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Sponsor and Investors May Be Liable to Condo Board for Failure to Obtain Certificate of Occupancy and for Construction Defects

A recent appeals court decision sustained claims brought by the Board of Managers of a new-construction condominium after the unit owners took control of the Board. The court ruled that the Sponsor had breached the offering plan by failing to obtain a permanent certificate of occupancy within two years from the first closing of the sale of a unit, as well as by failing to construct certain aspects of the building in accordance with the offering plan. The Sponsor contended that it had been able to obtain temporary certificates of occupancy, demonstrating that the building was in substantial compliance with the Building Code, but the court observed that it did not demonstrate that the construction was consistent with the offering plan. The Sponsor also contended that the defects that the Board had identified were not material; the court directed that this issue will be addressed at a hearing to determine the amount of damages that the Board should be awarded.

The court also upheld the pleading of fraudulent conveyance claims against certain investors in the Sponsor, because the Board had “pleaded and established several ‘badges of fraud’ surrounding the millions of dollars in unexplained transfers to defendants.” Board of Managers of Be@William Condominium v. 90 William Street Development Group LLC, 2020 N.Y. App. Div. LEXIS 6428, 2020 N.Y. Slip Op. 6621 (1st Dep’t Oct. 29, 2020).