http://www.nytimes.com/2009/07/26/realestate/26deal1.html?ref=realestate At the Rushmore, they may have found a loophole. Both the buyers and the sponsors agree that there was an error in a date in the offering plan, a document painstakingly prepared by a major New York law firm. Now they are debating whether the mistake was a trivial clerical error that should simply be ignored, or a one-time... [more]
http://www.nytimes.com/2009/07/26/realestate/26deal1.html?ref=realestate
At the Rushmore, they may have found a loophole. Both the buyers and the sponsors agree that there was an error in a date in the offering plan, a document painstakingly prepared by a major New York law firm. Now they are debating whether the mistake was a trivial clerical error that should simply be ignored, or a one-time opportunity for Rushmore buyers to back out and recover their deposits or negotiate a better deal.
Late last month, Richard N. Cohen, a real estate lawyer, filed an application with the New York State attorney general’s office seeking a refund of deposits for a group of buyers in contract at the Rushmore. After several buyers joined the action last week, he now represents 23 who paid about $10 million in deposits on $70 million in apartments, including a four-bedroom apartment with a terrace that is in contract for $7.1 million.
Under state regulations, a sponsor is required to provide an operating budget for the first year of a new condominium, so buyers know what to expect when they move in. If the first closing does not occur by the end of the budget year, the sponsor is required to submit a new budget, and give the buyers a right to rescind their contracts.
At the Rushmore, somebody goofed. The offering plan promised to give buyers a right to back out of the plan if the first closing did not occur before the first day of the budget year, Sept. 1, 2008, rather than Sept. 1, 2009, after the last day. The first closing occurred in February 2009.
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What are my remedies in the event there is a breach?
Although much more information is contained in the section on remedies, you may have a choice of remedies:
(1) Compensatory Damages - money to reimburse you for costs to compensate for your loss.
(2) Consequential and Incidental Damages - money for losses caused by the breach that were foreseeable. Foreseeable damages means that each side reasonably knew that, at the time of the contract, there would be potential losses if there was a breach.
(3) Attorney fees and Costs - only recoverable if expressly provided for in the contract.
(4) Liquidated Damages - these are damages specified in the contract that would be payable if there is a fraud.
(5) Specific Performance - a court order requiring performance exactly as specified in the contract. This remedy is rare, except in real estate transactions and other unique property, as the courts do not want to get involved with monitoring performance.
(6) Punitive Damages - this is money given to punish a person who acted in an offensive and egregious manner in an effort to deter the person and others from repeated occurrences of the wrongdoing. You generally cannot collect punitive damages in contract cases.
(7) Rescission - the contract is canceled and both sides are excused from further performance and any money advanced is returned.
(8) Reformation - the terms of the contract are changed to reflect what the parties actually intended.
a party to the contract does something against the intent of the contract; or
a party absolutely refuses to perform the contract.
Ignored comment.
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Response by apt23
over 16 years ago
Posts: 2041
Member since: Jul 2009
I would like to know how you think either a rescission of the contract or a settlement between buyers/Extell would affect the general NYC condo market. If the contract is rescinded, obviously many will leave altogether and those that want to stay will renegotiate. Say they lower the price 10- 20%. Will that affect new condo comps? Or just be considered an anomaly?
If they settle, and again for arguments sake, give the buyers the equivalent of 10%. Would that be a side deal which would allow Extell to register the purchase price at whole dollars to protect future sales. In which case, comps would still remain high.
Ignored comment.
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Response by OldWest
over 16 years ago
Posts: 112
Member since: Jun 2008
The lack of specified remedy doesn't give the judge leeway in the sense that if the AG decides to charge Extell, depending what charge(s) they bring will decide the range of possible outcomes -- see Martin Act as possibility. It is wide and I doubt Extell would want to piss off the AG enough that they even consider going that route.
The 1921 Martin Act grants huge powers and through it the AG has more power than any other state's AG. It's an incredibly massive club. Ask Spitzer.
In a broad sense, the term [fraudulent
practice] includes all deceitful practices
contrary to the plain rules of common
honesty. The purpose of the law is to
prevent all kinds of fraud in connection
with the sale of securities and
commodities and to defeat all
unsubstantial and visionary schemes in
relation thereto whereby the public is
fraudulently exploited. The words
‘fraud’ and ‘fraudulent practice,’ in this
connection should, therefore, be given a
wide meaning so as to include all acts,
although not originating in any actual
evil design or contrivance to perpetrate
fraud or injury upon others, which do by
their tendency to deceive or mislead the
purchasing public come within the
purpose of the law.
Further more
Misrepresentations and omissions must be material to
constitute violations of the Martin Act. See State v.
Rachmani, 71 N.Y.2d 718, 725-26 (1988); E. F. Hutton
& Co., Inc. v. Penham, 547 F. Supp. 1286, 1297
(S.D.N.Y. 1982) (“Section 352-c and New York's
common law fraud, like their securities counterparts
which sound in fraud, both require proof of a
misrepresentation of a material fact”)
The Attorney General using the Martin Act to apply some broad and strong remedy is using a sledge hammer to put a nail in the wall when hanging a picture..
Ignored comment.
Unhide
Response by OldWest
over 16 years ago
Posts: 112
Member since: Jun 2008
I'm not saying Martin isn't a powerful tool that is most likely unnecessary in this case as I'm guessing the sides could come to an agreement, I'm stating that there is no need for the GBL to state a specific remedy for each required piece of the condo offering plan. Remedy can be found under Martin if the AG so sees fit to pursue this.
In terms of the Martin Act, the key piece is:
Thus, the elements of a Martin Act violation appear to be: (1)
a misrepresentation or omission; (2) that is material. The
application of these elements, and the exclusion of the
other traditional fraud elements, are discussed below.
Without the need for scienter, there is no need to prove that Extell had knowledge of the misrepresentation.
There is a misrepresentation (maybe) but I think we can all agree that the outside date would be considered material.
Under Martin, the AG doesn't need specific intent to defraud, needs a misrepresentation or omission with no Scienter, and needs materiality.
Also, do not read anything into the AG "accepting the offering plan" as a finding of acceptability. The courts have thrown out cases where the AG overstepped authority. The AG can accept plans for offering but does not approve or disapprove of them. The AG can require disclosure of certain defects, for example, but cannot withhold acceptance of the offering plan.
And just to be clear before it comes up, the sale of Sponsor interest in a condominium IS a sale of securities in New York.
Ignored comment.
Unhide
Response by nyalman
over 16 years ago
Posts: 29
Member since: Aug 2007
Missing the 9/1/2008 results in having to A) amend the Plan to upate the budget, and B) offer Purchasers the right to recind. All this discussion on the budget is completely irrelevant.
Ignored comment.
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Response by Riversider
over 16 years ago
Posts: 13572
Member since: Apr 2009
maybe not...
did they include kidville, abigail michaels, security, an engineer in the budget? Might not be realistically prepared..
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http://law.freeadvice.com/general_practice/contract_law/breach_contract.htm
When does a breach of contract occur?
If one side fails to stick to her/her/its part of the bargain, there is a breach. A breach occurs when:
one party to a contract makes it impossible for the other parties to the contract to perform;
http://law.freeadvice.com/general_practice/contract_law/remedies_breach.htm
What are my remedies in the event there is a breach?
Although much more information is contained in the section on remedies, you may have a choice of remedies:
(1) Compensatory Damages - money to reimburse you for costs to compensate for your loss.
(2) Consequential and Incidental Damages - money for losses caused by the breach that were foreseeable. Foreseeable damages means that each side reasonably knew that, at the time of the contract, there would be potential losses if there was a breach.
(3) Attorney fees and Costs - only recoverable if expressly provided for in the contract.
(4) Liquidated Damages - these are damages specified in the contract that would be payable if there is a fraud.
(5) Specific Performance - a court order requiring performance exactly as specified in the contract. This remedy is rare, except in real estate transactions and other unique property, as the courts do not want to get involved with monitoring performance.
(6) Punitive Damages - this is money given to punish a person who acted in an offensive and egregious manner in an effort to deter the person and others from repeated occurrences of the wrongdoing. You generally cannot collect punitive damages in contract cases.
(7) Rescission - the contract is canceled and both sides are excused from further performance and any money advanced is returned.
(8) Reformation - the terms of the contract are changed to reflect what the parties actually intended.
a party to the contract does something against the intent of the contract; or
a party absolutely refuses to perform the contract.
I would like to know how you think either a rescission of the contract or a settlement between buyers/Extell would affect the general NYC condo market. If the contract is rescinded, obviously many will leave altogether and those that want to stay will renegotiate. Say they lower the price 10- 20%. Will that affect new condo comps? Or just be considered an anomaly?
If they settle, and again for arguments sake, give the buyers the equivalent of 10%. Would that be a side deal which would allow Extell to register the purchase price at whole dollars to protect future sales. In which case, comps would still remain high.
The lack of specified remedy doesn't give the judge leeway in the sense that if the AG decides to charge Extell, depending what charge(s) they bring will decide the range of possible outcomes -- see Martin Act as possibility. It is wide and I doubt Extell would want to piss off the AG enough that they even consider going that route.
The 1921 Martin Act grants huge powers and through it the AG has more power than any other state's AG. It's an incredibly massive club. Ask Spitzer.
http://www.dechert.com/library/FS_2004-04.pdf
It is also possible that 20.4(d) will also come up as an issue for whichever management company certified the operating budget.
(b) with reasonable effort could have known the truth;
(c) made no reasonable effort to ascertain the truth; or
http://www.dechert.com/library/FS_2004-04.pdf
In a broad sense, the term [fraudulent
practice] includes all deceitful practices
contrary to the plain rules of common
honesty. The purpose of the law is to
prevent all kinds of fraud in connection
with the sale of securities and
commodities and to defeat all
unsubstantial and visionary schemes in
relation thereto whereby the public is
fraudulently exploited. The words
‘fraud’ and ‘fraudulent practice,’ in this
connection should, therefore, be given a
wide meaning so as to include all acts,
although not originating in any actual
evil design or contrivance to perpetrate
fraud or injury upon others, which do by
their tendency to deceive or mislead the
purchasing public come within the
purpose of the law.
Further more
Misrepresentations and omissions must be material to
constitute violations of the Martin Act. See State v.
Rachmani, 71 N.Y.2d 718, 725-26 (1988); E. F. Hutton
& Co., Inc. v. Penham, 547 F. Supp. 1286, 1297
(S.D.N.Y. 1982) (“Section 352-c and New York's
common law fraud, like their securities counterparts
which sound in fraud, both require proof of a
misrepresentation of a material fact”)
The Attorney General using the Martin Act to apply some broad and strong remedy is using a sledge hammer to put a nail in the wall when hanging a picture..
I'm not saying Martin isn't a powerful tool that is most likely unnecessary in this case as I'm guessing the sides could come to an agreement, I'm stating that there is no need for the GBL to state a specific remedy for each required piece of the condo offering plan. Remedy can be found under Martin if the AG so sees fit to pursue this.
In terms of the Martin Act, the key piece is:
Thus, the elements of a Martin Act violation appear to be: (1)
a misrepresentation or omission; (2) that is material. The
application of these elements, and the exclusion of the
other traditional fraud elements, are discussed below.
Without the need for scienter, there is no need to prove that Extell had knowledge of the misrepresentation.
There is a misrepresentation (maybe) but I think we can all agree that the outside date would be considered material.
Under Martin, the AG doesn't need specific intent to defraud, needs a misrepresentation or omission with no Scienter, and needs materiality.
Also, do not read anything into the AG "accepting the offering plan" as a finding of acceptability. The courts have thrown out cases where the AG overstepped authority. The AG can accept plans for offering but does not approve or disapprove of them. The AG can require disclosure of certain defects, for example, but cannot withhold acceptance of the offering plan.
And just to be clear before it comes up, the sale of Sponsor interest in a condominium IS a sale of securities in New York.
Missing the 9/1/2008 results in having to A) amend the Plan to upate the budget, and B) offer Purchasers the right to recind. All this discussion on the budget is completely irrelevant.
maybe not...
did they include kidville, abigail michaels, security, an engineer in the budget? Might not be realistically prepared..
it does happen...
http://www.thetorontolawyers.ca/PDFs/star062406.pdf