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'Huguenot LLC v. Megalith Capital Group Fund I, L.P.': A Tutorial On Contract Liability for Real Estate Purchasers
In June 2024, the First Department decided Huguenot LLC v. Megalith Capital Group Fund I, L.P., 228 A.D.3d 404 (1st Dept. 2024), which resolved a question of liability for a group of condominium apartment buyers and in so doing, touched on a wide range of issues about how contracts can obligate purchasers of real property. In ultimately rejecting the plaintiff's claim that the apartment buyers could be responsible for the condominium developer's breach of a contract recorded as part of the condominium's declaration, the court illustrated some important points about how contracts can run with the land, or otherwise impose liability on real estate buyers.
Factual Background
The plaintiff was the original owner of a building in lower Manhattan, and entered into a contract under which the developer would renovate the building and then divide and sell the upper floors as condominium apartments, while the plaintiff would retain ownership of the storefront on the ground floor as a commercial unit. After the plaintiff and the developer recorded a condominium declaration dividing the building up into two condominium units, the ground floor commercial unit and "Unit 2" which would later be subdivided into residential apartments, they entered into a contract amendment (the Recorded Contract) which set forth the requirements for the construction work the developer would do in the commercial unit and provided that it could be recorded as part of the condominium's declaration. In recording the Recorded Contract as part of the declaration, the plaintiff specified that the defined term for the developer in the Recorded Contract "shall mean and refer to" a term that included owners of the apartments that Unit 2 would be subdivided into. Later, the developer recorded a declaration amendment splitting Unit 2 into individual apartments and stating that the construction work had been completed.
The plaintiff sued the developer alleging that its construction work didn't meet the specifications in the Recorded Contract, and after the apartments had been sold, named the buyers of the apartments, claiming that, because the Recorded Contract had been recorded as part of the condominium's declarations, they became responsible for the developer's contractual breaches. The trial court denied the apartment buyers' summary judgment motion, holding that they were on notice of the Recorded Contract when they bought their apartments, and as such, questions of fact existed as to whether they could be liable for the developer's alleged breach of the Recorded Contract.
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