Setai condo buyers granted right to cancel contracts, get deposits back
July 15, 2009 09:20AM By Candace Taylor
The Setai in the Financial District
After construction delays and purchaser lawsuits, the posh Setai New York condominium has joined a growing number of city projects releasing buyers from their contracts.
An amendment to the offering plan dated July 8 states that buyers at the 40 Broad Street condo conversion in the Financial District have been granted the right of rescission, meaning that they may walk away from their contracts and get their deposits back. The amendment, obtained by The Real Deal, states that buyers have 15 days to exercise that option.
Purchasers learned of the change when they received a letter — addressed to all of the project's buyers — and a copy of the amendment by an attorney representing the sponsor, 40 Broad LLC. The building is being developed by a partnership between family-owned real estate company Zamir Equities and the Setai Group, known for hotel and residential development in Miami.
Construction delays at the site prompted the sponsors to offer the right of rescission, said Kanessa Tixe, a spokesperson for the developers.
The Setai, which features a private club, rooftop cabanas and a spa, announced in September 2008 that it had set a Financial District record when a penthouse sold for $7.82 million.
Closings there were originally supposed to commence in the fall of 2007. According to the condo amendment, a temporary certificate of occupancy for the building was issued June 12, 2009, and three units have closed so far: 11A, 11G and 15D. Of the remaining 156 units, approximately 75 percent are in contract, Tixe said, who added that buyers who choose not to rescind their contracts may begin closings Aug. 1. The restaurant in the building, Sho Shaun Hergatt, is now open.
By law, if there is a material change to the offering plan adversely impacting the purchasers, the sponsors must grant buyers a right of rescission. The law specifically mentions construction delays, stating that if the sponsor does not close at least one unit within a year of the date it had originally projected for the commencement of the closings — known as the "outside" date — all of the buyers must be offered the right of rescission. The outside date for the Setai was June 30, 2008, according to court documents.
A growing number of new condos — including condo conversion project 45 John Street in the Financial District and Upper West Side condo Linden78 — are being forced to offer their buyers the right of rescission as sales slow and the credit crisis limits the amount of construction financing available.
The amendment to the Setai's offering plan also noted five pending lawsuits in which buyers have sued the sponsor, seeking to void their contracts and get their deposits back. Several of the suits claim that the buyers are entitled to receive their deposits back because the sponsor conducted a "sham" closing of unit 11A on June 30, 2008, in hopes of making the outside date.
A suit filed by the buyer of penthouse 2D, a Florida corporation known as TFI, LP, claimed that the buyer of 11A, Irving Feldman, is related to an "affiliate of the sponsor," Nathan Feldman.
The law requires that the first closing in a new condo must be an "arm's length" sale, meaning that the buyer is not related to the sponsor by a family or business relationship, explained real estate attorney Jeffrey Reich, a partner at Wolf Haldenstein Adler Freeman & Herz, who was not familiar with the specifics of the situation at the Setai.
Feldman is "a 'straw man' acting secretly on behalf of [the] defendant," claimed a suit by another Setai buyer referred to as the Ronson Family.
A suit filed by Setai purchaser Jean-Philipe LeCourt and his wholly owned liability company, Salengro Realty Management, also claimed the closing of unit 11A was a ruse.
On June 26, New York State Supreme Court Judge Doris Ling-Cohan denied the sponsor's motion to dismiss LeCourt's complaint but granted the sponsor's motion to dismiss punitive damages.
"The first closing was a proper arm's length closing, and therefore it should count," Y. David Scharf, the attorney who is representing the sponsor in the case, told The Real Deal. "The person that bought it was not related in the manner that would be violative of the attorney general's regulations."
The case is now in the discovery phase, said Scharf, a partner at Manhattan law firm Morrison Cohen.
Setai buyers Dhananjay Pai and Heena Pai also filed suit in Federal District Court to terminate their purchase agreement for a unit in the building.
Claims of "sham closings" are growing more common as construction projects are increasingly delayed in the rocky economy.
"What some developers have tried to do is have a closing in the first year even if they don't have a [certificate of occupancy] in place," which leads to questions about the legitimacy of those closings, the attorney Reich said.
Meanwhile, buyers are looking for ways to get out of their contracts now that economic conditions have changed.
"I think we are seeing a tremendous amount of litigation by buyers who are in contract who are having buyers' remorse," the attorney Scharf said. "They will try to look at everything and anything to get leverage or to bring a lawsuit to get out of an investment or a purchase decision because they have regrets because the market has changed."
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Comments
Anonymous
Does anyone know how much they are going to rent these apartment for?
Comment #1 Posted By: Anonymous 07/15/09
Anonymous
Isnt Heiberger the magnificent one of the partners in this developement? You know the guy that founded Citihabitats and sold at the right time?
Comment #2 Posted By: Anonymous 07/15/09
Anonymous
no 4 no. thats the very successful 88 Greenwich
Comment #3 Posted By: Anonymous 07/15/09
Anonymous
88 Greenwich was only "successful" because they slashed their prices. Every investor in the project took a bath and lost their money.
Comment #4 Posted By: Anonymous 07/15/09
Anonymous
It seems like 90 William was the only real success story in FIDI.
Comment #5 Posted By: Anonymous 07/15/09
Anonymous
i know two buyers who are rescinding...any idea what the new listing prices will be like?
Comment #6 Posted By: Anonymous 07/15/09
Anonymous
90 William was not a success. Be at William? Big problems for purchasers and the developer.
Comment #7 Posted By: Anonymous 07/15/09
Anonymous
This is a gift - grab your deposit back and run, it's like buying a stock the day before it tanks and then undoing the trade, it never happens
Comment #8 Posted By: Anonymous 07/15/09
Anonymous
None of those developers were successful. The only successful condo in FiDi was 25 Broad. HAHAHA
Comment #9 Posted By: Anonymous 07/15/09
Anonymous
Did all of these developers get together and decide that no one would notice these sham closings? Same scam at 22 Renwick.
Comment #10 Posted By: Anonymous 07/15/09
Anonymous
Love that you guys are so obvious and stupid and put the wrong photo up, removed the comments about this, then changed the photo. And I hope that you, the person who is now making sure this comment dosn't go up either, is asking yourself if this is true journalistic integrity??? The answer is "NO!"
Comment #11 Posted By: Anonymous 07/15/09
Anonymous
#11, I love it when TRD takes down certain comments. Trust me, you offend one of their advertisers, it's coming down. Otherwise, everything else is fair game.
Comment #12 Posted By: Anonymous 07/15/09
Anonymous
90 William was a mess as pointed out above. Just like 20 Pine, the Setai, 45 John and 25 Broad. The only successful projects in the area were 15 Broad, 59 John, 88 Greenwich and 120 Greenwich. Maybe the District too but they can't seem to finish up and just switched sales agents for the 3rd time. Timing is everything...
Comment #13 Posted By: Anonymous 07/15/09
Anonymous
setai DID sell a lot of its units though, so not really a failure. Should be interesting to see how many pull out
Comment #14 Posted By: Anonymous 07/15/09
Anonymous
fair point #14. the failure was not on the sales side but on the execution side by the developer. no excuse to miss a deadline to start closings. who is the construction company? got to think pretty much all of them will pull out. they could buy it again from Setai tomorrow for at least 20% cheaper if they signed in 2007
Comment #15 Posted By: Anonymous 07/15/09
Outside dates
Can anyone define "Outside date"? Offering plans have a specific provision that lays out expected closing dates, and that specifically say that a right of rescission will be granted if the first closing doesn't take place within one year of that date. BUT, I've also heard a second interpretation. The plan includes an operating year (Schedule B), and the end of that year represents the "outside date". For example, a typical plan might say that the first operating year runs from jan 1 to Dec 31, 2008. It also says that it expects to close the first unit in February. So does the outside date require a close by Dec. 31 2008, or a year after the stated first close (February 2009). Seems like a simple question, but I've gotten different answers.
Comment #16 Posted By: Outside dates 07/15/09
Anonymous
15 broad was a huge success, but mostly for the flippers
Comment #17 Posted By: Anonymous 07/15/09
Anonymous
Regardless of what you think of the court's decision, it is the right thing to do. Developers were over ambitious with unrealistic delivery dates and should suffer if not met. This is going to kill that market as all these sales (meaning in contract) comparables are gone and meaningless.
Comment #18 Posted By: Anonymous 07/15/09
Anonymous
15 Broad was a success for everyone. 150 Nassau was also successful.
Comment #19 Posted By: Anonymous 07/15/09
Anonymous
Not sure what constitutes a mess to you guys in the current environment (what isn't at least a tad messy), but 90 William is verifiably 85% sold and closed, with 12 other units in contract or with accepted offers, 421-g accepted, etc. not to mention that buyers there actually paid hundreds less psf than everywhere else in the neighborhood... so considering that it started closings a month before lehman collapsed, i'd call that a success...
Comment #20 Posted By: Anonymous 07/15/09
Anonymous
90 William is a nightmare. Those numbers are a lie - the building is a mess, almost no buyers, everone in contract wants a rescission.
Comment #21 Posted By: Anonymous 07/15/09
Andrew Weltchek
The AG's regs require purchasers be allowed to rescind if the first unit closing is delayed more than a year past the estimated date stated in the offering plan. Specifically, 13 NYCRR ยง 20.3(o)(12) states: "State [in the offering plan] when sponsor expects the first closing of a unit to occur which should correspond to the first year of operation projected in Schedule B [the estimated budget for the first year of condo operation]. State that if such date is delayed twelve (12) months or more, purchasers will be offered rescission."
Comment #22 Posted By: Andrew Weltchek 07/15/09
Anonymous
Andrew, That is right, but I believe the AG's office has ruled that if there isn't a closing within the operating year specified in schedule B, that is a delay that constitutes a "material adverse impact" which allows for a recission. And reading this article, it appears that the expected first close date was sept 2007 (making sept 2008 the rescission date). However, the sponsor seemed very concerned about getting a closing in by June 30th (which is likely the end of the first plan year). I was involved in Linden 78 -- and the key date was based on Schedule B, not the estimated first close date stated in the plan. In other words, what you say is true - but there is another rule in practice.
Comment #23 Posted By: Anonymous 07/15/09
Anonymous
#21 What are you talking about???? That's not even remotely the truth. I'm an owner, I live in the building with many, many other owners.
Comment #24 Posted By: Anonymous 07/15/09
Anonymous
Why do you people like to trash projects and developers??? Yes, the buyers got fair game and now they can work on a deal to their favor if they want. Dont you people understand that a building like Setai, which has actually opened their amenities and is running... Can have people lose their jobs... People should just back off projects that have shown that they are going to open. Just pick on those projects that have not opened yet and are failing.
Comment #25 Posted By: Anonymous 07/16/09
Anonymous
I have recently walked the Setai project. The new contractor who took over 6 months ago is building a fantastic product. I would suggest anyone looking for an upscale residence downtown look at 40 Broad. I know there are better deals out there but non as nice as this project. Let's be adults and be fair! If you feel you overpaid, sit and talk to the developer...don't miss out on this 5 star oppertunity
Comment #26 Posted By: Anonymous 07/16/09
Anonymous
I am actually a real buyer at The Setai, I have just signed a new contract at a slightly lower price. For me it is still the place I want to live and have just got a windfall which does go some way to compensate for the frankly disgustingly long wait since I signed my initial contract. Hopefully most people do sign on again as I still think it is a great project and unlike anything else I had seen. I have been looking at other developments and was considering a lawsuit of my own, but now that it does seem that we will close in August I'm rather happy at the prospect.
Comment #27 Posted By: Anonymous 07/17/09
pierre
i have also sign 2 pieces in the setai, one is set to close very soon and the other in fall ... i was surprised and really wondering if there was not a bigger risk hidden, when i heard of the letter sent to my lawyer for right to get out... seems all is ok, just legal stuff... on the price down, i got something but u never know if you hit the right price : is it too expensive ? market value ? a bargain ? my spaces are 930 and 950 sqft , what kind of rent should i expect ? the amenities will be done in the next 2/3 months , restau is already openned, finishing look great (better than any other condo on the market i felt at the time). we have till 23rd of july to run away, i am 80% "in".. any input ? what would u pay for such appartments , both are in the 20's floors :-)
Comment #28 Posted By: pierre 07/17/09
Anonymous
I have looked at apartments throughout the city and really can't find decent layouts at less than 1,000 per Sqft. I have just sent the signed contracts back. Could I have negotiated harder, possibly, but when it is all said and done I still like the building and the neighborhood and the finishes and amenities are excellent. I was very close to walking away but that was about the delay not the project itself, I am now happy to get what I consider a windfall.
Comment #29 Posted By: Anonymous 07/17/09
Anonymous
Just to be clear in my post #30 I am the same poster as #28 replying to pierre poster #29 !!
Comment #30 Posted By: Anonymous 07/17/09
Anonymous
#30 check out thetimesbldg for a 1200 sq. ft. duplex with large private roof terrace for under 400psf!!! Right on the L train in Ridgewood.
Comment #31 Posted By: Anonymous 07/17/09
Anonymous
Setai; Bad bones! Bad vibe!
Comment #32 Posted By: Anonymous 07/17/09
pierre
grate bones, great vibes :-) i told them yes for my 2 flays tonight ! loosers can stay out of it :-) many are talkers few are doers !
Comment #33 Posted By: pierre 07/17/09
Anonymous
it was one of the first, and it had already been converted to rentals, but I'd say 80 John was a successful condo conversion, although I'm not crazy about the unit layouts there
Comment #34 Posted By: Anonymous 07/23/09
Anonymous
How is the Beaver project doing?
Comment #35 Posted By: Anonymous 07/28/09
Anonymous
They should bring Kent Swig in, he's a wonderful developer and would be able to fix any problems
Comment #36 Posted By: Anonymous 07/28/09
Anonymous
The one thing this article did not properly explain is the purpose of the AG reg provision which requires the sponsor to offer rescission if the first closing (or commencement of condo operations) does not take place within one year from the projected date. The purpose of this provision is to protect purchasers so that purchasers are not locked into contracts for longer periods of time than anticipated. WIth the Setai, the first closing and the commencement of operations was supposed to begin in Sept 2007. The sponsor is afforded one year to do this. The sponsor here had a closing, but the AG questioned whether condo operations actually commenced, which is the whole purpose of requiring rescission. Also, an Outside Closing Date is usually defined as a mutually negotiated date by the parties in a contract. If the closing does not take place by X, then the purchaser may cancel the contract. The AG provision is different. Outside Closing Dates can also be beyond the 12 month date in the offering plan.
Comment #37 Posted By: Anonymous 08/01/09
Anonymous
The one thing this article did not properly explain is the purpose of the AG reg provision which requires the sponsor to offer rescission if the first closing (or commencement of condo operations) does not take place within one year from the projected date. The purpose of this provision is to protect purchasers so that purchasers are not locked into contracts for longer periods of time than anticipated. WIth the Setai, the first closing and the commencement of operations was supposed to begin in Sept 2007. The sponsor is afforded one year to do this. The sponsor here had a closing, but the AG questioned whether condo operations actually commenced, which is the whole purpose of requiring rescission. Also, an Outside Closing Date is usually defined as a mutually negotiated date by the parties in a contract. If the closing does not take place by X, then the purchaser may cancel the contract. The AG provision is different. Outside Closing Dates can also be beyond the 12 month date in the offering plan.
Comment #38 Posted By: Anonymous 08/01/09
Anonymous
Have all of the Setai buyers who elected to rescind their contracts received their deposits?
Comment #39 Posted By: Anonymous 08/03/09
Anonymous
stay away
Comment #40 Posted By: Anonymous 08/05/09
Anonymous
Does anyone know which lawyer or law firm represented the purchasers in The Setai litigation?
Comment #41 Posted By: Anonymous 08/27/09