Grey Area’s Anatomy

Call it I’ve got a secret: The Condo Version. Or maybe Grey Area’s Anatomy. The question is: how much is the developer/sponsor obligated to let a purchaser know about the work that has been done or will be done in a building that he has built or converted? To some, the answer is not simple because “all” is not an absolute word, and “workmanship” – as in who is responsible for finishing that work – and “full disclosure” can become part of a grey area.

Confused? Welcome to the world of the Dragon Estates Condominium at 49-51 Warren Street. At first, the board certainly felt matters were straightforward enough: the board of this downtown Manhattan loft condominium conversion wanted to have the sponsor fix everything from leaking ceilings to broken intercoms. He offered counter-arguments and reasons why some repairs couldn’t be done. It was a kind of “he said/they said” affair, with accusations, a lawsuit, and sporadic repair work being performed. And through it all, the relative inaction of the attorney general (AG) is a cautionary lesson.

The building’s manager, Martin S. Kera, president of Bren Management and a partner in the law firm Kera & Graubard, believes that part of the problem has been the directors’ initial reluctance to sue. Kera was hired in 2006 and was immediately faced with two seemingly intractable problems: a sponsor who didn’t want to make repairs and a board reluctant to litigate. Kera unsucessfully tried negotiating with sponsor Lawrence Omansky himself and then wrote to the attorney general’s office in 2007. Six months later, an attorney and engineer from the AG were out at 49-51 Warren Street reviewing the problems: a leaking roof; improperly installed elevator vertical rails; non-functioning intercoms; improperly prepared electrical wiring; a never-completed fire alarm system; an incorrectly installed standpipe system; and windows that did not meet the standards of the Landmarks Preservation Commission (LPC).

Afterwards, in a series of meetings with the AG, the sponsor, the managing agent, and two board members, a tentative repair schedule was devised. Omanksy would pay for both the repairs to the roof, an estimated $100,000, and for the cost of installing LPC-mandated windows, estimated to cost another $100,000.

While the condo board was mostly pleased with the agreement, the financing of the repairs has been complicated. Already, says Kera, the condo owners have paid $90,000 out of the building’s reserve fund to bring the fire alarm system on line, fix the intercom, replace the vertical rails in the elevator, and finish installing the standpipe system. Steve Polansky, the board president, is fed up with the two-and-a-half years it has taken the AG’s office to work out a repair schedule and doesn't understand why it is so difficult to hold the sponsor to a specific timetable. When asked about the timetable for the repairs at Dragon Estates, an attorney at the AG's office would only say that a schedule of repairs was “tentatively” being worked out.

For his part, Omansky, the sponsor, says it’s time for the condo owners to take responsibility. The intercom system was “brand new” when it was installed, he says. “It was working properly for awhile, and then the telephone and cable company came in, spliced the wires, and things started to get messed up. It’s not my responsibility.” Regarding the fire alarm system: “Back in 2005, we were ready to have it signed off, [but] I felt the service contract was too expensive.” Rather than signing off, “I gave [the building owners] the option to find someone at a cheaper price. They never did anything about it.” As for the vertical rails, he had the elevator company come back in and reinstall them properly. Omansky concedes that there were problems with the roof.

Once the new windows are installed, the building should have no problem getting a permanent certificate of occupancy, which it now lacks, asserts the sponsor, who scoffs at the suggestion that he has deliberately ignored problems in the building. Not only are his offices there, so is the home of his ex-wife and his children. Delays in repair have been the fault of the contractors. “I have tried my best. I have intentionally honored every commitment,” but it was time for the condominium owners to stop complaining. “You bought the building, you took the building as is. What do you expect out of my life? Just because I’m the sponsor I have to keep coming and fixing up your building? When do you take responsibility for your own building?”

Kera, the manager, disputes each of these points. “The intercom installed was ... a cheap Chinese-made system. The business about the wires is utter nonsense. Three different intercom companies said that the wiring was done so poorly that they would have to install all-new wires.” As for the fire alarm sysem, Omansky hired Bid Fire Systems and “eventually sued Bid and got them to finish the installation and sign it off. Omansky told [Habitat] that he felt the Bid service contract price was too expensive. He told the AG that I thought the Bid service contract price was too expensive.”

One problem in sponsor situations such as this one involves the Martin Act, observes attorney Al Taffae, a partner at Racht & Taffae who is not affiliated with nor knows the specific details of the Dragon Estates case.

“The Martin Act is a disclosure statute that [says] the AG has the responsibility to enforce, and that is the prism through which the AG has to view the issue,” he notes, adding: “In a new construction or gut renovation condominium, the Martin Act obligates the developer/sponsor to disclose to purchasers the work that will be performed in the building, how the building will be constructed, what the building systems will be. This is done in an architect’s or engineer’s report which will set forth the structural systems of the building and the make and model of such items as boilers, windows, roofing system, electrical and plumbing service, type of flooring, etc. The attorney general’s role is to oversee a sponsor’s compliance with the disclosure requirements of the Martin Act.

“The question is, does this mere description of intended construction satisfy a sponsor’s disclosure obligations when work is performed but performed in a deficient manner? My view is that the AG has been reluctant to see workmanship as a disclosure issue or to intervene in these workmanship issues believing that workmanship issues are better suited to the courts to address as a matter of contract law and warranty claims.”

Kera, however, says that such thinking misses the point and that outsiders – including the AG’s office – don't fully grasp the magnitude of the problem: “In most of the new, defectively constructed buildings, the sponsor obtained a permanent certificate of occupancy.

“In this building, it is now four years since all of the apartments were sold and Omansky still has not obtained a permanent certificate of occupancy. The problems that prevent obtaining the permanent certificate of occupancy are much more difficult to solve than just installing Landmarks-compliant windows. Omansky has to remove every violation of record and pay every fine that has been assessed even if it was before he owned the building. His contractors never obtained equipment use permits for equipment that they installed such as the hot water system. Only his architect or contractors can obtain these permits. They did not obtain them because he didn't pay them.

“My position before the AG is that Omansky had the obligation to obtain the permanent certificate of occupancy. He cannot benefit from his delay by saying that the unit-owners have to take responsibility for fixing the building. If he did what he was supposed to four years ago, the building would have had its permanent certificate of occupancy. Omansky is responsible for everything until he obtains the permanent certificate of occupancy.