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The Low-Down

The building at issue is a four-story, 30-unit luxury condominium in Greenpoint, Brooklyn. The condo board recently took over control from the sponsor and was faced with significant complaints from the unit-owners, including deviations from the offering plan, from the marketing materials, and from the promises made by the sponsor to the purchasers. Significant defects in the recently completed building were present in the façade, building envelope, and electrical, plumbing and HVAC systems. There were complaints that there was not adequate heat in the winter or air conditioning in the summer. Also, there were several code violations from the Department of Buildings, as well as other inferior work not up to industry standards.

The Weigh-In

Our first recommendation was to retain a qualified consulting engineering firm that was familiar with the city’s building codes and had the necessary experience. In this example, the wide-ranging issues required retention of a firm with a structural engineer, a mechanical engineer, and an architect on staff. The board made the initial financial commitment, which was about $15,000, for an inspection and a detailed report by the design professional firm. This was our first recommendation and essential for pursuing claims, not only against the sponsor but also against the design professionals and general contractor. It’s important that the law firm – as opposed to the board – actually enters into the retainer agreement, so that, in the event of subsequent litigation, communications are kept privileged.

The Outcome

First, we had our consulting design professional firm do a detailed inspection and prepare a spreadsheet of all the defects in the building. Second, we welcomed the sponsor, the design professionals, and the general contractor to attend these inspections. This is important because if there is litigation, any admissions and agreed-upon repairs made during the inspections can be documented.

Once we decided to pursue litigation, we sent the anticipated defendants a draft of the complaint setting forth all of our grievances and the claims we were prepared to pursue against such parties, including the individual owners who compromised the sponsor entity. It is recommended that a draft be sent because it serves as a way to stop the “band-aid approach” for making these repairs, and at times is successful at getting the sponsor to commit to a schedule of permanent repairs outlined by the condominium’s design professionals.

Once a lawsuit is filed, it becomes public record. Developers do not want this to happen. Anyone who’s going to invest in a million-dollar-plus apartment will Google the developer first. Therefore, at this point, the condominium’s claims can no longer be ignored. In this example, it was necessary to move forward with litigation. Within six months of filing the complaint, we were able to reach a detailed settlement.

The defendants were 100 percent committed to making the permanent repairs as detailed in the settlement agreement. While these repairs were made by the sponsor’s contractors, a condition of the settlement was to have the consulting engineers for the board sign off and acknowledge that the repairs were completed properly. As part of the settlement, the sponsor agreed to reimburse the condo board for 75 percent of its consulting design professional fees and a portion of its legal fees.

The Take-Away

This is an illustration of the business decisions that a board has to face when the financial viability of the condominium is at stake. When faced with a building that has significant defects and a sponsor unwilling to fulfill its obligations, it’s critical to retain a qualified consulting design professional firm to conduct a full inspection of the building, document the defects, and propose a permanent solution.

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