In the type of dispute likely to become more common in the rocky economy, buyers at West Soho condominium 22 Renwick are demanding their money back amid claims that the first closing at the building may be a sham.
At least six purchasers at the 19-unit condo have filed claims with the attorney general’s office requesting their deposits back from the developer, Manhattan-based Orange Management.
Buyers, who requested anonymity because they are still in negotiations with the developer, say construction delays at the site have triggered their right of rescission, and the first closing — which would, if legitimate, require buyers to close on their units — doesn’t count because it is a commercial space, according to claims filed with the AG’s office (a cheaper but legally binding alternative to filing a lawsuit). They also say the commercial buyer may not be a bona fide purchaser, but be part of an attempt by the sponsor to avoid giving them their money back. The AG, whose office did not return phone calls for comment, will determine the legality of the first closing.
Orange Management, which also did not respond to requests for comment, told buyers the commercial owner would be an art gallery, the buyers said. Instead, the purchaser is Next Block Over, a company with ties to the developer, according to documents filed with the city.
“This was likely some ill-conceived tactical move in order to get people to have to fight for their deposits back,” said one buyer of a residential unit at 22 Renwick.
By law, if a sponsor does not close at least one unit in a new condo within a year of its original projected date of completion of the building — known as the outside date — all of the buyers must be offered the right of rescission, meaning that they may opt to be released from their contract and get their deposits back. Recently, this occurred at Upper West Side condo Linden78 and at condo conversion project at 45 John Street in the Financial District. The outside date at 22 Renwick was June 1.
Seven of 14 buyers who are in contract to purchase apartments at the building have spent months discussing their sales contracts after finding each other online on real estate Web Site Streeteasy.com, they said. Of those, six have filed claims with the AG’s office.
In an environment where more and more buyers are attempting to get out of their contracts, developers facing construction delays are increasingly pulling out all the stops to ensure they can close a unit — any unit — before the outside date, said Robert Braverman, managing partner at law firm Braverman & Associates, who is not involved in any cases at 22 Renwick. And since commercial units often require less of a build-out than residential units, developers may increasingly look to close them first, he said.
“If that’s what [developers] need to stop the clock, of course they will,” he said.
Fourteen units have gone into contract at 22 Renwick, a luxury condo project on Renwick Street between Spring and Canal streets. There have been significant delays at the site, and buyers say they don’t expect to be able to move in for several months.
“It’s a construction site that looks at least three months off,” said one purchaser.
Buyers told The Real Deal they suspect the developer also realized this, and decided to focus on completing the commercial unit as quickly as possible, so as to avoid triggering buyers’ rights of rescission.
“The building is nowhere near completion, or near getting a temporary certificate of occupancy for a residential unit, which is why they quickly got the [temporary certificate of occupancy] for the commercial unit,” said another buyer, who also requested anonymity.
On April 16, an amendment to the offering plan alerted buyers that the first closure would likely be the commercial unit.
Then, just a few days before the outside date for 22 Renwick, Next Block Over closed on the commercial condo unit for $150,000, according to city documents.
According to the Department of State and city documents, newly-formed company Next Block Over shares employees and an address, 487 Greenwich Street, with development firm Blue Zees Real Estate.
Meanwhile, Blue Zees is the “development consultant and owner’s representative” to Orange Management at 22 Renwick Street, according to the Blue Zees Web site. Next Block Over and Blue Zees were also given a significant discount on the space.
According to city documents, Blue Zees and the seller entered into a purchase agreement May 28 in which “the seller has agreed to reduce the purchase price of the unit from $450,000 to $150,000 to reflect current market conditions.”
Buyers said they suspect the ties between the developer and Blue Zees may constitute a violation of state law, which requires that the official first closing in a condo must be a legitimate purchaser.
“It can’t be anything other than a bona fide sale,” explained Vincent Hanley, a partner at law firm Hanley & Goble, who has not worked on cases at 22 Renwick. “It can’t be a member of the sponsor’s team.”
In other words, “you can’t have a sham first closing,” Braverman said.
Such improper ties would be hard to prove, Hanely said.
“It’s very difficult to establish if it’s a ‘friendly sale,’” Hanley said.
However, financial ties could be a factor in determining whether a friendly sale had occurred.
“If the buyer was affiliated with, or somehow economically beholden, to the sponsor, it might not be viewed as a legitimate first closing,” Braverman said.
Buyers and their attorneys are also claiming that the Next Block Over closing doesn’t nullify their right of rescission because it is a commercial unit, not a residential one.
Residential units take longer to build out, since they require fixtures like bathrooms to be completed before buyers can move in, purchasers argued, while commercial unit owners often prefer to build out the spaces themselves to their unique specifications.
Braverman said the validity of their claims depend on the wording of the offering plan, and it will be up to the AG to make the call.
But a buyer suggested the case could have far-reaching ramifications in the current climate.
“The policy implications of this are absurd,” the buyer said. “If it were the case that a developer could simply close on a commercial unit and have that constitute the first closing, then the entire purpose of the outside date and rescission rights would be frustrated and completely useless.”