Lies My Sponsor Told Me: A Tenant Believes Promises Not in the Bylaws
March 7, 2014 — Updated March 13, 2014 — Psst. C'mere. I got a deal for ya. You buy these commercial condo spaces that I'm sellin' as the condominium sponsor and I'll tell ya what: You don't gotta listen to the board. You buy these units, you got veto power over any board decision that affects you. That means you can tell 'em not to raise yer common charges. And it's all perfectly legal. Just sign here on the dotted line. Or I guess these lines aren't dotted anymore. OK — sign here on the plain straight line….
Nice try.
The sponsor doing the promising for the two condo units and three parking spaces at The Lenox Grand condominium (above) at 381 Lenox Avenue in Harlem isn't named in the inevitable lawsuit over this. Regardless, in 2007, the year the condominium was established, that sponsor sold two units to DSW Lennox, headed by Stanley Wolfson. DSW in turn rented at least one of the units to the Harlem Children's Zone school. The sponsor, said DWS, had asserted that he "grants to Purchaser the right to at least one seat on the Board of Managers and an absolute right of veto on any issue concerning the Commercial Units." The sponsor also told DSW that this provision was binding on the sponsor's successors, i.e., the condo board.
Showing the Doorman the Door
In September 2011, DSW stopped paying common charges and assessments. When the board complained, DSW paid only a portion of it: common charges under an old rate prior to an increase, though still paying no assessments for one of the units or for the parking spaces. The disputed amount through April 2012, with late fees and interest, was $45,281.27. Ironically, the increase in common charges came from the condominium's legal costs to get DSW to pay the common charges — and this even after the board replaced the doorman with a security system in order to trim the building's budget.
It probably didn't look good for DSW on May 4, 2012, when the court told it to pay the condo association $5,000 right off and to start paying all its common charges going forward. But DSW pressed on. It argued that the board was bound by DSW's deal with the sponsor since the board was the successor entity and so "stepped into the shoes of the Sponsor, with respect to contractual rights and obligations."
In the Sweet By-and-Bylaws
The board replied that the sponsor's promises were never disclosed to the board and that it wasn't binding anyway since once a condominium is created it's governed principally by its bylaws — and since the bylaws said nothing about DSW's purported veto power, well, that power didn't exist. Rubbing salt in the wound, the board noted that if the sponsor had really intended for a commercial tenant to have such veto power he could have put it into the bylaws when he was creating the condominium. And since the sponsor did include a provision granting a commercial tenant a permanent seat on the board, well, how do you explain his not not putting any veto provision into the bylaws?
DSW argued that according to the law, when a cooperative is created and the sponsor controls the board, the co-op and the Sponsor are essentially one and the same. However, the court noted, this ain't a co-op; it's a condo. Also, the case DSW cited dealt with an unrelated, non-condo issue involving non-purchasing tenants' renewal leases.
Next, DSW said that other courts have held that a condo association is a sponsor's successor-in-interest and is bound by the sponsor's prior actions and agreements. But the court said the case DSW cited didn't support the argument here.
Finally, the court looked at a precedent the condo board cited (2009's Leonard v. Gateway II). That case dismissed a breach of contract claim by a unit-owner against a condo board because the board was not a party to the purchase agreement — only the sponsor and buyer were. While the court acknowledged this didn't directly address the successor-in-interest argument, it essentially said DSW hadn't come up with as strong to support its own case.
Judge Barbara R. Kapnick ruled in Board of Mgrs. of Lenox Grand Condominium v. DSW Lenox LLC that the board did not have to fulfill the sponsor's empty promises. As Habitat has written previously, you can't count on anything that a sponsor says if it's not in the bylaws, the proprietary lease or other governing documents.
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Updated March 13, 2014 with a correction: The sponsor previously named was that of The Lenox, at 380 Lenox Ave. This story centers on The Lenox Grand, at 381 Lenox Ave.