Co-op Purchased as Private Residence Used For Short Term Rentals:

This was originally published on the SGR Blog.

Court Decides If Board Had Grounds to Rescind Sale for Fraud?

Trump Village, Section 4 Inc., a private cooperative residential apartment complex, sued Gene Vilensky to rescind the sale of the shares appurtenant to the cooperative apartment he purchased in 2014. The first cause of action in the complaint sought damages for fraud, alleging that Vilensky intentionally misrepresented in his purchase application for the apartment that he would be the sole occupant and use it as his private residence. Trump Village alleged that instead he sublet the apartment on a short-term basis as part of a “real estate business.”  And asserted that Vilensky’s misrepresentations in the purchase application regarding his intent to use the apartment as a private residence induced the Village to approve his purchase—in connection with which the parties entered into an “occupancy agreement” that prohibited its use “for any purpose other than a private dwelling apartment for the [Vilensky] and his family.” Vilensky moved to dismiss the first cause of action on the grounds that it sounded in breach of contract and was insufficiently pleaded.  Supreme Court denied the motion. Vilensky appealed.

The elements of a cause of action sounding in fraud are a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages. Where a cause of action is based upon fraud, the circumstances constituting the wrong must be stated in detail.

A cause of action to recover damages for fraud will not lie where the only fraud claimed arises from the breach of a contract. General allegations that a party entered into a contract while lacking the intent to perform it are insufficient to support a claim of fraudulent inducement. But allegations may suffice of a misrepresentation of present facts that were collateral to, and served as an inducement to enter into, the contract.

The Court found that the first cause of action did not allege merely that Vilensky misrepresented his intent to perform under the occupancy agreement. Rather, that cause of action alleged that Vilensky made misrepresentations of fact on his purchase application that were collateral to the occupancy agreement, and that those misrepresentations induced the Village to approve his purchase application, resulting in the Village’s failure to exercise its right of first refusal to purchase the apartment. In addition, the elements of the cause of action were each pleaded with sufficient detail.

The motion to dismiss was denied.

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