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Unit Owners File Suit Against LEED Gold-Hopeful Riverhouse in Battery Park City

Riverhouse - Battery Park City

In a suit that was filed earlier this month in New York County Supreme Court under Index Number 105958/10, the owners of a condominium unit at the LEED Gold-hopeful Riverhouse development in lower Manhattan’s Battery Park City are seeking the recovery of $1.5 million in damages from the project’s developer for a variety of alleged construction defects. While this type of construction litigation is not uncommon, the purchasers also claim that “the building’s much-heralded ‘green’ heating system consistently fails to provide adequate heat” to their unit and that this failure is a condition which is “is materially different from those represented by the project sponsor and its principals in the condominium offering plan.” These allegations – which are the the basis for two claims in the complaint alleging fraud and misrepresentation – mark the first time we have seen claims asserted against the developer of a green building for the developer’s alleged failure to deliver the project as represented during pre-construction. (Note that this is not the scenario which many in the legal community predicted would arise out of green building projects, but rather a much more specific type of claim that has been folded here under other allegations of design and construction defects).

More specifically, the Riverhouse complaint alleges that the building “was marketed as being at the cutting edge of ‘green’ technology. It is supposedly a LEED Gold-rated building featuring fresh filtered air, filtered water, eco-friendly materials and is designed for low energy consumption. However, plaintiffs have consistently experienced cold drafts and insufficient heat in their Unit. An energy audit performed on plaintiffs’ Unit revealed a number of defects in the Unit that contribute to the unsatisfactory heating situation. First, too much cold air is infiltrating the Unit through doors, windows, and exterior walls. Plaintiffs’ engineers found a deviation of 49 percent over the USGBC’s LEED and [Battery Park City Authority] standards in the cumulative size of holes and cracks allowing infiltration of cold air.”

This line of allegations goes on to describe pipes that are not insulated, heating unit covers that are not sealed, and air filters that are clogged. The purchasers then allege that these failures constitute a breach of contract under the offering plan, and that the developer’s representations in the offering plan about the building and its units were false and therefore fraudulent. However, it is important to note that there are no specific allegations in the complaint with regard to the representations – if any – that the developer made in the offering plan related to the building’s LEED application and/or green features which were allegedly breached.

While the allegations of the project’s construction defects are noteworthy standing alone- and will likely be fleshed out in more detail through discovery if the lawsuit moves forward – it is the fraud allegations that are particularly critical to analyze in the context of the project’s offering plan. For this reason, it is important just to briefly consider here why this type of alleged fraud or misrepresentation may be actionable under New York law.

Offers to sell residential condominiums in New York are governed by a particular section of the Martin Act (Article 23 of the General Business Law), whose purpose is to provide prospective purchasers with sufficient factual information for them to make an informed decision about purchasing the property through an offering plan. Accordingly, an offering plan must be filed with and approved by the state Attorney General’s office. Under the Martin Act, the offering plan must “not omit any material fact or contain any untrue statement of material fact.” Although there is no private cause of action under the Martin Act (i.e., the Attorney General is invested with exclusive authority to investigate and prosecute alleged violations), the Martin Act does not preclude a private party from prosecuting an otherwise valid common law fraud claim in connection with the sale of securities – including under an offering plan – whenever the alleged fraudulent conduct is such that the Attorney General would be authorized to bring a statutory action against the same defendant under the Martin Act. See, e.g., Kramer v. W10Z/515 Real Estate Ltd. Partnership, 44 A.D.3d 457, 844 N.Y.S.2d 18 (1st Dep’t 2007). In other words, if representations in an offering plan about a project’s green features or pursuit of third-party certification turn out to be inaccurate, the sponsor and/or developer of the project may be exposing itself to liability.

For your reference, the 31-story, 264-unit Riverhouse development is located at One Rockefeller Park in Battery Park City and continues to seek LEED Gold under New Construction Version 2.1. Specific green features that the project promoted in its pursuit of LEED Gold were a geothermal heating and cooling system, photovoltaic cells, low-E double-pane windows, a green roof, Energy Star appliances, recycled-content and locally-sourced building materials, a $1 million wastewater treatment plant, and a 60kW microturbine installation. It has faced financing and other problems, but celebrity purchasers Leonardo DiCaprio and Tyra Banks have made the project somewhat of a media favorite over the past two years and – after significant price cuts earlier this year – the building is reportedly 75 percent sold out.

We’ll keep an eye on this lawsuit and follow up here at GRELJ if it eventually becomes a full-blown litigation, or if it spawns other similar lawsuits at other green condominium buildings.

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11 Responses to Unit Owners File Suit Against LEED Gold-Hopeful Riverhouse in Battery Park City

  1. Stephen Del Percio June 1, 2010 at 3:05 pm #

    If you missed it over the long weekend, the Wall Street Journal followed up with an article on the lawsuit that includes quotes from both the plaintiffs and the Riverhouse:

    http://online.wsj.com/article/SB10001424052748703957604575273003196960336.html?mod=WSJ_NY_RealEstate_LEFTTopStories

  2. Tom Schneider May 5, 2011 at 1:23 pm #

    The “Green” movement is typical of medea darlings and marketers using catch phrases and emotion to motivate the transer of money from one hand to another.
    If there was sincere concern over the environment in the construction industry, there would be more than bamboo, garden roofs and local supply being discussed.
    LEED design buildings award points for items and processes used based on obvious impacts on carbon footprint and simple to understand concepts, nothing to do with building performance.
    There is nothing GREEN about a structure that has to be repaired due to damage and energy loss from air and water intrusion regardless of the materials chosen to build it.
    Sustainable buildings are those that last their projected lifespan with minimal maintenence regardless of the materials chosen to build it.
    The USGBC and LEEDS buildings are failing to meet expectations because the expectations were never quantified. Very little real life testing done of any sort and none done to measure performance under conditions the structure is likely to experience during it’s lifespan.
    Construction materials behave differently under the varying conditions during construction and after. Computer software modeling is typically based on how the materials perform under lab conditions, rarely do we build in lab conditions. Performance standards are typically the lowest common denometer of the manufacturers on the committee that sets them. Almost always, the structure will be exposed to conditions more severe than the standard.
    Any wonder that our buildings fail to meet expectations?
    What’s irresponsible is that the technology and materials currently exist to meet very high performance standards with no additional cost and LEED etc. have no provision to identify and promote their use.
    “Green” should not be the color of your face when you find out your “sustainable” building isn’t.

Trackbacks/Pingbacks

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