The Sponsor of a condominium entered into a contract for the sale of a unit. After the contract of sale was executed, but before the closing, the Sponsor filed an amendment to the offering plan.  Among other changes, the amendment provided the Sponsor with additional legal remedies in the event of a breach by the purchaser that had not previously been available, including specific performance.

 

The contract purchasers asserted that these were material changes in the offering plan, entitling them to rescind the contract of sale and recover their down payment. The Sponsor disagreed.  The dispute was submitted to the Attorney General of the State of New York for resolution.  (As discussed in the March 2013 issue of this Client Advisory, the Attorney General’s regulations formerly required offering plans to provide for the Attorney General to resolve this type of dispute.  This requirement was repealed in November 2012, but the language is still contained in many offering plans.)  The Attorney General ruled in favor of the Sponsor.

 

The contract purchasers sought judicial review of the Attorney General’s decision in an Article 78 proceeding. A lower court overturned the Attorney General’s decision as “arbitrary and capricious.”  The Attorney General appealed, but the Appellate Division affirmed the lower court’s ruling that the “amendment to the offering plan contained changes to the plan that were materially adverse to the purchasers, entitling the purchasers to rescission of the purchase agreement and the return of their down payment.”  Matter of Bradbeer v. Schneiderman, 2015 N.Y. App. Div. LEXIS 9228, 2015 N.Y. Slip Op. 9216 (1st Dep’t Dec. 15, 2015).