Amid accusations of a sham closing, buyers at new condo No. 22 Renwick are getting their money back.
Purchasers at the delayed Soho development were given a 15-day period in which to rescind their contracts, according to a Feb. 17 amendment to the offering plan obtained by The Real Deal (see amendment below).
In a previous amendment, filed in November, sponsor 22 Renwick Street Associates stipulated that purchasers would receive the right of rescission unless a temporary certificate of occupancy, or TCO, for at least 50 percent of the units in contract had been issued by Jan. 31, 2010.
The TCO was not issued in time, according to the amendment, so purchasers who were in contract at the time of the November amendment were told they could back out of their contracts and get their deposits back.
Located at 22 Renwick Street between Spring and Canal streets. It was hit with a stop work order in December, but it has since been removed, according to the Department of Buildings Web site.
A growing number of new developments, including Linden78, One Madison Park and the Setai, are being forced to offer their buyers so-called right of rescission in the real estate downturn, often due to construction delays.
By law, 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.
The offering plan for 22 Renwick, designed by Philip Johnson Alan Ritchie Architects, was declared effective in February 2009, with 14 of the 19 residential units in the building sold. Purchase prices ranged from $1.2 million to $1.8 million.
By the spring of 2009, a number of buyers filed disputes with the AG’s office alleging that the sponsors, Orange Management and Helix Partners, missed the June 2009 outside date.
As The Real Deal reported at the time, buyers claimed that in order to meet the deadline, the sponsors pushed through a sham sale of a commercial unit to a business associate, who agreed to close without a TCO.
“It was alleged by many people who had signed contracts that it was a sham transaction,” said attorney Steven Sladkus, whose firm, Wolf Haldenstein Adler Freeman & Herz, represented the purchasers of two units at 22 Renwick.
Andrew Bradfield, a principal at Orange Management, did not return phone calls for comment. Last spring, he told The Real Deal that while the sponsors knew the buyer of the commercial unit, it was a bona fide sale.
Sladkus said he does not know if the AG has issued an official determination of the legitimacy of the first closing, but the terms of the rescission were likely the result of negotiations between the AG and the developer.
“We are unaware of any formal decision that ruled that any sham transaction took place,” he said. “But you can read between the lines and figure it out.”
The AG’s office did not respond to requests for comment.
Vincent Hanley, a partner at law firm Hanley & Goble who has not worked on cases pertaining to 22 Renwick, said he was not aware of any other cases where the AG has ruled directly on the issue of sham closings.
In general, “it’s difficult to prove that it’s a sham,” he said.
In this case, the requirement for the sponsor to obtain a TCO for half of the units before offering rescission may have been the AG’s attempt to compromise the needs of both parties, Hanley said.
“The AG is looking for people to work these things out,” Hanley said. “The AG is inclined not to give rights of rescission because in this market, it could very well bring a sponsor down. They are not inclined to rule definitively and firmly if it’s a close call.”
It’s not known how many buyers elected to exercise their right of rescission, or how many units are now in contract. Sladkus said the buyers his firm represented chose to get their money back.
Other buyers in the building had previously been released from their contracts, he said, but the terms of their agreements with the developer are unknown.
The principals of Helix Partners — Matthew Brown, William Lozito and Joseph Lozito — declined to comment.
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