Condo-Developers Held To Their Word In Offering Documents
December 28, 2011
On March 28, 2012, Jay Itkowitz joined a panel of distinguished attorneys in addressing the New York Association of Realty Managers to report on recent court decisions affecting the operation of rental, condo/coop multifamily buildings. Jay’s talk was entitled, “Condo-Developers Held To Their Word In Offering Documents”, and discusses a decision that has serious implications for developers beyond the narrow issue of a scrivener’s error. Below is a summary of the talk:
In CRP/Extell Parcel I, L.P., v. Cuomo, Index No. 113914/2010 (Sup. Ct. N.Y. County Jan. 19, 2012), 40 purchasers of shares in a luxury condominium development sued to recover $16 million in down payments after closings failed to occur before the rescission date set forth in the offering documents. The rescission date was designated as September 1, 2008 while the first closing occurred in February of 2009. Attorney General Cuomo ordered return of the down payments and the developer, CRP/Extell Parcel I, appealed the decision via an Article 78 proceeding after failing to win relief in federal court. Developer argued that the rescission date was merely a scrivener’s error that meant to read September 1, 2009 and sought reformation of the contract based on the parties’ supposed mutual intent. Justice Singh held in favor of the purchasers finding that there was no inconsistency between the purchase agreements and other offering documents (i.e.the date was the same everywhere) and there was no evidence of a contrary agreement.
This decision has serious implications for developers beyond the narrow issue of a scrivener’s error in light of the Court of Appeals’ recent decision interpreting the Martin Act in Assured Guaranty (UK) Ltd. V. J.P. Morgan Investment Management Inc., No. 227 NYLJ 1202536232292, at *1 (Ct. of App., Decided December 20, 2011). The Martin Act is New York State’s “Blue Sky Law” that regulates the offer and sale of securities, including the offer and sale of shares in cooperative and condominium developments. Up until last December, many New York courts read the Martin Act very restrictively, precluding private purchasers from suing developers for misrepresentations under the Martin Act because of a line of cases that previously limited the statute as giving exclusive prosecutorial authority to the New York State Attorney General. In Assured Guaranty the Court of Appeals overturned that line of cases and held that private purchasers and investors suing are not preempted by the Martin Act.
Coming on the heels of that landmark decision, the court’s strict reliance upon the content of the offering documents and purchase agreement in CRP/Extell Parcel, signals that the right of purchasers to rely on what sponsors represent in such documents is paramount. Therefore, condominium sponsors may very well face heightened liability for errors, omissions or misstatements in their purchase agreements and offering documents to private purchasers, who are more likely to sue than the Attorney General, irrespective of whether the mistakes arose from an “honest heart and an empty-head”.
