The Real Deal New York

Attention, Brooklyn condo buyers: Good luck trying to hold your developer personally accountable

Appellate court shoots down attempt to pierce LLC veil in construction defect case against Savanna
By Will Parker | June 01, 2017 07:00AM

From left: 125 North 10th Street, Christopher Schlank and Nicholas Bienstock

The LLC veil used by condo developers in Brooklyn just became Kevlar.

A New Appellate Court ruling will make it harder for condominium boards in the borough to sue individual developers of apartment buildings for construction defects.

Over the years, a number of Brooklyn condo buyers filed lawsuits in New York Supreme Court against the actual developers behind the projects they lived in, alleging construction defects. One such case, against real estate investment firm Savanna and their 86-unit condo at 125 North 10th Street in Williamsburg, made its way to appellate court.

The judges in that case have now ruled that claims can only be brought against the development entity, in this case, an LLC. The takeaway: Developers aren’t personally liable for the buildings they put up.

Previously, cases naming individual developers as defendants were justified by developer signatures on the “certification of sponsor,” a document in which stakeholders affirm that all the contents of a new condo offering plan are true and representative. Brooklyn developers singled out in breach of contract lawsuits in recent years include Amir Yerushalmi and Alan Messner. The appellate court department covering Manhattan, however, has established precedent for dismissing cases brought on this argument. With the Savanna ruling, Brooklyn, covered by the appellate division’s second department, has gone the same way.

“For the last few years in the lower courts in the second department, judges have been denying motions to dismiss made by sponsors in construction defect cases,” said Andrea Roschelle, an attorney at Starr Associates who represented Savanna in the 125 North 10th Street case. “This cannot be the only industry in the United States that principals are not entitled to protect their assets by using the corporate form, here an LLC.”

In 2012, buyers at The Condo Street sued Savanna and its principals, including co-founders Christopher Schlank and Nicholas Bienstock, as well as architects, management and construction firms involved in the project. Residents complained of hot water flowing through fixtures, deficient heating and cooling systems, flooding in the garage, foul odors and balcony railings unsafe for children. Although many of the firms and individuals were dismissed from the case in A Kings County Court, Savanna and partner Investcorp couldn’t get their names removed from the breach of contract suit.

In the ruling, the appellate judges held that the individuals “cannot be held individually liable for the breach of contract alleged by the plaintiff, based solely on violations of the offering plan, merely by their certification of that offering plan in their representative capacities on behalf of the sponsor…”

Jennifer Bock, attorney for the condo board, did not return a request for comment.

This is not the only recent case with big implications for condo developer liability. In April, a Brooklyn judge ruled that Fortis Property Group was not responsible for defects at condos it sold after acquiring them from their original developer, Isaac Hager.