Steven Sladkus, Schwartz Sladkus Reich Greenberg Atlas
When co-op or condo boards discover construction defects in their building, they can often end up going to war with the developers to get them to resolve the problems. But taking a less aggressive approach may lead to a better outcome without running up huge legal bills, which was the case at a building you recently represented.
It was a large 20-year-old building in Manhattan that had been renovated. There were significant construction defects — facade problems, roof problems, systemic problems — a lot of which were associated with the age and older condition of the property. It added up to quite a bit of money, so the board decided to pursue a claim against the sponsor.
When the board first approached the developer and pointed out the problems, what was the reaction?
Well, the particular developer in this case said at the outset, “Look, we could end up in litigation for 10 years, and you’ll still get the same amount of money from me.” I wasn’t sure if that was entirely accurate, but that was good to hear, because he wasn’t arching his back and being antagonistic. So instead of going to court, the board decided to try to work it out with the sponsor.
How did that play out? What was the process?
This was during the pandemic, so mostly over Zoom. We had several meetings with the sponsor and board members to see where we could agree on things and agree to disagree, and try to narrow down the issues. We started with a forensic top-to-bottom survey of the building done by an engineer and transmitted that to the sponsor for consideration. We kept it on a relatively short leash and said, “Get back to us maybe in a couple of weeks, so you have time to digest and review it.” And then due to COVID, it got derailed a little bit. But ultimately, not too much later, we had our first Zoom call, where we went through each and every line item with our engineers and their engineers.
And presumably, you didn’t see eye to eye. Did things get contentious?
At some points it definitely did, on both sides. Either I would say something aggressive or the sponsor would say something aggressive, then we would take a couple of steps back and try to employ a different approach. But mostly it was exchanging reports. We’d have the sponsor and their engineers look at the reports, they would rebut them, and both sides ended up doing walkthroughs of the building.
Even though it was during COVID, it had to be done, because when you do that you either see a defect or you don’t. That was an essential part of the talks. But ultimately, through those Zooms and many, many, many phone calls, again, some contentious and some not, we were fortunate to end up with a very favorable resolution.
When things did get heated, were there times when the board got fed up and wanted to litigate?
Absolutely. The board wanted blood, and rightly so, quite frankly. If you pay a lot for your apartment in a new building or a rehabilitated building and then get saddled with building repairs, you’re not going to be that happy of a person. On top of that, the board members are volunteers. They have their regular jobs on top of their job trying to prosecute a claim like this. Yes, there was blood and yelling and screaming, but the board ended up sitting down with the sponsor. You start with certain monetary demands, you come down a little, the sponsor comes up. And we met at an acceptable place.
That said, there were times where I said to the board, “Listen, if we’re not getting enough money, then let’s stop spinning wheels and go sue.” Because sometimes you definitely have to flex muscle with developers who just don’t want to see the problems that are right in front of them. In that case, sometimes you have to fight and leverage that into a more favorable settlement, which also happens all the time.
Have things changed with the pandemic? Is there a different climate now where developers are more willing to settle?
I have found that, and not only with developers but boards. During the past year and a half, I had three or four successful mediations of construction-defect cases. I don’t know what it was about the pandemic, whether it was just people were tired, there was too much going on with everyone’s lives, or they didn’t want to spend any more money on these fights. But every single one of those boards going after sponsors were delighted with the results and delighted that they didn’t have to continue with litigations that had been going on for several years.
To sum up, what’s the legal lesson for boards here?
The major takeaway is that you usually get more with sugar than you do with vinegar, especially in the very beginning. There’s no need to turn adversarial right off the bat. When you initially enter into negotiations in good faith, you don’t need to have that gun pointed at anybody’s head. You can state your position without being offensive and overly antagonistic. But sometimes you have to flex muscle, and there’s no way around it. Again, I want to be clear: If sugar doesn’t work, there’s going to be vinegar all over the place. But it’s usually my recommendation to see if the sugar sweetens up the other side a little bit first.
FROM THE COURTS April 15, 2021
Bd. of Managers of S. Star v. WSA Equities, LLC, 2021 NY Slip Op 31272(U) (N.Y. Sup. Ct. 2021)
After eight years of discovery and motion practice and more than 700 separate court documents filed, this construction defect-related case, in which the board alleged the sponsor and related entities knowingly misrepresented the condition of the building and its in the offering plan while it was being converted into a condominium, is not anywhere near over yet. In fact, as a result of the filing of several motions for summary judgment seeking to dismiss the action, one of two motions the court granted was to dismiss the one defendant that the plaintiff conceded was named in error.