Condominium’s Breach of Contract Action Against Sponsor for Litany of Construction Defects Survives Motion to Dismiss

On October 21, 2014, the New York State Supreme Court, New York County, issued a decision in the case entitled Board of Managers of the Vetro Condominium v. 107/31 Development Corp. et al., 2014 WL 5390548 (NY Slip Op. 32748(U).

The Board of Managers of the Vetro Condominium (“Condominium”), a residential condominium apartment building located at 107 East 31st Street, New York, New York brought an action against the defendants, including the sponsor, architect and other related parties.  Defendants moved to dismiss several counts on procedural grounds.

Plaintiff alleged in the complaint that the building is a newly constructed nine (9) story structure containing fifteen (15) residential apartments.  Plaintiff alleges that the sponsor drafted and disseminated marketing materials in an effort to attract purchasers, and authorized its agents to make certain representations to prospective purchasers regarding the quality and amenities in the building.

Plaintiff alleged that the sponsor and its design professionals failed to construct the building in accordance with the promises and representations in the marketing materials, offering plan, and other communications.

Plaintiff asserted that the offering plan promised purchasers that the building would be safe and “properly constructed in compliance with all applicable laws and local industry standards.”  Plaintiff contended, however that the building contained “rampant defective conditions” which violate applicable government regulations, are contrary to local industry standards, compromise the quality of life for residents, and are patently unsafe.

Among other things Plaintiff alleged that the most egregious examples include extensive water infiltration into nearly all residential apartments which resulted in mold and warped floors, and numerous defects in the roof.

Plaintiff also alleged that defendants promised in the offering plan that bathrooms and kitchens would be ventilated via “vertical sheet metal risers with roof-mounted fans.”  Plaintiff alleged that this ventilation was not installed in violation of the offering plan and the New York City Building Code (“Building Code”).

Plaintiff alleges that the sponsor defendants never amended the offering plan to reflect the building’s pervasive construction defects. As a result, as the construction of the building continued and was eventually completed, the offering plan “came to contain many misrepresentations and misleading statements regarding the building’s true conditions.” The plaintiff alleges that while the offering plan no longer contained accurate information for prospective purchasers, defendants continued to disseminate it in an effort to sell the remaining units.

The first issue addressed by the court was Defendants’ argument that the sponsor was not properly notified of the alleged construction defects in accordance with the procedures set forth in the offering plan.  The Court found that “that due to the discrepancy in the terms of the Common Element Warranty as alleged in the complaint and the terms in the offering plan submitted by defendants, there are questions of fact as to whether notice of breach of the Common Element Warranty was properly provided.”

The Court recited the legal standard applicable to a cause of action for breach of contract as follows: “the existence of a contract, the plaintiffs performance thereunder, the defendant’s breach thereof, and resulting damages.”

The Court denied the sponsor’s motion to dismiss the breach of contract claim, finding that the complaint properly enumerated the alleged contract breaches, including failure to install the ventilation system promised  in the offering plan and marketing materials.

The Court dismissed the fraud in the inducement claim against the sponsor as a matter of law, essentially finding that it was duplicative of the breach of contract claim.

The Court denied the architects’ motion to dismiss, finding that these claims were not pre-empted by the Martin Act, a State statute governing condominium offering plans.

Because plaintiff failed to allege a fiduciary or confidential relationship between the plaintiff and the sponsor defendants, the tenth and eleventh causes of action for constructive fraudulent conveyances were dismissed.

The Court ordered a preliminary conference to be held in connection with the surviving counts in the complaint.

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