In December 2014, Adam Leitman Bailey, P.C. was retained by the residential members of the board of managers of a mid-sized condominium on the Upper East Side for, among other things, battling the condominium’s powerful commercial unit owner (“CUO”), who owned each of the condominium’s four ground-floor commercial units.
One of the commercial units, in particular, posed a specific problem because its only entrance was located within the residential lobby of the condominium. This would have allowed the public from off the street to pass the doorman and potentially gain access to the residential portions of the building at will. Residents were scared for their safety and the board asked Adam Leitman Bailey, P.C. to find a way to block the general public’s ability to enter into their homes.
Throughout the sales process, many of the condominium’s eventual residents had voiced concerns about the location of the commercial unit’s entrance. The sponsor’s selling agent reassured prospective purchasers that the sponsor would be installing an exterior entrance to the unit, after which the interior entrance would be permanently closed off.
However, at the same time, the sponsor was negotiating the sale of the condominium’s four commercial units and promised the CUO continued use of the interior entrance. In addition, the sponsor promised the CUO various easement rights not afforded under the original offering documents. The sponsor filed an amendment to the condominium declaration in February 2014 to ratify the various promises it made to the CUO during its negotiations. Two weeks later, the CUO purchased the four commercial units for a total of $20 million.
Sponsor’s Fatal Flaw
Once retained, Adam Leitman Bailey, P.C. immediately jumped into action to help the residents get what they were promised, and started with a search of the condominium’s governing documents and amendment requirements for a flaw in the sponsor’s methodology. Such flaw was indeed found: sponsor amended the declaration to re-designate residential common space (the interior entry to the commercial unit) to part of the commercial unit itself, without the requisite unit owner approval to do so. In other words, sponsor impermissibly gave the CUO something that sponsor did not own. Sponsor even tried to hide the amendment from residential unit owners by recording the amendment against the condominium’s commercial units only. Adam Leitman Bailey, P.C. immediately notified sponsor of this fatal flaw in writing, with copies to the CUO.
Blocking of Proposed Commercial Tenant
At the time Adam Leitman Bailey, P.C. was retained, the problematic commercial unit had recently become vacant, but Adam Leitman Bailey, P.C. clandestinely became aware that a new tenant – a skin care/facial clinic –was expected to move into the unit in the near future. Adam Leitman Bailey, P.C. found the president of the clinic on LinkedIn and contacted him directly to notify him of the board’s claims to the unit’s interior entrance in order to preempt any future claim by the tenant of entitlement to use of the entrance based on lack of notice of the board’s claims thereto. Adam Leitman Bailey, P.C. also sent the facial clinic a copy of its letter to sponsor and the CUO. The facial clinic ultimately decided not to proceed with leasing of the unit, and Adam Leitman Bailey, P.C. promptly commenced discussions with the CUO to settle the dispute to the interior entrance space, which would continue for the next two years.
Settlement is Reached
After countless revisions and back and forth with the CUO’s attorneys, an agreement was eventually reached. Among other things, Adam Leitman Bailey, P.C.. gained leverage in the negotiations with the CUO by advising the board to condition its consent for certain commercial unit alterations – which consent was required under the condominium’s by-laws – on the parties reaching an agreement on the interior entrance issue. This alone accelerated the negotiations tremendously.
The final agreement requires the CUO to install the originally intended exterior entrance to the unit and thereafter immediately close off the interior entrance to the unit forever. In exchange, the board ratified certain rights and easements that sponsor had granted to the CUO in the original declaration amendment.
The agreement also provides that the various doors separating the condominium’s commercial and residential areas would become emergency-only doors with alarms as a means of decreasing potential security breaches by retail customers. The agreement also provides certain provisions related to refuse storage and removal in order to minimize any potential interference of same with the commercial unit’s new exterior entrance area. And, residents will be receiving a new mail/package room as part of the deal. Once the exterior entrance is built and the lobby alterations are complete, including the closing off of the interior door, the unit owners will vote to approve a second amendment to the condominium declaration to ratify same.
Adam Leitman Bailey, John M. Desiderio and Rachel M. Sigmund represented the residential members of the Condominium’s Board of Managers in this matter.