When a condo unit or the shares referable to a co-op unit are sold, a purchase and sale contract is created between the building’s sponsor and the purchaser. In addition to other obligations, the sponsor is required to provide an offering plan that provides the purchasers with full disclosure regarding both the unit and the building in which the unit is located. Offering plans include details such as the construction and layout of the building and condominium units, materials used for the building’s construction, what fixtures and amenities will be included in the units, projected income and expenses for the building, the percent common interest applicable to each unit or set of shares, and the sponsor’s warranties and disclaimers regarding the building’s construction. As we have previously discussed, the requirements of the offering plan are set forth in the Martin Act and are exclusively enforced by the New York Attorney General. Such regulations are intended to protect consumers from unscrupulous or careless sponsors. When these mechanisms fail, condo boards resort to litigation to ensure the sponsor repairs the defective units.
As a result, the “exclusive enforcement” provision of the Martin Act, private plaintiffs are restricted in bringing fraud claims against building sponsors. As such, the strongest claim available to condominium purchasers in construction defect cases is typically a claim for breach of contract. The prevailing party in a breach of contract legal action must prove that the damages suffered by the plaintiff were a result of the defendant’s breach.
When suing under a breach of contract theory, the condominium’s board of managers or individual unit owners/shareholders claim that the sponsor breached the terms of the purchase and sale agreement by failing to build and deliver the building and units in accordance with the representations made in the purchase and sale agreement, and as a result, the building and its owners/shareholders have incurred damages to fix such defects. It is important to be mindful of the fact that courts uphold the statute of limitations for a breach of contract claim in a construction defect case from the date that the sponsor closed on the sale of its first condominium unit in a particular building. Further, private plaintiffs may be able to bring a breach of contract claim against the sponsor’s architect, if they can successfully prove that they were intended to be “third party beneficiaries” of the contract between the architect and sponsor.