Due to construction delays, the developers of Upper West Side condominium Linden78 have given all of the project’s buyers the option to back out of their contracts, a phenomenon that may become more common throughout the city as the credit crisis slows building progress.
The sponsors of Linden78, a 33-unit condominium at 230 West 78th Street, offered rescission rights to all of the project’s buyers in mid-April, according to a statement provided exclusively to The Real Deal from the developer, Urban Residential.
“The building was originally slated for completion in 2008, but experienced delays during construction,” Urban Residential said in the statement, released through the project’s exclusive sales agent, Corcoran Sunshine Marketing Group. “As a result of the delays, a provision of the condominium offering plan required the developer to offer rescission rights to purchasers.”
Christopher Westley, vice president of sales and marketing for Urban Residential, said he couldn’t comment on the rescission letters at Linden78, or how many residents had chosen to get out of their contracts. He also would not say how many units have been sold but noted that there are two units currently available for sale.
“The project’s still going forward,” he said.
By law, if there is a material amendment to the offering plan that adversely affects the purchasers, the sponsors must grant a right of rescission — meaning they may opt to be released from their contract and get their deposits back — within 15 days, said Meg Goble, a partner at law firm Hanley & Goble, who is not involved with Linden78.
The law specifically stipulates construction delays as grounds for the right of rescission, she said. If the sponsor does not close at least one unit in the building within a year of the date it had originally projected for the commencement of the condo — known as the “outside” date — all of the buyers must be offered the right of rescission, Goble explained.
Urban Residential, which has offices in New York City, Philadelphia and Boston, did not comment on the outside date for Linden78.
The idea behind the requirement, she said, is to protect consumers from being stuck in a long-delayed project for years. “Why should the investing public have to stick [with] a deal because the developer wasn’t able to pull it off?” she said.
Missing the outside date doesn’t always mean the project is in trouble, she said, since construction delays are common. And when the real estate market was booming, buyers of new condos often didn’t mind delays because they knew the apartment was increasing in value. But with homes losing value in today’s market downturn, buyers are looking for every opportunity to get out of their contracts.
“Everybody’s looking for a right of rescission,” she said. “There are a lot of people who either feel that they’re overpaying because the market has dropped in value, or they’ve lost their job. They’re scoping out the plan to see if there’s some hook I can hang my hat on here.”
With projects all over town stalled due to the lack of credit and the difficulty of getting financing, many more buyers may soon have the opportunity. Already, buyers at Long Island City’s Crescent Club were offered the right of rescission this winter that the developer, NCF Equities, missed the promised delivery date, according to Prudential Douglas Elliman Senior Vice President Avi Voda, who is handling sales at the 130-unit building.
Voda said the building is still awaiting its temporary certificate of occupancy. He would not disclose how many buyers decided to exercise their right of rescission.
“Given the unrelated collapses of two construction cranes at other construction sites in New York and the fire at the Deutsche Bank Building during 2008, heightened safety regulations in the construction industry contributed to the complications resulting in the delays,” the statement said.
There is currently a partial stop-work order on the property due to a problem with a chimney at the site, according to a Department of Buildings spokesperson. There have been several other stop-work orders at the site in the past which have now been resolved, according to the DOB Web site.
But it’s possible that the developer may be having financial difficulties. According to city data, Urban Residential has at least $35 million in loans on the property from Horsham, Penn.’s Capmark Finance, and at least one vendor at the site, Les Construction Beauce Atlas, has filed mechanics’ liens at the project.
Urban Residential has another project on hold, the W Philadelphia Hotel & Residences in Pennsylvania, according to published reports.