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Board May Pursue Claims Against Sponsor for Hazardous Conditions and for Failure to Obtain Permanent Certificate of Occupancy

The Sponsor of a Condominium may be liable under the offering plan for hazardous, dangerous, or unlawful conditions, and for failure to secure a permanent certificate of occupancy, according to an appellate court’s decision in Board of Managers of Loft Space Condominium v. SDS Leonard, LLC, 2016 N.Y. App. Div. LEXIS 6056, 2016 N.Y. Slip Op. 6173 (1st Dep’t Sept. 27, 2016).

In this case, each purchaser of a residential unit at the Condominium entered into a purchase contract with the Sponsor, which incorporated the offering plan by reference. The offering plan states that “[t]he common elements are offered in ‘as is’ condition as of the date of the First Unit Closing, subject to . . . the Sponsor’s obligation to maintain the Property in accordance with the requirements of law and to cause any hazardous or dangerous conditions to be cured.” The Board of Managers, on behalf of the unit owners, sued the Sponsor for breach of contract based upon allegedly defective conditions in the building. The court allowed this claim to proceed to the extent the Board alleged the existence of conditions that are hazardous, dangerous, or violate the law, based on the express language of the offering plan. The court rejected the Sponsor’s contention that the issuance of temporary certificates of occupancy for the building meant that the building must be free of hazardous, dangerous, or unlawful conditions.

The court also allowed the Board to pursue a claim for breach of contract based upon the Sponsor’s failure to obtain a permanent certificate of occupancy for the building. The offering plan stated that “Sponsor expects to obtain a permanent Certificate of Occupancy . . . within 180 days” of the first closing, and the ‘as is’ clause did not negate this obligation.

The court also sustained the pleading of a cause of action for fraudulent transfer based upon the Sponsor’s transfer of four commercial units “for $0.” This transfer did not appear to be “for fair consideration” and the evidence did not refute the Board’s allegation that the Sponsor was left with “unreasonably small capital” after the transfer. Although the Sponsor contended that the Condominium’s reserve fund constituted sufficient capital, the court held that the reserve fund was irrelevant because, by law, the reserve fund must be transferred to the Board of Managers, not held by the Sponsor.