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It's Time For Investors To Pay Up (NY)

March 26, 2021

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<p style="text-align: justify;">When a new condominium building in New York City is found to have construction defects, who pays?</p>
<p style="text-align: justify;">In 2013, New York courts ruled that condominium boards could only seek compensation from investors if the board could prove a fiduciary relationship existed between the board and the investors. This ruling made it almost impossible for boards to recoup compensation for construction defects because condominiums are often developed by a single-purpose entity, formed merely to construct the building, sell the units, and distribute the proceeds to investors. Once the proceeds are distributed, the entity is often dissolved, leaving no money and boards left alone to pay the damages.</p>
<p style="text-align: justify;">However, a recent Appellate Division decision regarding a condominium in the Financial District, <em><a href="https://www.wcmlaw.com/wp-content/uploads/2021/03/Board-of-Managers-of-BeWilliam-Condominium-v-90-William-St-Development-Group-LLC.pdf">Board of Managers of BeWilliam Condominium v. 90 William St. Development Group LLC</a>,</em> reversed this 2013 decision. In this case, the condominium building was completed in 2008 with a projected sellout of $97 million. Yet, the condominium board began to complain about construction defects in 2010, which led to claims of “shoddy work” in their 2013 complaint.</p>
<p style="text-align: justify;">With this new ruling, investors could now be held responsible for paying a portion of damages resulting from construction defects. As a result of this decision though, investors will not be automatically held liable. Instead, condominium boards that are fiscally unable to pay damages will now have the ability to seek recovery from investors by “following the money.”</p>
<p style="text-align: justify;">Although the exact amount of damages the condominium board will be able to recover is yet to be determined, as a trial is still pending on the $3 million in damages, this case will not only allow unit owners to be made whole but will also not put all of the burden on a condominium board.</p>
<p style="text-align: justify;">Thanks to Gabriella Scarmato for her contribution to this post.  Please email <a href="mailto:gcoats@wcmlaw.com">Georgia Coats</a> with any questions.</p>

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