Cooperatives & Condominiums

Supreme Ct., N.Y. Cty.

(Mills, J.)

In an action by co-op unit owner against his seller, his mortgagee, and the mortgagee's appraiser for misstating the size of his apartment, the various defendants sought summary judgment dismissing the complaint. The court granted the summary judgment motions, holding that unit owner had not shown that any reliance on representations made by the various defendants was reasonable.

In 2006, unit owner purchased the subject co-op apartment. Before purchasing the unit, unit owner applied for a mortgage, and the mortgagee commissioned an appraisal. The appraiser indicated that the apartment was 451 square feet in size, leading the mortgagee to value the property at $440,000, the contract price unit owner had agreed to pay. Seller, too, had estimated the apartment's size, and come up with an estimate somewhat different from that submitted by the appraiser. Unit owner purchased the unit after obtaining a mortgage in the amount of $352,000. Three years later, unit owner sought to refinance, but was unable to do so because a new appraisal indicated that the apartment's size was only 376 square feet, and valued at only $350,000. Unit owner then commissioned his own appraisal, which measured the size as 344 square feet, and its value at $330,000. Unit owner then brought this action, alleging fraud.

In awarding summary judgment to all three defendants, the court noted that in order to establish fraud, a plaintiff must show not only that he relied on a false, material representation, but that the reliance was reasonable. Here, because unit owner had the means to discover the true size of the apartment, the court held that any reliance was unreasonable. As a result, all fraud claims were dismissed.

COMMENT

A buyer's claim against a seller for extra-contractual misrepresentation regarding the size of purchased property will be dismissed if the buyer's exercised of “ordinary intelligence” would have revealed the truth about the representation. Thus, in Plaza Penthouse LLP v. CPS 1 Realty LP, 24 Misc. 3d 1238(A), 899, the court dismissed an apartment buyer's claim that seller had misrepresented, orally and in writing, the number of rooms in the apartment even though the Seller had, orally and in writing, misrepresented the number of rooms in the apartment. The court emphasized that the buyer had received floor plans indicating the number of rooms his apartment would have. As a result, any reliance on seller's representations would have been unreasonable.

When a contract of sale itself misrepresents the size of a property, and the sale has not yet closed, purchaser is generally entitled to rescind the sale contract for mutual mistake, but is not entitled to money damages. For instance, in Barnosky v. Petteys, 49 A.D.2d 134, 135, where the sale contract represented that the property consisted of 135 acres, purchaser was entitled to rescind upon discovering a shortage of 29 acres, but was not entitled to close the deal and obtain a credit for a pro rata share of the acreage. And in Von Bargen v. Ginsberg, 218 A.D. 545, the court dismissed seller's action for specific performance when the contract provided that a city lot measured “33×95, irregular” and the rear of the lot was only 14 feet wide. The court held that buyer was entitled to rescission of the agreement because of the mutual mistake.

When the misrepresentation in the contract is not discovered until after closing, courts generally deny all relief to the buyer if the contract terms, or precontractual negotiations, make it clear that the precise size of the lot is material. In Little Stillwater Holding Corp. v. Cold Brook Sand & Gravel Corp., 151 Misc. 2d 457. the court dismissed buyer's breach of contract claim when the contract described the property by metes and bounds, indicated that it consisted of “approximately 2,000 acres, more or less” and recited that the purchase price was “not allocated to specific acreage.” When the buyer discovered, six years later, that the parcel actually included only 1,455 acres, the court held that the buyer was not entitled to relief, noting that despite the mutual mistake of the parties, the disparity in acreage was not material because the sale was “in gross” rather than by acreage.

By contrast, when the parties make it clear, either by specifying a “per-acre” price in the sale contract, or by the course of their negotiations, that the precise size was critical to the contract, purchaser is entitled to a credit if the acreage proves to be short. For instance, in Mills v. Kampfe, 202 N.Y. 46, the Court of Appeals reformed a contract that indicated that a survey had found the land to include 264.65 acres when the parcel actually included only 231 acres, emphasizing the findings that both parties entered into the transaction assuming the parcel sold was larger than 250 acres. As a result purchaser was entitled to a credit for the disparity in acreage.

Reorganization of Mitchell-Lama Co-Op Does Not Trigger Real Property Transfer Tax

Trump Village Section 3, Inc. v. NYC

NYLJ 10/05/12

AppDiv, Second Dept.

(Opinion by Cohen, J.)

In co-op corporation's action for a judgment declaring that the real property transfer tax had been improperly imposed on it, the corporation appealed from Supreme Court's award of a judgment to the city. The Appellate Division reversed, holding that reorganization to facilitate termination of participation in the Mitchell-Lama program does not trigger liability for Real Property Transfer Tax.

Trump Village owns an apartment complex consisting of three 23-story apartment buildings in Brooklyn. In 1961, Trump Village was organized as a Mitchell-Lama cooperative housing corporation. Once it repaid the government loan that financed its development, Trump's shareholders voted to terminate participation in the program, and reconstituted itself as a corporation under the Business Corporation Law. The amendments to its certificate of incorporation did not change the corporate name, number or names of shareholders, or the number of shares each shareholder owned. Nevertheless, in 2009, the City Department of Finance issued a notice of tax deficiency in an amount exceeding $21 million, concluding that the reorganization had qualified as a conveyance of real property triggering an obligation to pay the Real Property Transfer Tax. Trump Village then brought this declaratory judgment action, but Supreme Court awarded summary judgment to the city.

In reversing, the Appellate Division started by noting that the case involved a pure question of statutory interpretation, so that no deference was due to the Department of Taxation and Finance. The court then rejected the city's interpretation of section 11-2102(a) of the New York City Administrative Code. That section provides that the tax shall not apply to deeds that effect a mere change of identity of form of ownership “other than a conveyance to a cooperative housing corporation.” The city contended that because of the exception for conveyances to cooperative housing corporation, Trump Village was subject to the tax. The court, however, held that because the reorganization did not involve any deed, section 11-2102(a) was entirely inapplicable, and Trump Village was not subject to the tax.

Action for Misstating Size of Apartment Dismissed

Estrada v. Metropolitan Property Group, Inc.

NYLJ 8/24/12, p. 25, col. 1

Supreme Ct., N.Y. Cty.

(Mills, J.)

In an action by co-op unit owner against his seller, his mortgagee, and the mortgagee's appraiser for misstating the size of his apartment, the various defendants sought summary judgment dismissing the complaint. The court granted the summary judgment motions, holding that unit owner had not shown that any reliance on representations made by the various defendants was reasonable.

In 2006, unit owner purchased the subject co-op apartment. Before purchasing the unit, unit owner applied for a mortgage, and the mortgagee commissioned an appraisal. The appraiser indicated that the apartment was 451 square feet in size, leading the mortgagee to value the property at $440,000, the contract price unit owner had agreed to pay. Seller, too, had estimated the apartment's size, and come up with an estimate somewhat different from that submitted by the appraiser. Unit owner purchased the unit after obtaining a mortgage in the amount of $352,000. Three years later, unit owner sought to refinance, but was unable to do so because a new appraisal indicated that the apartment's size was only 376 square feet, and valued at only $350,000. Unit owner then commissioned his own appraisal, which measured the size as 344 square feet, and its value at $330,000. Unit owner then brought this action, alleging fraud.

In awarding summary judgment to all three defendants, the court noted that in order to establish fraud, a plaintiff must show not only that he relied on a false, material representation, but that the reliance was reasonable. Here, because unit owner had the means to discover the true size of the apartment, the court held that any reliance was unreasonable. As a result, all fraud claims were dismissed.

COMMENT

A buyer's claim against a seller for extra-contractual misrepresentation regarding the size of purchased property will be dismissed if the buyer's exercised of “ordinary intelligence” would have revealed the truth about the representation. Thus, in Plaza Penthouse LLP v. CPS 1 Realty LP, 24 Misc. 3d 1238(A), 899, the court dismissed an apartment buyer's claim that seller had misrepresented, orally and in writing, the number of rooms in the apartment even though the Seller had, orally and in writing, misrepresented the number of rooms in the apartment. The court emphasized that the buyer had received floor plans indicating the number of rooms his apartment would have. As a result, any reliance on seller's representations would have been unreasonable.

When a contract of sale itself misrepresents the size of a property, and the sale has not yet closed, purchaser is generally entitled to rescind the sale contract for mutual mistake, but is not entitled to money damages. For instance, in Barnosky v. Petteys, 49 A.D.2d 134, 135, where the sale contract represented that the property consisted of 135 acres, purchaser was entitled to rescind upon discovering a shortage of 29 acres, but was not entitled to close the deal and obtain a credit for a pro rata share of the acreage. And in Von Bargen v. Ginsberg, 218 A.D. 545, the court dismissed seller's action for specific performance when the contract provided that a city lot measured “33×95, irregular” and the rear of the lot was only 14 feet wide. The court held that buyer was entitled to rescission of the agreement because of the mutual mistake.

When the misrepresentation in the contract is not discovered until after closing, courts generally deny all relief to the buyer if the contract terms, or precontractual negotiations, make it clear that the precise size of the lot is material. In Little Stillwater Holding Corp. v. Cold Brook Sand & Gravel Corp., 151 Misc. 2d 457. the court dismissed buyer's breach of contract claim when the contract described the property by metes and bounds, indicated that it consisted of “approximately 2,000 acres, more or less” and recited that the purchase price was “not allocated to specific acreage.” When the buyer discovered, six years later, that the parcel actually included only 1,455 acres, the court held that the buyer was not entitled to relief, noting that despite the mutual mistake of the parties, the disparity in acreage was not material because the sale was “in gross” rather than by acreage.

By contrast, when the parties make it clear, either by specifying a “per-acre” price in the sale contract, or by the course of their negotiations, that the precise size was critical to the contract, purchaser is entitled to a credit if the acreage proves to be short. For instance, in Mills v. Kampfe, 202 N.Y. 46, the Court of Appeals reformed a contract that indicated that a survey had found the land to include 264.65 acres when the parcel actually included only 231 acres, emphasizing the findings that both parties entered into the transaction assuming the parcel sold was larger than 250 acres. As a result purchaser was entitled to a credit for the disparity in acreage.

Reorganization of Mitchell-Lama Co-Op Does Not Trigger Real Property Transfer Tax

Trump Village Section 3, Inc. v. NYC

NYLJ 10/05/12

AppDiv, Second Dept.

(Opinion by Cohen, J.)

In co-op corporation's action for a judgment declaring that the real property transfer tax had been improperly imposed on it, the corporation appealed from Supreme Court's award of a judgment to the city. The Appellate Division reversed, holding that reorganization to facilitate termination of participation in the Mitchell-Lama program does not trigger liability for Real Property Transfer Tax.

Trump Village owns an apartment complex consisting of three 23-story apartment buildings in Brooklyn. In 1961, Trump Village was organized as a Mitchell-Lama cooperative housing corporation. Once it repaid the government loan that financed its development, Trump's shareholders voted to terminate participation in the program, and reconstituted itself as a corporation under the Business Corporation Law. The amendments to its certificate of incorporation did not change the corporate name, number or names of shareholders, or the number of shares each shareholder owned. Nevertheless, in 2009, the City Department of Finance issued a notice of tax deficiency in an amount exceeding $21 million, concluding that the reorganization had qualified as a conveyance of real property triggering an obligation to pay the Real Property Transfer Tax. Trump Village then brought this declaratory judgment action, but Supreme Court awarded summary judgment to the city.

In reversing, the Appellate Division started by noting that the case involved a pure question of statutory interpretation, so that no deference was due to the Department of Taxation and Finance. The court then rejected the city's interpretation of section 11-2102(a) of the New York City Administrative Code. That section provides that the tax shall not apply to deeds that effect a mere change of identity of form of ownership “other than a conveyance to a cooperative housing corporation.” The city contended that because of the exception for conveyances to cooperative housing corporation, Trump Village was subject to the tax. The court, however, held that because the reorganization did not involve any deed, section 11-2102(a) was entirely inapplicable, and Trump Village was not subject to the tax.