Offering Plan for Condominium Building Deemed Contract with Unit Buyers

January 3, 2014

Plaintiff alleged that the sponsor of a condominium development breached the offering plan by converting the units to rentals from sales, and that the developer was therefore able to maintain control of the buildings board of directors.

Plaintiff, Bauer, alleged that she purchased multiple condominium units in a building newly constructed by defendant Beekman International Center, LLC. She alleged that Beekman's offering plan described its stated intent to sell the 65 units. Bauer claimed that such statement implied that the sales would be completed in a "reasonable time." Bauer further alleged that Beekeman's paperwork did not disclose that Beekman retained the option to rent any unit instead of selling it. Bauer claimed that Beekman's rentals breached the agreement in that it precluded the unit owners from taking over control over the building as owners. As a result, Bauer and other unit owners were unable to sell their units, the rentals caused the common charges to increase, and impeded the unit owners' ability from obtaining favorable refinancing rates from lenders. Bauer sought damages and the court's direction that the units be sold, in addition to forcing Beekman's principals from the board of directors. Beekman responded by stating that approximately half of the units had been sold and once the market was able to sustain the asking price, arrangements would be made to resume the unit sales. Beekman denied that the unit owners were having difficulty refinancing their respective units, but seemingly did not dispute all of Bauer's claims.

The court recited some of the legal history involving the relationship between sponsors and buyers. Citing case law and regulatory action, the court deemed a sponsor's offering plan to be an agreement which contained the implied promise to sell the units within a reasonable period of time. A sponsor's failure to do so supported a breach of contract claim. The court noted that the current regulatory scheme required a sponsor to specify the intended market for the units built. Those regulations further required a disclosure that once the sponsor sold the minimum 15% of the units necessary for the offering plan to become effective, its ability to rent rather then sell the units could result in the unit buyers never taking control of the condominium.

Beekman's claim that its offering plan stated that it held the right to rent and not sell the units was refused by the court, as it held that such rental was allowed only until a unit sale closed, implying that Beekman would in fact attempt to sell the units, and certainly fell short of the explicit statements required to maintain the units as rentals, indefinitely. Once Beekman stopped marketing the units for sale so that the offering plan lapsed, Beekman was in violation of the offering plan. However, the court held that because Bauer's claims of increased common costs and inability to obtain financing were usupported, and because Beekman held less than half of the units so that the unit owners could have formed a board to control the building, Bauer could not show the Beekman's conduct was damaging as alleged and the breach of contract claim was dismissed. The court held further that the claim of misuse of the common areas could not be maintained by the unit holders. Only the board could raise that claim.

Bauer v. Beekman Int'l Center, LLC; New York County, Judge Silver