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Perspectives

Condo Board May Be Liable for Tortious Interference for Refusing to Confirm It Will Not Exercise Right of First Refusal

When a condominium board of managers declines to exercise its right of first refusal, but refuses to provide written confirmation of its decision when asked to do so, it may be liable for tortious interference with the would-be purchaser’s contract. Tumayeva v. Ocean Condominium No. Two, 2021 N.Y. Misc. LEXIS 490, 2021 N.Y. Slip Op. 30368(U) (Sup. Ct. Kings Co. Feb. 5, 2021).

Plaintiff signed a contract to acquire a unit in the Condominium. As in most condominiums, the By-Laws afford the Board of Managers a right of first refusal over any transfers of units. This means that the Board may prevent a would-be purchaser from acquiring the unit if the Board agrees to purchase the unit from the seller for the same price. However, unlike in a cooperative, a condominium board generally cannot disapprove a purchase application unless it is prepared to pay to acquire the unit itself, which rarely occurs.

Plaintiff asserted that she has young children and that the President of the Board of Managers, who owns the apartment below the one she sought to buy, did not want children living above him. Plaintiff also asserted that the Board did not want to see a sale in the building at the relatively low price she had negotiated. According to plaintiff, the Board did not exercise its right of first refusal, but “they would not provide the document which this development ordinarily provides, stating that they were not exercising their right of first refusal,” even though providing such a document “is apparently the custom and practice in this development.” Plaintiff further alleged that without this document, the bank that had provided plaintiff’s mortgage commitment refused to close, and therefore she was unable to acquire the unit, which was ultimately foreclosed on by a lienholder. Based on these allegations, the court held that plaintiff had stated a cause of action against the Board of Managers for tortious interference with her purchase contract.

However, the court dismissed several other claims the plaintiff had sought to assert based on the same facts. Plaintiff could not assert a claim against the Board for breach of the Condominium’s By-Laws, because the By-Laws do not apply to prospective purchasers who do not yet have a relationship with the Condominium. Plaintiff’s cause of action against the Board for breach of fiduciary duty was dismissed for the same reason. The court also dismissed plaintiff’s attempt to plead a claim for breach of contract based upon a processing fee she had paid to the Condominium to review her request to purchaser the unit. The court found that plaintiff had no contractual relationship with the Condominium, and that the selling unit owner was the party that asked the Board to review the contract, even though the seller had asked the purchaser to pay the application fee.

The court also dismissed the claims against the individual board members. Finally, the court held that “[a]n action against an unincorporated association (which is what a condominium is in New York) must be maintained against its president or treasurer.” Citing the New York General Associations Law, the court required the purchaser to amend its complaint to name the president or treasurer, in a representative capacity, as the defendant. Although the same judge gave the same direction in a prior decision (see the September 2020 issue of this Client Advisory), this is not how actions involving condominiums are typically captioned and this holding may not be followed by other courts. In any event, the court held that this was not a jurisdictional issue and that the caption could be amended to cure the alleged defect.