Adam Leitman Bailey, P.C. secured an important ruling clarifying several aspects of New York City’s Reserve Fund Law, which requires the sponsors that convert rental buildings to condominiums or co-operatives to establish a reserve fund for the building of 3% of the “total price” of the offering, subject to a limited credit for certain specified types of building capital replacement work.
In a decision concerning the subject condominium in Manhattan, in which Adam Leitman Bailey, P.C. represented the Condominium Board, the presiding justice of the New York County Supreme Court Commercial Division issued a ruling of first impression about whether certain classes of work that were performed by the condominium sponsor qualified as credits to the reserve fund.
Because the statute requires qualifying work to be a capital replacement, not a mere repair, the judge disallowed credits for installing a single layer of roofing membrane to an existing roof and for the repair of spalled concrete and recoating of building terraces. She also held that because the statute prohibited credits for work to cure violations of record, where elevator work cures violations, it does not qualify for a credit without proof of what, if any, work did not involve curing the violations.
The sponsor’s claimed capital replacement work also involved the replacement of a substantial number of sliding glass doors. The judge found that such replacements would not qualify as replacement of windows, as the sponsor had argued, but nonetheless the credits for replacement of the doors qualified as a major structural replacement.
In addition, her decisions on the reserve fund credits, the judge followed the prior Appellate Division ruling in the case to find that where the sponsor’s discounted price offer to tenant-offerees (i.e. insider price) had expired before the “effective date” of the sponsor’s offering, a pre-effective date offer an “insider” tenant at the higher price to non-tenant offerees (i.e. the outsider price) will cause the reserve fund to be calculated based on the non-discounted outsider price. The decision denied summary judgment, finding that the date of the outsider price offers should be established after the presentation of evidence at trial.
Jeffrey R. Metz, and Courtney J. Lerias of the litigation group of Adam Leitman Bailey, P.C. represented the condominium board in connection with this decision, with Rachel Sigmund McGinley also representing the board in this litigation.