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Adam Leitman a Bailey, P.C. Unveils Seller Lies and Saves Client-Investor from Losing Millions

By Carolyn Z. Rualo


Property investor client came to us for advice on whether it should purchase two Brooklyn properties. Their primary concern was rent stabilization and its impact, if any, on the buildings and future income. The day after we received the sales package we scheduled a visit to the seller’s management office and within moments began unveiling misrepresentations. Our due diligence team caught the seller in such a vast web of lies that it could easily have cost our client, a savvy multiple dwelling investor, millions of dollars in future liability. The project involved evaluating the regulatory status of two Brooklyn multiple dwellings and the owner’s compliance, or better said, non-compliance, with the rent stabilization law to help them assess the pros and cons and the advantages and risks in purchasing the buildings.

According to the seller’s rent roll, one of the two properties consisted of 25 Class A apartments, 12 of which supposedly were free market delivering monthly rents ranging from $1,700 to $3,400. We found that the building had recently enjoyed tax benefits under the J-51 tax benefit program though the benefits were exhausted. Despite the expiration of the benefits, we found that every single one of the supposedly market apartments were actual subject to rent stabilization protection and worse, some tenants found out about the benefits and filed overcharge proceedings against the owner. Not even the current owner was aware of the pending overcharge claims. The owner – and any future owner – faced thousands of dollars in overcharge liability and even worse, the apartment that supposedly generates a market rent could potentially be rent stabilized for generations to come, under the rent stabilization law of succession.

The second of the two properties presented a host of other issues stemming from a history of poor management dating back two owners ago. We reviewed the seller’s files and without aggression, interviewed the seller’s managing agent who had no choice but to admit her mistakes and omissions, namely that no J-51 riders were annexed to leases in the first of the two buildings and that the tenant files were missing leases and had overlapping leases. We also ran calculations on the apartment renovations that were said to be the basis for deregulating market apartments and found that most just barely met the threshold required under the rent stabilization law.

Within three days of being hired, our due diligence team dug deep enough into the buildings, discovered their true history and educated our client enough that it could wisely decide whether to spent further resources negotiating down the purchase price or walk away from the deal altogether. In the end, they walked away from the deal unscathed.

Adam Leitman Bailey and Carolyn Z. Rualo represented Adam Leitman Bailey, P.C. for all matters involving the project.

Adam Leitman Bailey, P.C.

NEW YORK REAL ESTATE ATTORNEYS