Time Warner Center at Columbus Circle (Stefano Nicolucci)
A condominium board can compel an owner to sell his Columbus Circle apartment to a neighbor instead of a preferred outside buyer, thanks to a common provision in condo bylaws, a state judge has ruled.
Manhattan Supreme Court Justice Anil Singh’s (See Profile) Feb. 25 ruling in South Tower Residential Board of Managers v. Ann Holdings, 156148/12, rejected the seller’s argument that the board was acting in bad faith by buying the apartment on behalf of his neighbor, whom he accused of sabotaging his efforts to sell the apartment to someone else.
The two neighbors live in the South Tower of the Time Warner Center Condominium on Columbus Circle. Donald Netter, who owns his unit through a company called Ann Holdings, put his apartment on the market in 2011 or earlier.
His neighbor, Jacob Wohlstadter, expressed interest in buying the apartment so he could combine it with his own. He made an initial bid in the form of an escalating purchase price, meaning that it would begin with a bid of $7 million and increase by $25,000 increments in response to competing bids, with a ceiling of $7.7 million.
Netter rejected this offer, saying he was only interested in a firm bid. Wohlstadter alleges that he responded with a bid of $7.8 million, though Netter denies receiving that bid. In any case, according to Singh’s decision, Netter stopped negotiating with Wohlstadter because he was “affronted by his allegedly irritating negotiating tactics,” and by Wohlstadter viewing his apartment without permission after a building employee let him in.
In July 2011, Netter entered into a contract with another bidder, Svetlana Sukhina, to sell the apartment for $7.4 million. As required by the condo bylaws, he sent notice of the contract to the board, triggering its right to purchase the unit under the same terms.
In September, the board said it was exercising its right to buy the apartment on behalf of a designee, an LLC controlled by Wohlstadter.
The offer came about after Wohlstadter proposed to an employee of the building’s management company that the board exercise its right to buy the unit, and Wohlstadter would pay a fee of nearly $400,000 to the board for the right to annex part of the hallway between the two apartments in order to combine them. Wohlstadter’s wife, Deborah Wohlstadter, is also a member of the board, but recused herself from the board’s consideration of Wohlstadter’s proposal.
Netter and Wohlstadter began negotiations to close the sale, but those negotiations broke down, partly because Wohlstadter refused to agree to indemnify Netter against any claims by Sukhina. Netter refused to appear for closing in September 2012.
The board then sued Netter’s company for specific performance of the sale contract and moved for summary judgment.
Netter opposed the motion. He claimed that Wohlstadter had interfered with his marketing of the apartment in order to depress the final sale price so he could get it through the board’s right to purchase rather than bidding on it fairly.
He further claimed the board’s agreement to buy the unit on Wohlstadter’s behalf was an act of self-dealing and in bad faith, and that the bylaws only allowed the board to buy a unit for some common purpose, like providing a childcare center or health club for all the condo owners.
Finally, he claimed the board had deliberately delayed the closing, which was originally scheduled for two months earlier, to save the Wohlstadters from paying transfer taxes.
Singh rejected all of these arguments.
“The Wohlstadters are not party to this action,” he wrote. “Their negotiation tactics, or whether or not they offered $7,800,000 for the unit, is of no legal consequence.”
“Defendant believes that it was unable to maximize the value of the unit by selling to an adjoining owner,” the judge continued. “However, rather than negotiating with Mr. Wohlstadter, Ann Holdings on its own volition entered into a contract with Sukhina to sell the unit for $7,400,000.”
Singh said that nothing in the bylaws required the board to purchase a unit for a common purpose, only that it make the purchase “on behalf of” all owners. Furthermore, he said, the fee Wohlstadter would pay for the hallway would benefit all the owners.
The board’s decision, Singh said, was an exercise of business judgment and therefore not subject to judicial review.
Singh rejected Netter’s accusation of self-dealing, citing Deborah Wohlstadter’s recusal. He conceded that the board had delayed the closing, but said that Netter had waived his right to bring a claim over the delay because he did not object at the time.
Even if the board was responsible for the failure to close a deal with Netter, the judge said, that was “of no moment” to the board’s exercise of its rights under the bylaws to buy any unit under contract to an outside buyer under identical terms.
Singh therefore granted summary judgment, ordering Netter to transfer the apartment.
The board is represented by Joseph Burden, a partner at Belkin Burden Wenig & Goldman, and David Brand, an associate at the firm.
Burden said that it was the first case he was aware of in which a court upheld a condo board’s exercise of its right to purchase a unit on behalf of a designee.
“The right of first refusal is in every condo bylaws I’ve ever seen,” he said. “What’s rare is that a condo exercises it.”
Netter’s company is represented by David Levy, a member at Kleinberg, Kaplan, Wolff & Cohen, and by David Schechter, an associate at the firm. Levy declined to comment.