Unit owners are accusing Ben Shaoul’s firm of stiffing them on reserve-fund money for the Tribeca condominium 87 Leonard. But the law might not be on their side.
The board of managers on Tuesday sued Shaoul’s Magnum Real Estate, alleging the developer was required to put another $1.89 million in sales proceeds into the building’s reserve fund. The board seeks that money plus fines and penalties for a total of about $7.6 million. The boutique project’s seven residences sold for between $6.6 million and $9.1 million from 2016 to 2018.
A reserve fund in a condominium is earmarked for building repairs and improvements. The case at 87 Leonard hinges on whether the law required 3 percent of sales to be contributed to the reserve fund, which may depend on what kind of building it was upon being converted to condominiums.
A state law refers to “conversions from rental to cooperative or condominium status.” Magnum’s attorneys at Starr Associates say the law doesn’t apply to 87 Leonard because it was converted from a commercial building.
The building had been an office when the previous owner, developer Anthony Morano of Ozymandius Realty, purchased it in 2004. Morano’s lender, a division of Deutsche Bank, took possession of the property in 2011 as the developer was trying to convert it into apartments.
Under the bank’s watch, plans for the residential conversion were approved in late 2011. Three years later, Magnum bought the property and completed the conversion into condos.
A deed from Magnum’s 2014 purchase of the building classifies it as an apartment building, but a check of records Wednesday by The Real Deal found no rental activity until 2018.
The condo board at 87 Leonard filed its complaint in New York Supreme Court, alleging that Magnum left just $65,000 in its reserve fund rather than nearly $2 million — 3 percent of projected sales of $65.4 million.
The board is also asking the court to award damages of at least the underfunded amount — $1.9 million — plus a fine of twice that sum ($3.8 million) and civil penalties of $1,000 a day, retroactive to July 2015, until its reserve fund is fully funded. As of Nov. 17, the day the board filed its complaint, those penalties would be around $1.95 million.
Magnum’s lawyers said they were confident the lawsuit would be discredited in court as “frivolous litigation” filed to “harass and maliciously injure the developer and its principals.”
Morrison Cohen partner Y. David Scharf, representing the condo board in the case, declined to comment.