Q&A: Problems with a Building Owner-Sponsor-Manager

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Q. Our Nassau County co-op was converted in the 1980s. The current property manager owned and managed the property as a rental property pre-conversion. The firm still manages the property. Recently, two apartments we had for a resident super and resident assistant super were declared in violation of village building code during a recent building inspection. It turns out that the original offering statements presented the two apartments in detail as a four-and-one-half and a four-room apartment, respectively, for our super and assistant super residency.

Basically, the apartments were presented in the property description of the offering statement multiple times but were illegal apartments. This appears to be a material misrepresentation in the offering statement. The most significant issue is lack of a second form of egress from both lobby-level apartments. The co-op was fined, paid for obtaining a variance, and has now scheduled the work. The egress requires knocking out brick and creating egress windows along with multiple code violations within the apartments. The expenses to do the required work along with other fees are well over $200,000.

My question is: Does the co-op have any recourse against the current property manager who owned the buildings being converted in the 1980s and still serves as property manager?

                        —Concerned Shareholder 

A. “What the reader describes is a very clear case of breach of contract,” says Leni Morrison Cummins, attorney with Manhattan law firm Cozen O’Connor. “The offering plan is a contract between the sponsor and the buyers. For some breaches, individual shareholders may have claims and for others the board may have claims. If the current shareholders who reside in those units were the original owners (who purchased directly from the sponsor), they would likely have individual claims against the sponsor. Further, now that the board is spending money to fix the issue, it would also be able to assert breach of contract claims against the sponsor. All of that said, there is a very big legal hurdle for a shareholder or the board to overcome—the statute of limitations. The statute of limitations for breach of contract is six years. This six years typically begins to run from the date of closing for the individual original purchasing shareholder, and from the date of first closing for the board. Those time periods are clearly long gone. There are certain exceptions, for fraud for example, but those are extremely limited and unlikely given the circumstances. The fact that the manager (and partner in the sponsor entity) is still involved won’t change the analysis unless they have known about the condition and have been actively concealing it for years.”     

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Comments

  • Liked the article, however do you have any knowledge about HDFC's Housing Development Fund Corporations. We have huge issues with our corrupt board. We followed the steps stated in our documents and had a recall, with a replacement; however they refused to comply. We are not sure what to do next HELP. Thank you