The brokers argued unsuccessfully that under New York State's Martin Act, only the attorney general can vindicate the rights of persons claiming to have been damaged by false or misleading statements in a condominium offering plan. Regardless, the court dismissed the Pappases' claims of fraud because the offering plan accurately described the unit. The plan stated that the roof setbacks were not terraces but common elements, and that owners of adjacent units were prohibited from using them as terraces. Likewised, the floor plans in Schedule A labeled the roof setbacks accordingly, and — despite the presence of an extant door — the floor plan for 39-C specifically stated that the roof setback was not a legal terrace.

Legal Setback

The Pappases also alleged that the brokers had told them that the sponsor intended to legalize the roof setback for use as a terrace, which assumed the Pappases knew that it was not legal when it was shown to them. Nothing in the contracts that the Pappases subsequently signed obligated the sponsor to convey to them an interest in exclusive use of the roof area. Therefore, the claims based upon the brokers’ alleged misrepresentations were also dismissed.
The Pappases also alleged that the brokers owed a duty to them to refrain from representing that the roof setback was usable as their exclusive outdoor space. But the court found that the Pappases provided no authority for the idea that the brokers had any duty to describe the legal use of the roof area, particularly when the Pappases had their legal counsel review the transaction. For this and related reasons, the complaints were dismissed.

Once again, the courts remind purchasers to read the documents. Here, the purchasers tried to ignore the plain statements made in the offering plan and sought to rely instead on oral statements about the sponsor’s "intent" to legalize the roof setback for use as a terrace. But you cannot rely upon oral statements, promises or omissions by real estate brokers or counsel for the sponsor — you must make sure that such use is promises are authorized in writing. The courts have repeatedly made it clear that representations made in an offering plan cannot be ignored.

Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan. Dale J. Degenshein is a special counsel for that firm.

Adapted from Habitat May 2008. For the complete article and more, join our Archive >>

Art by Liza Donnelly