First published: Apr 2026
Fix My Condo!
THE LESSON FOR BOARDS Newly constructed condominiums often have construction defects, and it is not uncommon for newly constituted condo boards to sue sponsors for contract and non-contract claims (such as fraud and fiduciary duty claims). It is equally common for the sponsor to move to dismiss those claims. In particular, sponsors and their representatives are often successful in dismissing fraud claims on the theory that those claims are really just breach of contract claims phrased in more “intimidating” language. The plaintiffs in this case were able to survive the motion to dismiss because they described specific building defects that the sponsor and its representatives were actually aware of and actively concealed or failed to address.
BD OF MGRS. OF 87-89 LEONARD ST. CONDO V. LEONARD ST. OWNER, LLC
WHAT HAPPENED
The Leonard Street building, a 150-year-old cast-iron structure, was acquired by Go Cat Go LLC (GCG) in 2004 to renovate and convert to a condominium. GCG borrowed funds for the work and completed most of it, but defaulted in 2013 with over $30 million outstanding. A year later, the property was acquired by the Leonard Street Owner LLC, which became the new sponsor and filed an offering plan to begin selling seven condominium apartments and four storage rooms. The total value of the sponsor’s initial offering was about $58 million.
The seven units were sold, and the board of managers filed a complaint against the sponsor shortly after the unit-owners took over the board in 2018. The complaint, in seven separate causes of action, alleged that the building suffered from poor workmanship and shoddy construction practices, including cracks and voids in the facade, improperly waterproofed windows, and a defective roof, all of which were materially and directly inconsistent with the representations made in the offering plan.
In addition, the complaint alleged that the sponsor was made “fully aware” of the issues and did nothing to amend the offering plan or take appropriate action when the sponsor controlled the board. In fact, the complaint alleged that the sponsor actively concealed some of the problems from prospective purchasers. It also alleged that the defendants made a series of illegal transfers that depleted the condominium’s reserves. The defendants moved to dismiss all but the plaintiff’s first cause of action for breach of contract.
IN COURT
The court denied most aspects of the sponsor’s motion to dismiss. It found that the plaintiff had adequately alleged that the sponsor had improperly hid defective conditions in the building from potential buyers. The plaintiff also sufficiently alleged breaches of fiduciary duties against the individual sponsor representatives, because they sat on the board and did nothing to address complaints they received from unit-owners about the building’s condition. To the contrary, they permitted the sponsor to take money out of the condominium and distribute it to its investors. It was not a complete victory for the plaintiff, however. The court dismissed some, but not all, of the plaintiff’s fraudulent conveyance claims as being time-barred, and also the plaintiff’s claims for attorneys’ fees.
ATTORNEYS
For the board: Schwarz Sladkus Reich Greenberg Atlas
For CGC: Starr Associates
