TIAA Global Invs., LLC v. One Astoria Square LLC, 652907/12, 13243

• Decision Date: 03 March 2015
• Docket Number: 652907/12, 13243
• Citation: 7 N.Y.S.3d 1,2015 N.Y. Slip Op. 01768,127 A.D.3d 75
• Parties: TIAA GLOBAL INVESTMENTS, LLC, et al., Plaintiffs–Respondents, v. ONE ASTORIA SQUARE LLC, et al., Defendants–Appellants, Nyron Hall Engineering Services, LLC, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

127 A.D.3d 75

7 N.Y.S.3d 1

2015 N.Y. Slip Op. 01768

TIAA GLOBAL INVESTMENTS, LLC, et al., Plaintiffs–Respondents

v. ONE ASTORIA SQUARE LLC, et al., Defendants–AppellantsNyron Hall Engineering Services, LLC, et al., Defendants.

652907/12, 13243

Supreme Court, Appellate Division, First Department, New York.

March 3, 2015.

Smith Buss & Jacobs LLP, Yonkers (Jeffrey D. Buss and Jennifer L. Stewart of counsel), for appellants.

Ingram Yuzek Gainen Carroll & Bertolotti, LLP, New York (Robert Alan Banner of counsel), for respondents.

ANGELA M. MAZZARELLI, J.P., ROLANDO T. ACOSTA, LELAND G. DeGRASSE, SALLIE MANZANET–DANIELS, JJ.

Opinion

MAZZARELLI, J.P.

On or about January 13, 2011 defendant One Astoria Square LLC (Seller) and plaintiff TIAA Global Investments, LLC¹ entered into a contract for plaintiff to purchase a 115–apartment residential building for $43,000,000. The agreement expressly provided in sections 1.2 and 1.3 that plaintiff was not relying on any representations made by Seller, other than those expressly made in Article XIII of the agreement. Furthermore, the agreement stated in section 1.5 that

“[e]xcept as specifically set forth to the contrary in this agreement or in the closing documents, [plaintiff] agrees (a) to take the property ‘as is, where is, with all faults' and (b) that no representations are made or responsibilities assumed by Seller as to the condition of the property, as to the terms of any leases or other documents or as to any income, expense, operation or any other matter or thing affecting or relating to the property, now or on the closing date. Subject to and without limiting [plaintiff]'s rights under Article IX, [plaintiff] agrees to accept the property in the condition existing on the closing date, subject to all faults of every kind and nature whatsoever whether latent or patent and whether now or hereafter existing” (emphasis omitted).

Article XIII of the agreement contained Seller's representations and warranties, on which, as noted, plaintiff was entitled to rely. Three of them are relevant here. The first, embodied in section 13.1(c) of the agreement, stated that “[t]here are no actions, suits or proceedings (including arbitration proceedings) pending or, to Seller's knowledge, threatened against Seller which could have a material adverse effect on any portion of the Property, Seller's interest therein, the Leases or prevent Seller's ability to perform its obligations hereunder.” The second representation at issue, set forth in section 13.1(g), provided that “[Seller] has received no written notice of any claims, defenses or offsets by any tenant with respect to its Lease,” and that Seller had not received any notice of “any fact or circumstances which ... could constitute a default by Seller as landlord.” The third was found in section 13.1(k), in which Seller represented that “[t]o Seller's knowledge, all of the Property Documents delivered or made available by Seller to [plaintiff] in connection with the Property are true and complete copies of such items in Seller's possession which are used by Seller in the operation of the Property.”

The one caveat to the Article XIII representations was that, pursuant to section 13.2, plaintiff was not entitled to rely on any representation by Seller “to the extent, prior to or at Closing, [plaintiff] shall have or obtain current, actual, conscious knowledge ... of facts contradictory to such representation or warranty.” In addition, section 13.2 gave plaintiff the exclusive remedy, upon learning of facts contradictory to any representation in Article XIII, of terminating the agreement upon notice to Seller and receiving back its down payment. If plaintiff elected not to terminate, it would “waive such breach and proceed to Closing with no adjustment in the Purchase Price and Seller shall have no further liability as to such matter thereafter.” Section 13.6 provided that

“[t]he express representations and warranties made in this Article by Purchaser or Seller will not merge into any instrument of conveyance delivered at the Closing; provided, however, that any action, suit or proceeding with respect to the truth, accuracy or completeness of any such representations and warranties ... shall be commenced, if at all, on or before the date which is nine (9) months after the date of the Closing and, if not commenced on or before such date, thereafter will be void and of no force or effect.”

Section 15.7 provided that if plaintiff did commence an action, its damages were limited to $750,000.

Plaintiff was entitled to perform due diligence before closing on the transaction. This was facilitated by the contract's requirement that Seller provide plaintiff with a wide variety of documents related to the building, including tenants' lease files, major mechanical records and construction plans and specifications. Further, section 7.1 of the agreement provided, in pertinent part, that

“[Plaintiff] and its authorized agents or representatives were and shall be entitled to enter upon the Property and the Improvements during normal business hours upon advance written notice to Seller to make such investigations, studies and tests including, without limitation, surveys, engineering studies and environmental investigations (including a Phase I environmental site assessment), as [plaintiff] deems necessary or advisable (all investigations of the Property or any materials regarding the ownership, management, use or operation of the Property are herein collectively called the ‘Property Investigations'). All investigations made by [plaintiff] have been and will be at [plaintiff]'s sole cost and expense and have been and will be performed without causing any damages to the Property that is not promptly repaired and without undue interference with the normal business operations of the Premises, including, without limitation, the rights of tenants at the Property. [Plaintiff] shall restore the Property in a timely manner at Purchaser's sole cost to the condition that existed immediately prior to the Property Investigations.”

Plaintiff retained defendant Levien–Rich Associates, Inc., an engineering firm, to conduct an investigation and to prepare a report regarding the condition of the property. The engineers advised that nearly $2 million of repairs would be necessary in the next 10 years, of which $620,700–worth was deemed of “immediate” necessity. The recommended “immediate” repairs related to the parking deck, Americans with Disabilities Act (ADA) compliance, and the public corridors and stairs, which were cold and required heating units. However, the report specifically stated that the property was “structurally sound, and free of any conditions requiring continuing extraordinary maintenance.”

To address the issues identified in the engineers' report, the parties entered into an amendment to the purchase and sale agreement pursuant to which Seller agreed to reduce the purchase price by $496,753. Seller further agreed to place an additional $219,800 of the purchase price in escrow, payable to plaintiff unless Seller performed such work necessary to remedy the issues within six months after the closing. The amendment also scheduled the closing for March 1, 2011. According to the complaint, on February 28, 2011, one of plaintiff's representatives was presented with a letter, signed by 35 tenants and dated January 26, 2011 (the Tenant Letter), which purportedly had been sent on that date to defendant The Criterion Group LLC (Criterion), Seller's property manager. The Tenant Letter complained of excessive heating bills, excessive air infiltration, and inadequate heating, as follows:

“According to infrared thermometer readings, air entering through balcony doors and electrical sockets on upper floors was almost identical to outside air temperatures (subfreezing) despite heating units that were set to 65 degrees Fahrenheit. We believe this indicates a lack of appropriate insulation and sealing around windows and doors in the apartments.... In addition to cold wind blowing into the apartments, many of us have actually experienced small amounts of rain and snow entering the apartments through cracks around the balcony doors.”

The next morning, prior to the closing that was scheduled for that day, plaintiff wrote to defendant Shibber Khan, Seller's principal, inquiring about the high heating bills, which the Tenant Letter had asserted were a result of issues with the heating units and the apartment door/window assemblies. In an email sent later that day, Khan responded by stating that, “[i]n terms of the windows and insulation, everything is as per code and there is no excessive air penetration from the exterior of the building.” On that same day, Khan provided a letter that he had procured from Mechanical Services, Inc. (MSI), a mechanical contractor that had been retained by Criterion, stating that the problem plaintiff had inquired about related specifically to defective valves in PTAC mechanical units,² and that all necessary repairs had been made on February 16, 2011.

In light of the issues raised in the Tenant Letter, the parties executed an escrow agreement at closing, which provided that the escrow agent would retain $175,000 of the purchase price until Seller conducted tests measuring the infiltration of air into the building, and performed any remedial work determined to be necessary. Plaintiff retained the right to recover the escrow funds if the work were not performed. Indeed, all escrow funds were released to plaintiff in May or June 2012.

After plaintiff gained control over the building, it came to suspect that the issues identified in its engineers' report and in the Tenant Letter were far worse than it had believed. This suspicion was partially fed by increasing complaints it received from tenants, as well as statements from tenants that Seller had promised them rent abatements and the right to terminate leases without penalty as a result of the air infiltration. Plain...