SHODDY NEW CONSTRUCTION, P.4

 

"He ran out of money and said he would pay but that it would take time. Six or eight months later, the unit-owners said they wanted $5 million," which the condo board president told The New York Times in 2004 came from newly found problems and cost escalation over the preceding three years.

The board belatedly filed a lawsuit after having poured time and money into a state-brokered settlement attempt — only to see the developer not pay what he had promised.

Sue You Blues

The board at 30 Crosby Street went straight to the lawsuit route. While only the AG can use the Martin Act, common law allows anyone to file breach-of-contract, negligence, or fraud suits — that last example having the formidable burden of your needing to prove intent to defraud.

Built circa 1890, the commercial building at 30 Crosby Street was gutted and completely renovated between 1999 and 2001, and two duplex penthouses were constructed to create a total of 13 loft apartments, selling for prices ranging from $1.55 million to $10 million. Unfortunately, as the 2007 lawsuit 30 Crosby Street Condominium vs. 30 Crosby Partners LLC et al. alleges, conditions there were, in the wonderfully understated tone of legal discourse, "materially different from those represented … in the Condominium Offering Plan."

How different? "Pipes were not properly insulated, so they would sweat from the water system and mold formed in the building," reports Sladkus. "The roof was constantly leaking. Each of the loft units had fireplaces that couldn't be used because they filled the apartments with smoke when you tried to use them. The flues were poorly constructed and missing sections — pieces weren't even sealed." That's carbon monoxide poisoning waiting to happen. And, in at least one unit, the lawsuit states, a piece of plywood was lodged across the flue inside the wall, further adding ventilation problems — and a fire hazard.

There was much more, the lawsuit said, including clogged toilets; poor heat, hot water, A/C, and kitchen ventilation; improperly installed sidewalks that allowed water infiltration; and the fact that, four years after closing, the building still didn't have a final Certificate of Occupancy. "We've spent three to four million dollars fixing those things," says Pelson. "There've been five or six assessments of various amounts over the past six years." As of mid-July, the lawsuit was continuing.

"Unit-owners, if they can afford to hire a lawyer and start their own lawsuit, have to wait years before it's resolved," says Rosengart. "And then they'll have a problem collecting [any judgment] since in most cases the [sponsor] entity has no assets; it's been disbanded, and to pierce the corporate veil to show intent is difficult."

"You can chase the limited partners' distributions and profits," says Samson, "but it's a lot easier to stop them at the threshold when a sponsor still owns units. I'll stop their sales," he says, "and take those apartments from them. You've got to have a lot of guts to do it. The sponsors have very deep pockets, and you'd better be right."

Red Flags?

How is it that the savvy and successful people who can afford to buy such luxury apartments can get taken so badly?

"People buy into buildings before they're built," Pelson says. "You have to buy in at the earliest possible stage to secure [a new condo], and [so] you have a situation where the sponsor is saying, ‘You're welcome to negotiate the offering plan, but there are 50 people behind you who want the apartment who won't.' You trust the reputation of the builders," Pelson says. "There's a leap of faith that they're not going to cut corners. But the system is set up to enable builders with questionable integrity or skills — and it doesn't matter which — to create these situations without recourse."

Are there red flags that the average new unit-buyer can see? Not really.

"It's pretty much a blind item on the walk-through when you're talking about new construction," says Braverman. "Sure, you can turn on the knob and [ask], ‘Does the A/C blow hot or cold air?' But you can't really tell on a walk-through if pipes in the walls are the size and material that they should be, or whether the window frames will expand or contract with changes in temperature and the panes actually break," among other unknowables. "Probably the best thing to look for is who you're buying from: who the real principals are, what they've built in the past, and how is the product they've turned out in the past. And even then I don't think there's any assurance."

"Getting into litigation or even an attorney general complaint can be very, very costly and time-consuming," says Robert Braverman, a partner in Braverman & Associates and the attorney for The Link residents. "Trying to have an open dialogue with the developer and hashing things out without the need for litigation or attorney general intervention is by far preferable."

 

Adapted from Habitat September 2007. For the complete article and more, join our Archive >>