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Limited Success For Condominium Unit Purchaser Alleging That Sponsor Deliberately Delayed Construction And Closing

A condominium unit purchase was delayed for several months before closing. During the period of delay, mortgage interest rates rose, requiring the purchaser to finance at a higher rate than he originally anticipated.  The purchaser also incurred the cost of rent on his current apartment until he could move into his condominium unit.  The purchaser filed a lawsuit after the closing, seeking to recover damages from the Sponsor, members of the Sponsor, and the construction manager.  The court allowed some claims to proceed against the Sponsor, but dismissed all claims against the members of the Sponsor and the construction manager.  Hurley v. Watanabe, NYLJ 1202666534165 (Sup. Ct. N.Y. Co. Aug. 5, 2014).

The purchaser asserted that when he signed the purchase agreement in December 2012, he was told that construction was “basically finished” and that the issuance of a temporary certificate of occupancy (“TCO”) for the premises was “imminent.” The purchaser also visited the premises himself and observed that major construction work was already complete and that most fixtures had been installed in the unit and it had been painted, although some work remained to be completed.

Anticipating that the purchase would close soon, the purchaser applied for a mortgage and the bank provided him a commitment with an interest rate lock for a limited time. Thereafter, the purchaser allegedly learned that at around the time he contracted to buy the unit, “the building had been locked for a few weeks” with no work being performed.  While agents of the Sponsor repeatedly continued to assert that the TCO application was almost ready, there were a series of delays.  The TCO was not granted until September 2013 and the closing occurred in October 2013.  In the interim, the purchaser’s mortgage commitment had expired and he was forced to finance at a higher rate, which would cost him substantially more money for interest payments over the term of the mortgage.  The purchaser also had to pay monthly rent on his current residence until the closing.

The purchaser sued the Sponsor contending that the Sponsor had intentionally delayed in obtaining the TCO.  The complaint cited evidence such as lengthy delays in completing punch list items and inspections that could have been completed within a few weeks.  The purchaser asserted that the Sponsor was motivated to delay in obtaining the TCO because it allegedly hoped that early buyers would cancel their contracts, thus allowing the Sponsor to enter into new contracts with other buyers at a time when condominium market prices were rising rapidly.

In seeking dismissal, the Sponsor emphasized Offering Plan language advising in bold print that construction and closing delays were possible and that prospective purchasers should carefully consider this possibility in deciding whether to purchase.  The court suggested that this language would preclude liability for “the general vagaries of construction.”  However, the Offering Plan also stated that the Sponsor would “diligently and expeditiously complete construction.”  The complaint sufficiently alleged that Sponsor had not done so, and thus, a breach of contract claim was pleaded.

Nonetheless, the court dismissed the contract claim insofar as it sought to recover damages based on the higher interest rate. The Offering Plan specified that no representations were made as to the availability or costs of financing.  Fluctuations in interest rates were not matters over which the Sponsor had any control.  However, the court allowed the claim to proceed with respect to the rental payments incurred during the period in which the Sponsor had allegedly delayed construction.

The remaining claims against the Sponsor were dismissed.  A claim for breach of the implied covenant of good faith and fair dealing was impermissibly duplicative of the breach-of-contract claim.  Misrepresentation and fraudulent inducement claims were dismissed because plaintiff admittedly was aware of the alleged falsity of the representations made to him but chose to close anyway.  The purchaser’s request for punitive damages was also dismissed because the Sponsor’s alleged conduct did not rise to the level of “such wanton dishonesty as to imply a criminal indifference to civil obligations” and was not aimed at the public at large.

The purchaser also sought to assert claims against the individual members of the Sponsor, which was a limited liability company, on the ground that the members had certified the Offering Plan.  The court held that this was an insufficient basis for imposing personal liability.  The purchaser’s claim seeking to pierce the corporate veil of the Sponsor was supported only by conclusory, and therefore insufficient, allegations. Finally, the court found no basis for a tortious interference claim against the construction manager.