Material misrepresentation in condo offering plan

[Benny]

What happens if there is a material misrepresentation of the facts about a new construction building in the original offering plan? What are the consequences and can the buyer walk away?

How much leeway does the sponsor have in fibbing the numbers?

[aslan]

If there's a material representation in the original condo or coop offering plan, then yes the buyer of a new construction unit has the right to cancel the contract and walk away. Note that the buyer isn't entitled to any damages for time wasted and costs, just the right to cancellation and a return of the contract deposit.

This right extends all the way until closing, which may be an issue if construction takes a long time!

Note that material changes to the offering plan do regularly get disseminated via amendments. These are publicly filed and also usually sent to buyer's attorneys. Buyers only have 15 days notice to cancel if they do not agree with a new amendment to the offering plan. This can be a serious issue if the buyer is travelling on vacation for example.

What's material? Generally the threshold is 25%, for example a 25% change in anticipated common charges for a new build condo building.

Interestingly enough, there can be no material misrepresentation with respect to real estate taxes. There's no right to cancel and no repercussions for getting this part wrong apparently, because it's government policy which the sponsor is not expected to be able to predict accurately. Nuts!

In fact, the New York Attorney General's office takes the tax opinion letter in the offering plan at face value, they do zero vetting of the actual numbers themselves!

That's because the Martin Act which governs disclosures and offering plans for new construction is similar to the securities laws governing prospectuses for stock and bond offerings. It's all about disclosures.

Interesting note, the developer "sponsors" the offering plan, that's why they are called the sponsor.

[showtime]

What about changes in the amenities, or the storage units, or price? Or if the sponsor decides to combine certain apartments or make other changes to the budget?

Are those material and will an amendment be filed?