Is the Sponsor of a condominium or cooperative offering plan required to sell all of its apartments or shares?  In its 2002 decision in 511 West 232nd Owners Corp. v. Jennifer Realty Co., New York’s highest court, the Court of Appeals, held that the Sponsor may, in certain circumstances, have “a duty in good faith to timely sell so many shares in the building as necessary to create a fully viable cooperative.”  Later cases have held that this principle also applies to condominiums.

The Appellate Division, First Department has now held that the Jennifer Realty doctrine does not require a sponsor, who has already sold a majority of the apartments, to sell all of the remaining ones in order to create a “fully viable” condominium.  Bauer v. Beekman International Center, LLC, 2015 N.Y. App. Div. LEXIS 1554, 2015 N.Y. Slip Op. 01562 (1st Dep’t Feb. 24, 2015),involved a new-construction condominium in which the sponsor had sold 55% of the units offered for sale, but retained ownership of the rest as rental units.  The plaintiff alleged that the sponsor’s failure to sell all the units was a breach of the sponsor’s obligation to create a “fully viable” condominium.  The motion court disagreed and granted summary judgment in favor of the Sponsor, dismissing the complaint.  (For discussion of this decision, please see the December 2013 issue of this Client Advisory.)  The appellate court has now affirmed the dismissal:

While defendant sponsor sold a majority of the newly constructed condominium’s residential units, contrary to plaintiff unit owner’s contention, it was not under an implied obligation to sell all of them. Plaintiff’s reliance on [Jennifer Realty], involving a cooperative conversion of a rent-stabilized building where the owner sold a minority of the shares and the pleading was upheld to the extent that it alleged an implied promise to sell “a sufficient number of shares,” is misplaced.

The appellate court added that the Sponsor had presented evidence satisfying “the elements of condominium viability” under the Jennifer Realty standard.  This decision’s emphasis on the sponsor’s sale of a majority of units supports the proposition that a sponsor that sells more than 50% of the shares or units offered for sale in the offering plan is likely to be held to have created a “fully viable” cooperative or condominium.