Court Lets Sponsor Off the Hook for Condo Defects

Condo boards and unit-owners have several options when they move into a new building with shoddy construction. To avoid litigation, they can hire an engineer to document construction defects, then negotiate with the sponsor to correct them. If the unit-owners are unhappy with the repairs, both sides can agree to name a so-called “designated neutral” to arbitrate their disputes. If all else fails, there’s always the last resort: litigation.

But last resorts don’t always lead to happy endings – or cheap ones. Case in point: a Brooklyn judge has ruled that Fortis Property Group is not liable for $2 million in alleged construction defects at the 62-unit Bayard Views condominium in Williamsburg, Brooklyn, the Real Deal reports.

The reason is that Fortis bought 37 unsold units in the building in 2011 from the original developer, Isaac Hager, when his company went into bankruptcy. Even though Fortis became the sponsor on the offering plan, the court ruled, the company is not liable for any construction because it didn’t build the building.

Unable to sue Hager because of bankruptcy protection, the condo board filed a complaint against Fortis in 2014, claiming the building suffered from $2 million worth of damages from leaks and flooding, an inadequate HVAC system, cracks in the facade, and a faulty electrical system.

In his ruling, Judge Lawrence Knipel did offer a consolation to the board and unit-owners at the Bayard Views: they can continue trying to sue Fortis Property Group’s principals, Joel Kestenbaum and Jonathan Landau.

Fortis’s attorney, Adam Leitman Bailey, tells Habitat, “This is an extremely important case. It takes on an issue – when you buy or take over a building from a previous sponsor, are you liable for defects caused by the person you bought it from? According to this court, the answer is no.”

Kelly Ringston, a partner at Braverman Greenspun, attorney for the condo board, says: "Fortis inspected the building, then turned a blind eye to construction defects when they sold their 37 units. Each purchase agreement contained false representations about the condition of the building. The law doesn't give you a free pass to disregard your contractual obligations simply because you acquired them in bankruptcy. We will be appealing."