Arris Lofts buyers OK to nix contract, even after closing

Decision is the first such interpretation of ILSA in New York
By David Jones | June 13, 2013 12:00PM

A Manhattan federal judge has ruled that a couple who sued the developer of the Arris Lofts in Long Island City can get out of their contract to buy a penthouse apartment, despite already moving into the unit. The decision marks the first post-closing victory for a New York condo buyer in a case involving the Interstate Land Sales Full Disclosure Act.

The couple, Darius and Marina Tencza, sued the developer, Manhattan-based Andalex Group, in May 2010, about 16 months after moving into the building. They claimed that the developer failed to file a property report with federal regulators, a requirement under ILSA, and sought $2.88 million, the total purchase price of their apartment.

U.S. District Court Judge Paul Engelmeyer ruled in a June 6 decision that the Tenczas could get fully reimbursed because they were unaware of ILSA prior to signing the contract and did not waive their rights. ILSA is a federal law that aims to protect condo buyers by requiring developers of 100-unit or larger new developments to file a property report and financial statements with the U.S. Department of Housing and Urban Development. However, following the 2008 financial crisis, buyers have used the law to exit condo and homeowner contracts in New York, Florida and other real estate markets. “[Andalex] has not put forward any evidence that the Tenczas knew of their rights under ILSA at the time they signed the punch list agreement or took title to the unit, let alone that in taking those actions, were knowingly and intentionally extinguishing those rights,” Engelmeyer ruled. This is the first time a judge has sided with the buyer in such a situation since a Florida case in 2000, lawyers said.

“This is a groundbreaking decision because it’s the first time in This State Where The Court has allowed rescission … following a closing,” said Steven Sladkus, co-chairman of the real estate practice at Wolf Haldenstein and the attorney for the Tenczas. Todd Soloway, chairman of the real estate litigation group at Pryor Cashman and attorney for the developers of Arris Lofts, declined to comment. Andalex officials did not return calls.

The 237-unit Arris Lofts at 27-28 Thomas Avenue was formerly an Eagle Electric manufacturing facility. The Tenczas’ $2.995 million purchase was said to be the priciest condo sold in Queens at the time; the couple put down a 10 percent deposit at contract signing. (They also purchased a $25,000 storage bin and received a $140,000 credit, resulting in a final purchase price of $2.88 million.)

However, that same year, the developers became embroiled in a dispute with contractors, who walked off the job amid disputes about construction quality and payment. The developers claimed in court that construction problems led to $30 million in cost overruns. By 2010, more than 100 unit owners had filed a $20 million suit in New York State Supreme Court claiming that the building had substantial construction defects, including water leakage into more than 60 apartments. “In some of the apartments you can actually see from the inside of the apartment to the outside [due to leaks],” Sladkus, who represents unit owners in the state case, said. “There are a variety of issues at the building that the developer ignored.” Andalex denied the allegations in court papers and filed negligence claims against various subcontractors. The state case is ongoing, with evidence being exchanged between the parties, a process called discovery.

“What we are saying in our cross claim is we do not believe the claims being made by the [Arris condo] board exist, but if they do we are not responsible for them,” said attorney Jeffrey Goldman, who represents the developers in the state case. “If the roof is leaking it would have been the responsibility of the person that took care of the roof to repair the roof.”

However, in his ruling, Judge Engelmeyer noted that the condo board had taken over the state case from the unit owners.

The judge ordered the lawyers to settle the Tencza case by June 20. The couple plans to move out and give the unit back to the sponsor once the lawyers settle, Sladkus said.