John Pappas and his wife, Lois, purchased two units at 20 West Street in Manhattan, in an apartment building now known as the Downtown Club Condominium. They claimed in their suit Pappas vs. New 19 West LLC that when they met with the building's brokers in November 2005, they specifically said they wanted a unit with outdoor space. The brokers showed them the adjacent apartments 39-B and 39-C, the latter having a door that opened to the setback. The price for 39-C was substantially greater than for 40-C because, the brokers allegedly said, 39-C included space that the sponsor intended to legalize exclusive outdoor recreational space.

Before buying, the Pappases were given an offering plan, which their attorney reviewed. This had a section, "Special Risks," which included a provision saying: “Certain Residential Units are adjacent to roof setbacks ... Such Roof Setbacks are not legal Terraces because they are not accessible to the Units by doors, due to historic preservation and other restrictions imposed by the New York City Landmarks Preservation Commission...and/or the New York City Department of Buildings... Applicable Law prohibits the Owners of Units with adjacent Roof Setbacks from installing doors in the exterior walls of such Units and from using the Roof Setbacks as Terraces in any manner....”

Schedule A to the offering plan provided a general description of each unit, including area, offering price, and percentage of common interest. It included a column titled “Approx. Exterior Sq. Ft. Terrace,” which is blank for all but eight units, suggesting that very few units had the required outdoor space. The entry for 39-C indicates no such outdoor space.

Indeed, the floor plan annexed to the offering plan labels the roof area next to 39-C as a setback and specifically states that it is not a legal terrace. Nonetheless, the offering plan did allocate to 39-C a greater percentage of the common interest than the “C” units above it. No reason was given for the discrepancy — the submissions to the court did not reveal what "advantage" enjoyed by 39-C justified its allocation of a greater interest in the common elements. Indeed, an opinion letter attached to the offering plan stated that the allocations were based on the approximate proportion of each unit's floor area.

On the High Cs

On January 26, 2006, the Pappases entered into contracts to purchase the two units for $1.375 million. The contracts provided that the purchasers acknowledged they had not relied upon any representations, warranties, statements or estimates made by the sponsor or selling agent relating to the description or physical condition of the property or the unit, except as mentioned in the plan.

The contracts did not say that the sponsor would legalize the roof setbacks. Before the closing, however, the Pappases submitted a punch list of work they wanted the sponsor to perform before the closing, which included the installation of paving stones on the roof outside 39-C and railing around the parapet. This work was performed, though after the closing. Notwithstanding the installation, however, the roof setback had not been legalized as a terrace, and it remained off limits to the Pappases — who in response filed suit against the sponsor, the sponsor’s lawyers brokers, and their own attorneys.

The Pappases alleged, among other things, that the brokers fraudulently misrepresented that the purchasers would have use of the roof setback as their exclusive outdoor space, and thereby induced them to purchase. They contended that the proportionate share of interest in the common elements allocated to 39-C exceeded its proportionate floor area, as evidenced by the lower interests allocated to other apartments in the C line in floors 40 to 45. Therefore, purchasers were lead to believe that the greater allocation was attributable to the "substantially exclusive advantage" presented by the outdoor space.