The Real Deal New York

Chelsea condo developers may be liable for board’s claims

Developer LLC's individual principals can be held accountable in Modern 23 lawsuit, judge rules
April 22, 2016 02:00PM

Modern 23

350 West 23rd Street in Chelsea (inset: Erez Itzhaki)

UPDATED, 6:00 p.m., April 25: The condominium board for the Modern 23 residential building in Chelsea received a boost in its legal battle against the property’s developers. A judge ruled last week that the board may hold the developer LLC’s individual principals liable for breach of contract and breach of warranty claims.

The decision could set a precedent regarding how “[condo] boards with claims against their sponsors may have recourse against the individual principals,” attorney Leni Cummins of Cozen O’Connor, which is representing the Modern 23 board, told the Commercial Observer.

“This is important because very often the sponsor entities are devoid of assets so this allows recourse for the boards and unit owners,” Cummins said. The New York State Supreme Court judge did dismiss plaintiff claims alleging fraud, however.

Despite noting that the decision could set precedent, the Modern 23 board’s lawsuit cites similar instances of “case law” in asserting “claims for breach of contract against the individual defendants” — including a lawsuit filed in 2013 by the condo board of the Palomar building at 266 West 115th Street in Harlem, which found that “a principal of a sponsor may be held separately liable” when “knowingly and intentionally advanc[ing] the alleged misrepresentations of the [condo] offering plan.”

The board of the 14-unit building at 350 West 23rd Street filed suit against the property’s developers – including individual principals Martin Hollander, Arthur Israel and Itzhaki Acquisitions founder Erez Itzhaki – in May 2015, claiming a “willful and fraudulent failure to construct the Modern 23” including construction defects and poor workmanship.

The lawsuit claimed the eight-story property had “a laundry list of defects… that have required, currently require and continue to require remediation or replacement,” and that the developers had allegedly failed to fix the issues despite unit owners’ requests.

The Modern 23’s developers acquired the property for $7.2 million in March 2005 and completed the glassy condo building in 2009. The average sale price of an apartment at the Chelsea property is $2.1 million, according to the lawsuit. [CO]Rey Mashayekhi