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Perspectives

Cooperative May Seek to Rescind Conveyance to Purchaser Who Violated Occupancy Agreement

A Coop Board approved the sale of a unit to an applicant who represented that he would be the sole occupant and would live in the unit as his primary residence.  The Board required the purchaser to enter into an Occupancy Agreement that prohibited using the premises “for any purpose other than a private dwelling apartment for [him] and his family.”  Based on the purchaser’s representations and his signature on the Occupancy Agreement, the Board approved the purchase and did not exercise a right of first refusal it could otherwise have exercised.

After the sale closed, the Board allegedly learned that instead of living in the apartment, the purchaser was subletting it to third parties on a short-term basis as part of a “real estate business.”  The board sued the purchaser seeking to rescind its approval of the conveyance and to recover damages for fraud.

An appellate court has held that these facts, if proved, provide a basis for the Board’s claims against the purchaser.  The Board’s pleading was sufficiently detailed and contained all the elements of a valid claim for fraud.  The purchaser relied on precedents holding that a fraud claim will not be allowed where the only fraud arises from a breach of contract or is based on a misrepresentation of one’s intent to perform under the contract.  However, here, the fraud claim “allege[d] that the defendant made misrepresentations of fact on his purchase agreement that were collateral to the occupancy agreement, and that those misrepresentations induced the [Board] to approve the defendant’s purchase application, resulting in the [Board’s] failure to exercise its right of first refusal to purchase the subject apartment.”  Trump Village Section 4 v. Vilensky, 202 A.D.3d 865 (2d Dep’t Feb. 9, 2022).