential units, and sold 25 of the units pursuant to an offering plan representing that the sponsor would complete construction in compliance with building codes, using materials of quality similar to those specified in the plan. When the purchasers moved in, they noticed alleged design and construction defects, and retained an architect whose report detailed defects, including inadequate fire protection between the units. The condominium board then brought this action, alleging violations of ILSA, which was designed to prevent false and deceptive practices in the sale of an unimproved tract of land. The board alleged that the sponsor violated the statute by making untrue statements of material fact. The sponsors moved to dismiss for lack of standing.

In granting sponsors' motion, the court started by noting that courts have been reluctant to allow associational standing in cases that seek money damages as relief. The court then noted that even in cases seeking equitable relief, where the fact and extent of the injury would require individualized proof, organizations do not typically have standing to assert the rights of their members. Here, the court emphasized that the monetary relief sought ' including rescission of individual contracts and refunds ' requires a showing of the price each purchaser paid. Moreover, the request for specific performance would require individual participation, because the degree of work might vary among apartments. The court then turned to the board's argument that the individual owners had, in their individual purchase agreements, effectively assigned their claims to the board. The court rejected the argument because the owners did not have a right to enforce plan obligations, and therefore could not assign that right. Finally, the court noted that even if the owners did have a right to enforce, the language in the purchase agreements was too narrow to encompass claims of fraud like those that serve as the basis for the ILSA action. The court held that the board was free to pursue any state law claims in state court.

Purchasers' Rescission Claim Fails

Rosenblum v. Glogoff

NYLJ 6/28/11

Supreme Ct., N.Y. Cty.

(Gische, J.)

In an action by co-op purchasers for rescission of the sale contract, sellers moved for summary judgment dismissing the complaint, and for summary judgment on their counterclaim for breach of contract. The court granted sellers' motion, holding that purchasers had not demonstrated any actionable concealment by sellers.

Purchasers contracted to buy the subject co-operative apartment for $900,000 and paid a $90,000 deposit. Purchasers did not appear at closing, and sellers seek to keep the down payment as liquidated damages. Purchasers contend that when they first saw the apartment, they asked about air conditioning and were told that the apartment had “through-wall” air conditioning except in the kitchen. They allege that a broker pointed to a cabinet and explained that air conditioning came through the cabinet, but that it could not be activated because it was February and too cold. On a subsequent visit, the broker handed purchasers an information sheet that listed as one of the apartment's features “Air Conditioning Thru-Wall.” Prior to closing, which was scheduled for June 25, purchasers did a walk-through and asked the broker why the air conditioning was not working. The broker explained that she had just switched on the air conditioning and it had not yet become effective. Forty minutes later, purchaser asked to look at the unit, and discovered that the cabinet supposedly designed for air conditioning had no unit, but only a pipe that made it impossible to install an air conditioning unit. Purchasers then discovered that it would be impossible to add through-wall air conditioning to the living room or dining room. They then sought to cancel the contract and brought this action.

In awarding summary judgment to sellers, the court noted that purchasers had the burden to inspect the premises before signing the contract, and noted that the contract of sale itself did not make any representations about air conditioning. The court then noted that purchasers could have investigated further, and could have opened the cabinet in February, but did not do so. Moreover, sellers did nothing to prevent purchasers from investigating further. On those facts, purchasers had not identified any actionable concealment, and could not therefore prevail on their claim for breach of contract or for rescission. As a result, purchasers' failure to close constituted breach, entitling seller to retain the down payment.

Co-Op Board May Not Withhold New Certificates for Apartments

R&L Realty Associates v. 205 West 103 Owners Corp.

NYLJ 6/24/11

Supreme Ct., N.Y. Cty.

(Friedman, J.)

In an article 78 proceeding, co-op sponsor sought an order compelling the co-op board to issue new stock certificates and proprietary leases for 25 apartments that are the subject of a prospective bulk sale. The court issued the order, holding that the board had not established any legitimate reason for withholding the certificates.

An earlier court order authorized the sponsor's wind-up partner to enter into a bulk sale of the apartment owned by the sponsor. The co-op board, however, had refused to issue new certificates and leases, citing alleged violations in the apartments and failure to pay an assessment imposed by the co-op board.

In ordering the board to issue the new certificates and leases, the court first rejected the board's contention that the sponsor had not established proof that it owned the subject shares. The court then held that the board had not established that the sponsor was in violation of an “assurance of discontinuance” agreement with the attorney general. The agreement required the sponsor to amend the offering plan prior to any public offering or sale. The court first questioned whether the board had standing to enforce the agreement, and then noted that in any event the board had not established that sponsor was not in compliance. The court next rejected the argument that alleged violations provided an excuse for failure to issue the stock certificates. With respect to various claims the board asserted against the sponsor, the court held that the amount of an alleged repair lien and the amount of a disputed assessment would remain on deposit with the court pending resolution of those issues, but should not prevent the board from issuing the stock certificates and proprietary leases.

Sponsor Failed to Satisfy Reserve Requirements

People v. Levy

NYLJ 6/22/11, p.17

Supreme Ct., N.Y. Cty.

(Lobis, J.)

In a proceeding brought by the Attorney General against a condominium sponsor alleging fraud, deceit, and other illegal conduct, the Attorney General sought judgment. The court granted the petition, holding that sponsor had not presented anything but conclusory denials in response to the petition.

In 2007, sponsor filed and the Attorney General accepted an offering plan for 303 residential condominium units in Battery Park City. The New York City Administrative Code requires the sponsor to establish a reserve fund in conjunction with sales of the units, ultimately amounting to at least 3% of the sale price of the units. If the sponsor chooses to make gradual contributions to the reserve fund, the sponsor can receive a credit against its funding obligation for specified capital expenditures made after the offering plan was filed but before it became effective. In this case, the Attorney General alleged that sponsor failed to establish the required reserve fund, raided the fund, and failed to disclose that it did not properly fund the reserve fund. The Attorney General sought damages of more than $7 million ' the amount sponsor should have placed in the reserve fund. The sponsor denied the allegations.

In granting the Attorney General's petition for relief, the court noted that special proceedings are decided on the same standards as summary judgment motions. Here, the sponsor submitted no evidentiary proof to rebut or contradict the Attorney General's claims.

Co-Op Not Entitled to Reimbursement from Sale Price

Himmelberger v. 40-50 Brighton First Road Apartments Corp.

NYLJ 6/22/211, p. 17

Supreme Ct., Kings Cty.

(Battaglia, J.)

In an action initially brought to establish the right to occupy a co-op apartment, the co-op corporation asserted a right to be reimbursed from the proceeds of a sale for the additional security costs incurred as a result of an illegal occupant. The court held that the proprietary lease did not give the co-op corporation such a reimbursement right.

Plaintiff Himmelberger's mother owned the co-op apartment and transferred her shares in 2007 to Henderson and Campbell. Himmelberger initially asserted that the transfer was made on the understanding that he could remain in the apartment for life. When the mother died, Himmelberger remained in the apartment, and the co-op corporation served a notice to cure and then a notice of termination on Henderson and Campbell, asserting that Himmelberger was an unauthorized occupant. The co-op corporation ultimately obtained a judgment of possession. Meanwhile, a stipulation of settlement allowed sale of the apartment, and Himmelberger reached a settlement with Henderson and Campbell about the proceeds of the sale. The co-op corporation then asserted a right to be reimbursed for $42,912.33 in security costs incurred to protect co-op residents from Himmelberger's dangerous and menacing conduct. The corporation relied on the provision of the lease requiring lessee to remedy conditions that had become objectionable to the lessor “for reasons above set forth,” and entitling the lessor to treat as additional rent any expenses incurred in removing objectionable conditions if tenant did not remove them.

In denying the corporation's right to recover the expenses from the proceeds of sale, the court emphasized that the lease's provision giving lessor the right to remove objectionable conditions at the lessee's expense arose only if lessee failed for 30 days after notice to remove the condition. In this case, the record included no 30-day notice referring to this provision. The court did not preclude a further action in contract or tort for damages arising from tenant's maintenance of a nuisance in breach of the lease, but held that the lease did not allow the corporation to deduct the expenses from the proceeds of a sale.

No Fraudulent Representations About Golf Club Membership

Mincone v. Greens Golf Club, LLC

NYLJ 6/22/11, p. 25, col. 3

AppTerm, 9th and 10th Districts

(memorandum opinion)

In an action by condominium purchaser seeking a refund of all social membership fees paid to a gold club, the club appealed from District Court's denial of its motion for summary judgment dismissing purchaser's fraud claim. The Appellate Term reversed and dismissed the complaint, holding that purchaser had not produced evidentiary proof in admissible form to establish material issues of fact requiring a trial.

In 2001, purchaser signed a contract to purchase a residential unit, which was still in the process of development. The sale contract said that purchaser agreed to be bound by the offering plan and the proposed declaration of covenants, and that purchaser had not relied on any representations made by seller. At the same time developer was building the residential condominium, it was also developing an adjacent recreational facility, including a golf course. The declaration for the residential condominium, recorded in 2002, and a supplementary declaration, recorded the following year, said that the golf club was a privately owned country club and that all condominium unit owners would automatically be social members required to pay dues to the golf club. The offering plan included similar language. Purchaser closed on the unit in 2004, and subsequently paid dues.

Purchaser nevertheless brought this action, alleging that the club had represented to purchasers that they were obligated to pay membership dues even though the club knew or should have known that the representations were false. District Court denied the club's summary judgment motion, and the club appealed.

In reversing, the Appellate Term indicated that the documents submitted by the club ' the purchase agreement, offering plan, and recorded declaration ' refuted any claims of fraud. Because purchaser's response did not dispute the allegation that the club had made full disclosure, the purchaser had failed to show that any representations were fraudulent, or even false. As a result, the club was entitled to summary judgment.

Unit Owner Entitled to Injunction

Shapiro v. 350 E. 78th Street Tenants Corp.

NYLJ 6/27/11, p. 19, col. 5

AppDiv, First Dept.

(3-2 decision; memorandum opinion; dissenting memorandum by McGuire, J.)

In an action by co-op shareholder against the co-op corporation, the latter appealed from Supreme Court's grant of summary judgment on the issue of liability, and grant of an injunction requiring the corporation to make repairs or improvements necessary to restore shareholder's use of the roof appurtenant to her apartment. A divided Appellate Division affirmed, relying on the proprietary lease provision giving tenant the right to use the roof appurtenant to her apartment.

Shareholder bought the subject penthouse apartment in 1979, and her proprietary lease gave her the exclusive use of the roof, “subject to such regulations as may, from time to time, be prescribed” by the co-op board. The proprietary lease also prohibited planting, fences, structures or lattices on the roof without the consent of the board. In 1993, a leak developed in the apartment of one of shareholder's neighbors. At that time, the co-op board replaced the roof. Then, in 2004, after a series of major leaks in the building, an inspection revealed that shareholder had installed wooden decking on the roof and had installed planters with large trees and shrubs. A roof expert then advised the co-op board that decking is not recommended on flat roofs, and questioned whether decking was permissible under New York City codes. The co-op board then required shareholder to remove the decking, furniture and planters from the roof, and also prohibited shareholder from using or walking on the roof. Shareholder then brought this action challenging that prohibition, and seeking to require the co-op board to repair the roof. Supreme Court awarded summary judgment to shareholder on her claim that the prohibition was invalid, and also enjoined the board to make such repairs as necessary to restore shareholder to her use of the roof space. The co-op appealed.

In affirming, the Appellate Division majority concluded that the injunction granted by Supreme Court did nothing more than restore shareholder's contract rights. The majority noted that Supreme Court had withheld much of the injunctive relief required by shareholder, noting that the scope of shareholder's permitted use rights raised issues of fact for resolution at trial. Justice McGuire, dissenting for himself and Justice Andrias, argued that the court could not order such repairs as necessary to restore shareholder to her use of the roof space without first determining what rights shareholder had to use that roof space. The dissenters concluded that the injunction was impermissible vague, and argued that it was therefore improperly granted.

Condo Board Lacks Standing to Raise ILSA Claim

Board of Managers of the Mason Fisk Condominium v. 72 Berry Street, LLC

NYLJ 7/6/11, p. 25

U.S. Dist Ct., E.D.N.Y.

(Cogan, J.)

In an action by the condominium board against the sponsors for violations of the Interstate Land Sales Full Disclosure Act (ILSA), the sponsor moved to dismiss for lack of standing. The court granted the sponsors' motion, holding that only the individual unit owners, not the board had standing under the statute.

The sponsors converted a factory building into 26 residential units, and sold 25 of the units pursuant to an offering plan representing that the sponsor would complete construction in compliance with building codes, using materials of quality similar to those specified in the plan. When the purchasers moved in, they noticed alleged design and construction defects, and retained an architect whose report detailed defects, including inadequate fire protection between the units. The condominium board then brought this action, alleging violations of ILSA, which was designed to prevent false and deceptive practices in the sale of an unimproved tract of land. The board alleged that the sponsor violated the statute by making untrue statements of material fact. The sponsors moved to dismiss for lack of standing.

In granting sponsors' motion, the court started by noting that courts have been reluctant to allow associational standing in cases that seek money damages as relief. The court then noted that even in cases seeking equitable relief, where the fact and extent of the injury would require individualized proof, organizations do not typically have standing to assert the rights of their members. Here, the court emphasized that the monetary relief sought ' including rescission of individual contracts and refunds ' requires a showing of the price each purchaser paid. Moreover, the request for specific performance would require individual participation, because the degree of work might vary among apartments. The court then turned to the board's argument that the individual owners had, in their individual purchase agreements, effectively assigned their claims to the board. The court rejected the argument because the owners did not have a right to enforce plan obligations, and therefore could not assign that right. Finally, the court noted that even if the owners did have a right to enforce, the language in the purchase agreements was too narrow to encompass claims of fraud like those that serve as the basis for the ILSA action. The court held that the board was free to pursue any state law claims in state court.

Purchasers' Rescission Claim Fails

Rosenblum v. Glogoff

NYLJ 6/28/11

Supreme Ct., N.Y. Cty.

(Gische, J.)

In an action by co-op purchasers for rescission of the sale contract, sellers moved for summary judgment dismissing the complaint, and for summary judgment on their counterclaim for breach of contract. The court granted sellers' motion, holding that purchasers had not demonstrated any actionable concealment by sellers.

Purchasers contracted to buy the subject co-operative apartment for $900,000 and paid a $90,000 deposit. Purchasers did not appear at closing, and sellers seek to keep the down payment as liquidated damages. Purchasers contend that when they first saw the apartment, they asked about air conditioning and were told that the apartment had “through-wall” air conditioning except in the kitchen. They allege that a broker pointed to a cabinet and explained that air conditioning came through the cabinet, but that it could not be activated because it was February and too cold. On a subsequent visit, the broker handed purchasers an information sheet that listed as one of the apartment's features “Air Conditioning Thru-Wall.” Prior to closing, which was scheduled for June 25, purchasers did a walk-through and asked the broker why the air conditioning was not working. The broker explained that she had just switched on the air conditioning and it had not yet become effective. Forty minutes later, purchaser asked to look at the unit, and discovered that the cabinet supposedly designed for air conditioning had no unit, but only a pipe that made it impossible to install an air conditioning unit. Purchasers then discovered that it would be impossible to add through-wall air conditioning to the living room or dining room. They then sought to cancel the contract and brought this action.

In awarding summary judgment to sellers, the court noted that purchasers had the burden to inspect the premises before signing the contract, and noted that the contract of sale itself did not make any representations about air conditioning. The court then noted that purchasers could have investigated further, and could have opened the cabinet in February, but did not do so. Moreover, sellers did nothing to prevent purchasers from investigating further. On those facts, purchasers had not identified any actionable concealment, and could not therefore prevail on their claim for breach of contract or for rescission. As a result, purchasers' failure to close constituted breach, entitling seller to retain the down payment.

Co-Op Board May Not Withhold New Certificates for Apartments

R&L Realty Associates v. 205 West 103 Owners Corp.

NYLJ 6/24/11

Supreme Ct., N.Y. Cty.

(Friedman, J.)

In an article 78 proceeding, co-op sponsor sought an order compelling the co-op board to issue new stock certificates and proprietary leases for 25 apartments that are the subject of a prospective bulk sale. The court issued the order, holding that the board had not established any legitimate reason for withholding the certificates.

An earlier court order authorized the sponsor's wind-up partner to enter into a bulk sale of the apartment owned by the sponsor. The co-op board, however, had refused to issue new certificates and leases, citing alleged violations in the apartments and failure to pay an assessment imposed by the co-op board.

In ordering the board to issue the new certificates and leases, the court first rejected the board's contention that the sponsor had not established proof that it owned the subject shares. The court then held that the board had not established that the sponsor was in violation of an “assurance of discontinuance” agreement with the attorney general. The agreement required the sponsor to amend the offering plan prior to any public offering or sale. The court first questioned whether the board had standing to enforce the agreement, and then noted that in any event the board had not established that sponsor was not in compliance. The court next rejected the argument that alleged violations provided an excuse for failure to issue the stock certificates. With respect to various claims the board asserted against the sponsor, the court held that the amount of an alleged repair lien and the amount of a disputed assessment would remain on deposit with the court pending resolution of those issues, but should not prevent the board from issuing the stock certificates and proprietary leases.

Sponsor Failed to Satisfy Reserve Requirements

People v. Levy

NYLJ 6/22/11, p.17

Supreme Ct., N.Y. Cty.

(Lobis, J.)

In a proceeding brought by the Attorney General against a condominium sponsor alleging fraud, deceit, and other illegal conduct, the Attorney General sought judgment. The court granted the petition, holding that sponsor had not presented anything but conclusory denials in response to the petition.

In 2007, sponsor filed and the Attorney General accepted an offering plan for 303 residential condominium units in Battery Park City. The New York City Administrative Code requires the sponsor to establish a reserve fund in conjunction with sales of the units, ultimately amounting to at least 3% of the sale price of the units. If the sponsor chooses to make gradual contributions to the reserve fund, the sponsor can receive a credit against its funding obligation for specified capital expenditures made after the offering plan was filed but before it became effective. In this case, the Attorney General alleged that sponsor failed to establish the required reserve fund, raided the fund, and failed to disclose that it did not properly fund the reserve fund. The Attorney General sought damages of more than $7 million ' the amount sponsor should have placed in the reserve fund. The sponsor denied the allegations.

In granting the Attorney General's petition for relief, the court noted that special proceedings are decided on the same standards as summary judgment motions. Here, the sponsor submitted no evidentiary proof to rebut or contradict the Attorney General's claims.

Co-Op Not Entitled to Reimbursement from Sale Price

Himmelberger v. 40-50 Brighton First Road Apartments Corp.

NYLJ 6/22/211, p. 17

Supreme Ct., Kings Cty.

(Battaglia, J.)

In an action initially brought to establish the right to occupy a co-op apartment, the co-op corporation asserted a right to be reimbursed from the proceeds of a sale for the additional security costs incurred as a result of an illegal occupant. The court held that the proprietary lease did not give the co-op corporation such a reimbursement right.

Plaintiff Himmelberger's mother owned the co-op apartment and transferred her shares in 2007 to Henderson and Campbell. Himmelberger initially asserted that the transfer was made on the understanding that he could remain in the apartment for life. When the mother died, Himmelberger remained in the apartment, and the co-op corporation served a notice to cure and then a notice of termination on Henderson and Campbell, asserting that Himmelberger was an unauthorized occupant. The co-op corporation ultimately obtained a judgment of possession. Meanwhile, a stipulation of settlement allowed sale of the apartment, and Himmelberger reached a settlement with Henderson and Campbell about the proceeds of the sale. The co-op corporation then asserted a right to be reimbursed for $42,912.33 in security costs incurred to protect co-op residents from Himmelberger's dangerous and menacing conduct. The corporation relied on the provision of the lease requiring lessee to remedy conditions that had become objectionable to the lessor “for reasons above set forth,” and entitling the lessor to treat as additional rent any expenses incurred in removing objectionable conditions if tenant did not remove them.

In denying the corporation's right to recover the expenses from the proceeds of sale, the court emphasized that the lease's provision giving lessor the right to remove objectionable conditions at the lessee's expense arose only if lessee failed for 30 days after notice to remove the condition. In this case, the record included no 30-day notice referring to this provision. The court did not preclude a further action in contract or tort for damages arising from tenant's maintenance of a nuisance in breach of the lease, but held that the lease did not allow the corporation to deduct the expenses from the proceeds of a sale.