Condominium – a residential building in Manhattan.
P360 Spaces LLC – the owner of a commercial space in the Condominium (the “Front Unit”)
Patricia and Darren Orlando – the owners of a residential space in the Condominium (the “Back Unit”)
Ronnie Peters – the President and managing member of P360 Spaces LLC
The original (2003) Declaration of Condominium stated that the percentage interest of each unit was based upon “floor space and the availability of common elements for exclusive and shared use”. The Declaration also stated that there were no “limited common elements” appurtenant to the Back Unit.
And the Offering Plan stated that use of the Basement as a limited common element was specifically allotted to the Front Unit.
Who had the right to use the 1,190 square feet of cellar/basement space in the Condominium (the “Basement”)?
The Front Unit, the Back Unit and the right to use the Basement, as a limited common element, were originally owned by Nicholas Baxter and Margot Slade. The Orlandos purchased the Back Unit and the right to use the Basement from Baxter/Slade in 2005 for $1.73 million – allegedly having been assured by Baxter/Slade that the Condominium’s Board would permit them to excavate the Basement; and as a limited common element that the Board reviewed and approved the sale.
The Orlandos thereafter submitted their renovation plans to the Board for approval – and, at the time, and thereafter, Peters was a member or, at times, President of the Board.
According to the Orlandos, the Board on which Peters sat, reviewed and approved the renovation plans.
After renovations commenced, the Board denied the Orlandos’ request to excavate the Basement. The Orlandos sued Baxter/Slade for breach of contract and fraudulent inducement.
The Court dismissed the suit, finding that Baxter/Slade’s mere silence about Board approval was not actionable fraud, especially where the Orlandos failed to inquire or request the Board’s permission to excavate the Basement before the sale.
The Orlandos then physically severed the Basement from the Front Unit in order to attach it exclusively to the Back Unit, spending $600,000 on those renovations. The Basement then served as a recreation room for the Back Unit.
In 2007, Baxter/Slade sold the Front Unit to Ian Grant. And Grant allegedly acknowledged that the Basement was not a part of his purchase.
In 2013, P360 Spaces purchased the Front Unit from Grant for $650,000. In the contract of sale, P360 acknowledged that the conveyance did not include the right to use the Basement.
In 2014, Peters sent the Orlandos an email expressing his concern that P360 Spaces was paying real estate taxes on the Basement that was not attached to the Back Unit. Darren Orlando took Peters’ email as acknowledgment that use of the Basement belonged to them.
In 2014 or early 2015, Peters and the Orlandos learned that a company was seeking to purchase the Condominium’s air rights for approximately $5 million. At a meeting, the Board discussed that the air rights proceeds would be allocated based on the square footage of each unit, including limited common elements, such as the Basement. At that meeting both Peters (on behalf of P360) and Orlando claimed the right to use the Basement.
In 2015, the Orlandos leased the Back Unit and the Basement to Zoe and Kevin Campbell – and, as a result, the Orlandos received a letter from the attorney for P360 Spaces alleging trespass and asserting rights to the Basement.
Needless to say, litigation ensued.
The Orlandos and the Campbells did not dispute that, pursuant to the Declaration and Offering Plan, the Basement was appurtenant to the Front Unit. Instead, they argued that the governing documents were implicitly amended by the series of transactions described above.
And the Orlandos and Campbells also claimed “title” to the Basement by adverse possession, having openly and notoriously used the Basement, continuously and exclusively, for more than ten years.
P360 Spaces moved for summary judgment on their claims for trespass, ejectment, unjust enrichment, and compensatory and punitive damages – relying upon the Declaration of Condominium and the fact that P360 Spaces had been paying the Basement’s real property taxes.
Supreme Court denied the motion for summary judgment despite the fact that the Declaration and Offering Plan designated the Basement as a “limited common element” appurtenant to the Front Unit – giving credence to the fact that the parties’ conduct implied that all parties involved had an understanding that the Orlandos had the right to use the Basement.
The Appellate Division reversed and declared that the Basement was not attached to the Orlandos’ unit.
The First Department held that the Declaration was unambiguous and clearly stated that the Basement was a “limited common element” attached to the Front Unit. Limited common elements cannot be reallocated except by amendment of the condominium declaration, which had not occurred. All condominium deeds are explicitly subject to the declaration.
Lesson learned: Don’t cut corners. If a condominium’s limited common elements are to be reallocated, amend the condominium’s declaration.