No Advance Deposit Required

May a condominium board require the purchaser of one of its units to deposit with it an advance equal to the common charges for the unit for two years? No, said the court in Lisenenkov v. Kaszirer, because the condominium documents did not give the board any such authority. Before the court was a motion by plaintiff Lisenenkov for summary judgment on her complaint in which she sought the return of the down payment of $84,000 made by her under the terms of a contract with defendant Kaszirer for the purchase of a unit in the condominium building at 304 East 65th Street in Manhattan. The prime legal issue raised was whether Lisenenkov was entitled to recover her down payment when the title company retained by her declined to insure the title to the unit without exceptions. That came about because the board of managers of the condo refused to certify that the condo did not possess a right of first refusal to acquire the unit, nor provide other documents required to effect the transfer, unless Lisenenkov agreed to pay the board $20,310.72 as an advance of two years of future common charges. The parties agreed that the matter was ripe for summary judgment adjudication.

The contract stated that “[I]f so provided in the Declaration or Bylaws, this sale is subject to and conditioned upon the waiver of a right of first refusal to purchase the unit held by the Condominium and exercisable by the Board.” However, Section 7.1 of the condominium bylaws provided that “[e]ach Unit Owner may sell or lease his Unit without any right of first refusal in favor of the Condominium Board.” However, Section 7.2 granted a right of first refusal to the condominium’s sponsor under certain circumstances.

Although the board possessed no right of first refusal, its managing agent advised the parties on May 30, 2006, that the board “does not want to release documents until our office is in receipt of a certified check” from Lisenenkov for the aforesaid $20,310.72. At the “time of the essence” closing that Kaszirer set for May 31, 2006, Lisenenkov declined to make such payment, and the title company retained by her refused to omit from its title report an exception for (1) a right of first refusal and (2) a possible lien as a result of any indebtedness that may be owed by Kaszirer to the board (this in light of the board’s refusal to issue a statement as to whether any common charges were owing. As a consequence, the bank from which the plaintiff had arranged financing declined to complete the loan transaction. Since the title did not close because of these circumstances, the plaintiff sought the return of her down payment.

The managing agent for the condominium stated that the reason the board requested the advance was the projected inability of Lisenenkov to meet future common-charge obligations in light of her accountant having reported that for 2005 plaintiff had net income of only $8,102. Both parties agreed that there was nothing in the condominium bylaws or declaration giving the board any right to reject a purchaser, or that granted it an option of first refusal.

Paragraph 18(c) of the contract provided: “Seller shall convey and Purchaser shall accept fee simple title to the Unit in accordance with the terms of this Contract, subject only to: (a) the permitted exceptions and (b) such other matters as (i) the Title Company or any other title insurer licensed to do business by the State of New York shall be willing, without special or additional premium, to omit as exceptions to coverage or to except with insurance against collection out of or enforcement against the Unit (ii) shall be accepted by any lender which has committed in writing to provide mortgage financing to Purchaser for the purchase of the Unit ...”

Lisenenkov argued that under this provision, the refusal of the title company to omit the exceptions from its report entitled her to decline to complete the transaction. Defendant maintained that Lisenenkov should have complied with the board’s request for the advance, but that in any event it was the failure of Lisenenkov to fully comply in a timely manner with the board’s requests for financial information that caused it to insist on the advance. The defendant agreed, however, that as a consequence of the title company position, she was not in a position to deliver an “insurable title.”

The court said that the general rule when a contract provides for the seller “to deliver a title that a reputable insurance company would approve and insure” was that the seller “breaches his contract when the title company refuses to insure title unconditionally and without exception...(unless) the exceptions are those contemplated by the contract.” Under such a contractual provision, the court cited a case where it was held that “the burden of producing insurable title has been construed as a condition precedent to the seller holding the purchaser in default.”

Further, it had been held that, when a title company declines to insure title without an exception, a purchaser is “not required to prove that no title company associated with the New York Board of Title Underwriters would insure the title without such exceptions” and that “[e]ven if the title company were arbitrary, it would not change the legal consequences for the seller, because it is the seller’s burden to secure the performance of the title company under the clause in question.”

Here, while the court understood the board’s concern with respect to a sale of a unit to a purchaser who had a limited net income, there was nothing in the papers submitted that gave the board the right to reject any purchaser or to create a condition, such as the advance deposit, preventing the owner from concluding a sale. While it has generally been thought that one of the advantages of condominiums over cooperatives, is the free use/sale of one’s apartment, the court said that recent rulings had found that Real Property Law Section 339-v (2)(a) does enable a condominium to adopt bylaws governing the sale and occupancy of units “so long as those provisions do not discriminate on the basis of race, creed, color or national origin” nor violate “the common-law rule against unreasonable restraints on alienation” (as stated in Demchick v. 90 East End Avenue Condominium, decided in 2005).

In light of the conclusion that plaintiff Lisenenkov had no legal obligation to pay the requested advance, and since the only reason proffered by the board for its refusal to provide Kaszirer with the requested documents was Lisenenkov’s refusal to make such payment, the court concluded that it could not be said that plaintiff was in any way in breach of the contract. Hence, since the board’s inaction prevented Kaszirer from being able to deliver an “insurable title,” Lisenenkov was entitled to the return of her down payment. Paragraph 24 of the rider to the contract provided her sole remedy in the event Kaszirer was “unable to convey title subject to and in accordance with this agreement.” Accordingly, plaintiff’s motion for summary judgment was granted.

Comment: This is another example of a board seeking to exceed its authority. Here, a condominium board was trying to impose requirements on a prospective apartment purchaser because it was uncertain about the ability of such purchaser to pay his shares of the common charges for the building. The only problem was that the board’s solution – an advance payout of two years of common charges – was beyond the board’s powers. So, when challenged, the court determined that the requirement was invalid and this condo board was forced to realize that it was not a co-op board, which usually has the power to require a purchaser to provide a security deposit.