By Adam Leitman Bailey and John M. Desiderio

One of my most repeated lines goes as follows: all newly constructed buildings have problems; the good builders come back and fix them. I should add to my adage, that as long as they sue on time, good lawyers also get buildings fixed. When disputes arise, between sponsor-developers and residential boards and/or individual unit owners, concerning defective construction of newly constructed condominiums and cooperative buildings, the applicability of statutes of limitation to board and unit owners’ claims against the sponsors must be considered before litigation is commenced. Although the limitations periods prescribed in statutory provisions are fairly straightforward, the time from which to measure the accrual of the limitations period, in any given case, is not always easy to determine. It should be noted that both authors have made a career litigating and writing about litigating new constructed buildings. According to a search of the New York Law Journal’s archives, Adam Leitman Bailey and John Desiderio’s very first article for the New York Law Journal appeared on September 2, 2002 and was titled: Are Buyers of New Homes subject to Caveat Emptor.” With this article, we have come full circle in our pursuit in understanding multi-family construction law.

In Gaidon v. Guardian Life Insurance Company of America, 96 NY2d 201, 210 (2001), the Court of Appeals explained that “[i]n general, a cause of action accrues, triggering commencement of the limitations period, when all of the factual circumstances necessary to establish a right of action have occurred, so that plaintiff would be entitled to relief.” More specifically, the Court has held that “no matter how a claim is characterized in the complaint—

negligence, malpractice, breach of contract—an owner’s claim arising out of defective construction accrues on date of completion, since all liability has its genesis in the contractual relationship of the parties.” City School District of City of Newburgh v. Hugh Stubbins & Associates, 85 NY2d 535 (1995)(Kaye, C.J.). (Emphasis added).

However, “[c]ompletion is not a statutorily defined word, but must be judicially interpreted in light of the given situation and the responsibilities of the parties in carrying out their agreement.” Board of Education of Tri-Valley Central School District at Grahamsville v. Celotex Corporation, 88 AD2d 713, 714 (3d Dept. 1982), affirmed, 58 NY2d 684 (1982). Accordingly, how one measures the accrual date determines whether and how the applicable statute of limitations is or is not applied in a specific case, and measuring the applicable statute of limitations also “depends upon the type of relief requested.” Hamlet on Olde Oyster Bay Home Owners Association, Inc. v. The Holiday Organization, Inc., 12 Misc.3d 1182(A), 824 NYS2d 763 (Sup. Ct., Nassau Co., 2006).

Review of the case law shows that, depending upon whether the plaintiff’s action is brought against the sponsor-developer, the general contractor, and/or the architect or engineer for the project, there are several ways in which a single statute of limitations may be applied to each defendant category (even regarding the same construction defects at issue). The rules also differ depending upon whether the building construction issues relate to condo/co-op building construction contracts or to non-condo/co-op construction contracts.

The Basic Statutory Provisions

Pursuant to CPLR §213(2) an action “must be commenced withing six years . . . upon a contractual obligation or liability, express or implied, except as provided in . . . Article 36-B of the general business law (“GBL”). “ (Emphasis added)

Pursuant to CPLR §213(8), “the time within which an action [based upon fraud] must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.”

Pursuant to CPLR 214, actions to recover damages for an injury to property [§214(4)] or for personal injury [§214(5)], or for malpractice, other than medical, dental, or podiatric malpractice, regardless of whether the underlying theory is based in contract or tort [§214(6)], “must be commenced within three years.” (Emphasis added).

Actions Against Contractors, Architects, and Engineers

Involving General Defective Building Construction

In City School District of City of Newburgh, supra, the Court of Appeals reaffirmed the “settled” rule “that an owner’s “cause of action for defective construction and design generally accrues upon completion of construction,” and that “[i]n cases against architects or contractors, the accrual date for Statute of Limitations purposes is completion of performance.” (Emphasis added). In Newburgh, in 1972 the property owner’s assignee (the Urban Development Corporation which was financing the construction) had entered into a contract for the construction of a library building with the general contractor. In October 1990, a water pipe in the library burst causing extensive damage to the books, bookshelves, office supplies, and furnishing within the building. Plaintiff City contended that the six-year statute of limitations for a contract claim did not apply against the defendant builder, architect, and engineers, because the City was a third party to the contract, and, therefore, its cause of action for negligence and damages to personal property, accrued “at the time of damage, not the time of completion.” In rejecting the City’s claim, the Court held, because the City’s relationship to the contract “was the

‘functional equivalent’ of privity,” the City’s liability “[i]n both instances,” arose “out of the contractual relationship,” where damage to real or personal property flowing from faulty design or construction can be anticipated, and steps taken to protect against the consequences of such damage.”

A similar outcome resulted in Town of West Seneca v. Kidney Architects, P.C., 287 AD3d 1509 (4th Dept. 2020). (Held: Despite the lack of privity between plaintiff and defendant, plaintiff was ‘not a stranger to the contract,” and “its professional malpractice cause of action accrued upon completion of performance by defendant [architect] [and] [t]therefore, the complaint [was] time barred. [see CPLR 214(6)]”).

However, “in an action for damages to a building resulting from the loss of lateral support, the cause of action accrue[d] when damages [were] sustained.” Mark v. Eshkar, 194 AD2d 356, 357 (1st Dept. 1993). The First Department explained: “[I]n actions for negligent construction, the statute begins to run when the structure collapses, or when the damage from the negligent construction becomes apparent.” See also Ellington Owners Corp. v. 200 Broadhurst Developers LLC, 190 AD3d 770 (1st Dept. 2021)( holding that plaintiffs’ claims as pleaded were not time-barred because, for reasons similar to those stated in Eshkar, supra, they were subject to a three-year statute of limitations measured from the time when the damages were sustained).

GBL Article 36-B and Condo/Co-op Boards

and Unit Owners v. Sponsors, Architects, Engineers

GBL Article 36-B created a Housing Merchant Implied Warranty Law, which consists of GBL §§777, 777-a, and 777-b. GBL§777-a(1) (Housing merchant implied warranty) provides that “a housing merchant warranty is implied in the contract or agreement for the sale of a new home,” which is defined to mean “any single family house or for-sale unit in a multi-unit

residential structure of five stories or less in which title to the individual units is transferred to owners under a condominium or cooperative regime.” GBL§777 (Emphasis added).

GBL 777-a(1)(a)(b)(c) expressly prescribe one, two, and six-year warranty periods, respectively for: (1) construction in a skillful manner, (2) installation of plumbing, electrical, heating, cooling, and ventilation systems in a skillful manner, and (3) construction free from material defects to the home’s load bearing portions causing it to become “unsafe, unsanitary or otherwise unliveable.”

GBL 777-a (4)(a) prescribes that “[w]ritten notice of a warranty claim for breach of a housing merchant implied warranty must be received by the builder prior to the commencement of any action under [GBL 777-a (4)(b)] and no later than thirty days after the expiration of the applicable warranty period, as described in [GBL§777-a(1)]. In addition, “the owner and occupant of the home shall afford the builder reasonable opportunity to inspect, test and repair the portion of the home to which the warranty relates.” (Emphasis added)

GBL 777-a (4)(b) prescribes that [a]n action for damages or other relief caused by the breach of a housing merchant implied warranty may be commenced prior to the expiration of one year after the applicable warranty period, as described in [GBL§777-a(1)], or within four years after the warranty date [defined by GBL §777(8) as the date of the passing of title to the first owner for occupancy by such owner of such owner’s family as a residence], or the date of first occupancy of the home as a residence, whichever first occurs.”]. (Emphasis added)

GBL 777-b (Exclusion or modification of warranties) expressly provides, that, [e]xcept in the case of a housing merchant implied warranty, the builder or seller “may exclude

or modify all warranties by any clear and conspicuous terms contained in the written contract or agreement of sale which call the buyer’s attention to the exclusion or modification of warranties and make the exclusion plain [GBL 777-b(1)]; and/or exclude or modify warranties with respect to particular defects [GBL 777-b(2)], or alternatively, to exclude or modify the housing merchant implied warranty if the builder offers a limited warranty that meets or exceeds relevant specific standards of the applicable building code, or locally accepted building practices [GBL 777-b(4)(e)].

Accordingly, developer/sponsors of high rise condominium and cooperative building regimes uniformly include the following representations in their offering plans and in the purchase agreement contracts, in which the plans are invariably incorporated:

that the sponsor “will correct, repair, or replace any and all defects relating to construction of the building, common elements or the units or in the installation or operation of any appliances, fixtures, or equipment therein, or will cause the same to be corrected, repaired or replaced,” but only if: (1) such defects are due to substantially improper workmanship or construction practices, or the use of materials that are substantially and materially at variance with the plans and specifications for he same; and (2) sponsor is notified by the condominium/cooperative board or the affected unit owner, as the case may be, of the same in accordance with [the time lines specified in the plan] for (a) not visually ascertainable “latent” defects [usually within one-year of the closing of title], or (b) “patent” defects that are ascertainable through inspection in the construction of a unit [usually within six-months of the closing of title to the unit]. (Emphasis added)

The Case Law Relating to Condo/Co-op “Completion” of Construction

As noted above, builder “liability has its genesis in the contractual relationship of the parties.” City School District of City of Newburgh, supra. Accordingly, cases against sponsor defendants and/or against architects or engineers, or sub-contractors, are subject to the limitations periods that apply to the contractual relationships of the particular plaintiffs and

defendants involved in the particular lawsuit. Cases brought against sponsors have not established one specific method for measuring the “completion” date of construction.

23-23 Condominium v. 210th Place Realty, LLC

In Board of Managers of 23-23 Condominium v. 210th Place Realty, LLC, 185 AD3d 890 (2d Dept. 2020), the plaintiff Board commenced an action, in June 2016 on behalf of the condominium unit owners, alleging breach of contract and fraud, against the condominium’s corporate sponsor and sponsor’s corporate members, to recover damages for allegedly defective construction of the condominium. The defendants contended that the action was time barred. The Second Department held that “the corporate defendants demonstrated their prima facie entitlement to judgment as a matter of law dismissing the first through third and fifth through seventh causes of action insofar as asserted against them.

The Court held that “the corporate defendants [had] established that the causes of action against them accrued on October 5, 2007, the date the certificate of occupancy was issued,” and that [the] action was not commenced until June 2016, more than eight years later, at which time the applicable statute of limitations had expired.” (Emphasis added). In so holding, the Court presumably reasoned that the date on which the condominium units were certified for residential occupancy was the date on which the sponsor became liable for any defective construction – not on the date when the sponsor’s contractors had “completed” the labor of constructing the building.

In 23-23 Condominium, although the Court’s reasoning was a plausible application of the CPLR §213(2) six-year limitations period to the factual circumstances involved in the construction

and sale of condominiums, the Court did not discuss the GBL §777(8) definition of the “warranty date,” as the” date of the passing of title to the first owner for occupancy by such owner or such owner’s family as a residence, or the date of first occupancy of the home as a residence, whichever first occurs,” nor the mandate of GBL §777-a(1), that “[a]n action for damages or other relief caused by the breach of a housing merchant implied warranty may be commenced prior to the expiration of one year after the applicable warranty period, or within four years after the warranty date.” (Emphasis added)

The Court also noted that the plaintiff’s allegations of fraud, which [were] incidental to the breach of contract action, [could] not extend the six-year statute of limitation applicable to a cause of action alleging breach of contract.”

Marke Gardens Condominium v. 240/242 Franklin Avenue LLC

In Board of Managers of Marke Gardens Condominium v. 240/242 Franklin Avenue LLC, 20 Miax,3d 1138(A)(Sup. Ct., Kings Co., 2008), affirmed on other grounds not related to the limitations issue, 71 AD3d 935 (2d Dept. 2010), plaintiff board, on behalf of itself and on behalf of the condominium unit owners, commenced the action to recover damages arising from various defects and omissions associated with the construction and conversion of two buildings into a condominium regime. Construction of the condominium began sometime in 2003, and the first closing occurred on August 16, 2004. The Court noted that the contract “Rider expressly [provided] for a six-year statute of limitations with respect to “latent major structural defects” that result from defective workmanship by Seller or Seller’s agent, employee or subcontractor; defective materials furnished or defective design, provided by an architect, engineer, surveyor, or other design professional retained exclusively by the Seller.”

Noting that the action was filed on August 8, 2007, the Court held that the limitations period, applicable to both (i) the construction causes of action alleged against the sponsor entity, and (ii) to the fraud causes of action alleged against defendant Marke individually, in his capacity as sole member of the sponsor entity, began running on August 16, 2004, “when the first closing of the sale of any units in the premises occurred.” (Emphasis added).

In Marke, like the decision in 23-23 Condominium, supra, the Court presumably reasoned that the sponsor did not became liable for defective construction on the date when the sponsor’s contractors had “completed” the labor of constructing the building. But, unlike 23-23 Condominium, the Court, also without discussing either GBL §777(8) or GBL §777-a(1), nevertheless chose to measure “completion” from the date of the first closing (“the date of the passing of title to the first owner for occupancy” GBL §777(8)) of the first unit cleared for residential occupancy.(Emphasis added)

Arnold v. New City Condominium Corp

Arnold v. New City Condominium Corp, 78 AD2d 882 (2d Dept. 1980), was a case decided before the enactment of GBL Article 36, but the decision interestingly dealt with the limitation issues presented in that case by two conflicting warranties given in the sponsor’s offering plan. Condominium purchasers had commenced suit against the sponsor for damages incurred from defects in the drainage system which caused flooding of basements in individual units, notice of which was given to sponsor by written notice to the sponsor on October 11, 1974. The plaintiffs commenced suit after the condominiums were again flooded on June 30, 1976. In their complaint, the asserted causes of action for negligence and breach of warranty.

The offering plan notice requirements for breach of warranty “insulat[ed] the sponsor from all liability unless defendant received written notice of the defect within one year.” The

Court noted, however, that there was “confusion as the date of commencement of the one-year period,” because “the prospectus, which was incorporated into the contract or sale, mentions two one-year periods,” and “[i]n the disclaimer against consequential damages for seepage, defendant said it would correct a seepage condition in an individual unit if notified within one year of the date of closing.” But, “[i]n another portion of the prospectus, defendant said it would correct any defects in the common elements if notified within one year of completion of the common element or of the filing of the Declaration of the Condominium, August 30, 1973, whichever was later.”

The Court noted that plaintiffs’ cause of action for breach of warranty probably involve[ed] seepage in individual units as well as defects in common elements,” and that “the defect in the common elements apparently caused the seepage in the individual units.” Confronted with three potential dates of completion – the date of closing, the date of completion of the common element, and the date of filing of the Declaration – the Court concluded that “[s]ince the exculpatory clauses must be strictly construed, the latest of the three dates should be applied,” and “[s]o construed the one-year period, running from the date of closing at the earliest [was] reasonable.”

Other Limitations Issues

Contract v. Tort:

In Hamlet on Olde Oyster Bay Home Owners Association, Inc. v. Holiday Organization, Inc., 65 /ad3d 1264 (2d Dept. 2009), a homeowners association sued the sponsor entities on causes of action, alleging fraudulent inducement and negligent misrepresentation, arising from alleged defective construction in the owners’ heating, air conditioning, and plumbing systems,

and regarding similar problems allegedly occurring in the development’s common-area buildings. The Second Department held “because the gravamen of the complaint did not sound in fraud, the three-year statue of limitations period applie[d] to the causes of action alleging breach of fiduciary duty,” and “[a]ccordingly plaintiffs [were] barred from recovering damages for any alleged breach which occurred more than three years prior to commencement of [the] action.”

Fraud in connection with material defects:

In a prior article, Bailey and Desiderio, New Home Construction Issues:26 Years After “Fumarelli,” New York Law Journal (6/11/24), the authors noted “[a]s actions alleging fraud in connection with material construction defects are generally brought within either (a) the warranty periods specified in Article 36-B or (b) within the six-year period prescribed by CPRL 213(8), there is a paucity of cases involving developers relying upon a statute of limitations defense against a plaintiff’s complaint.”

We also noted that “an intentionally concealed material construction defects (such as installation of ventilation systems in the kitchen space and bathroom areas, which upon inspection proved to consist of dummy sheet-metal ducts which simply terminated in the wall of ceiling space without any connection to a central exhaust duct or fan”) is likely to be discovered well before the running of the statute of limitations period. However, for such cases as may exist, the two-year discovery period should apply, but, to date, no such reported case has been found.” This remains true at the writing of this article.

Developer v. Architect:

In Matter of Kohn Pederon Fox Associates, P.C., 189 ad3D 357 (1ST Dept. 1993), the Court held that an owner’s “cause of action against an architect accrues when his or her

professional relationship with the owner ends, this usually occurring upon the issuance of the final payment certificate pursuant to the contract.” In this case, “because the architect was contractually obligated to issue final certificates to the owner before the project was deemed finally completed, the professional relationship ended upon the architect’s fulfillment of its contractual obligation and not upon the physical completion of the buildings,” and “it [was] clear that such occurred . . . within the applicable six-year period of limitation from the November 26, 1991 demand for arbitration.”.

CONCLUSION

As noted at the head of this article, the time from which to measure the accrual of the limitations period, in any given case, is not always easy to determine. This is true whether the contract calls construction of a single building or a multi-story condominium.

However, as the cases above show, for condo/co-op construction projects subject to warranty and limitations periods mandated by Article 36-B, or to limited warranties conforming to Article 36-B standards, courts have concluded that the “completion date,” which starts the running of the limitations period applicable to a purchase transaction, is definitely not the date on which the sponsor’s contractors have “completed” the labor of constructing the building. The “completion date” may be either the date of the first closing, “the date of the passing of title to the first owner for occupancy” of the first unit cleared for residential occupancy, or it may possibly (in an appropriate case) be the date the sponsor receives the building’s certificate of occupancy, confirming that the building’s condominium units are certified for residential occupancy.

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*Adam Leitman Bailey, Esq., is the founding partner of Adam Leitman Bailey, P.C., and the recipient of the New York State Bar association 2026 Outstanding Contributions to Real Estate Publications Award, awarded jointly to Mr. Bailey and posthumously to the late Michael J. Berry, and John M. Desiderio, Esq, is the Chair of the firm’s Real Estate Litigation Group. Max Richardson, an extern of the firm and Second Year law student attending the Maurice A. Deane School of Law at Hofstra University, assisted in the preparation of this article.

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By Justin Smulison

When clients turn to a law firm for help, they are often already in a difficult position. Their project has stalled, negotiations have broken down, or a legal obstacle threatens to derail years of work. Adam Leitman Bailey believes lawyers should approach every matter with the mindset of an underdog and never assume success will come easily. He also recognizes that solving a client’s problem often requires far more than legal analysis.

Sometimes that means becoming an investigator, a negotiator, a messenger, or even an observer of subtle human behavior. Those qualities proved decisive when a nearly $100 million residential development in Manhattan appeared headed toward costly litigation over a seemingly simple missing signature.

The Story Behind the Signature

The developer had spent nearly two decades assembling the approvals, air rights, and zoning permissions necessary to move forward with one of the last major undeveloped sites in Hudson Yards. The proposed 34-story residential tower represented years of planning and millions in investment.

Yet a final obstacle threatened the entire transaction.

Under an existing zoning and development agreement approved by the New York City Planning Commission, the developer needed consent from a neighboring property owner before construction could proceed. Without those signatures, the project could be delayed indefinitely, financing could be jeopardized, and development costs could continue to mount.

Just one problem: No one could find the owner.

Professional investigators had already been hired. Traditional outreach had failed. Public records produced little clarity, and every conventional avenue had been exhausted. With the transaction at risk, the developer turned to Adam Leitman Bailey, P.C.

Looking Beyond the Obvious

“The role of the lawyer became something more than advocacy in the traditional sense,” Bailey said. “We had to become investigators and succeed where the prior investigators failed.”

Rather than treating the matter as a routine document request, Bailey’s team approached it as a complex search. They combed through court filings, traced prior litigation involving the ownership entity, and followed every available lead that might identify someone with access to the elusive decision-maker.

Each seemingly promising avenue eventually reached another dead end.

Recognizing that time was running short, the firm simultaneously prepared litigation papers so the client would be prepared if court intervention became necessary. But Bailey viewed litigation as a safeguard, not the objective. “Our focus remained on finding a practical solution that would spare the client additional expense and delay,” Bailey noted.

Persistence Over Pressure

Even a colleague who was finally able to find the development owner offered little hope. After nearly three days, the attorney reported that while he had managed to reach the owner, the developer told him not to communicate with Bailey’s firm. Calls and messages were ignored, and another potential breakthrough disappeared.

As the development team grew increasingly anxious, Bailey refused to abandon the search.

Eventually, the firm uncovered an obscure business address connected to the ownership entity through decades-old records. It was little more than a long shot, but Bailey believed it was worth pursuing.

Accompanied by a member of the client’s team, he visited the office in person. Rather than arriving with demands or threats, they introduced themselves respectfully, explained the situation clearly, and simply asked for help.

“We ascertained that the owner was from another country, and we knew we should present ourselves as dignified and professional, wearing suits, ties and smiles,” Bailey said. “By giving respect and demonstrating genuine kindness, we set the right tone.”

The visit revealed an important clue. Bailey noticed that the person who seemed to be a receptionist spoke to the owner with an unusual degree of familiarity; far more like a family member than an employee. Although no immediate progress was made, the interaction confirmed that the owner remained connected to the business and that personal trust, rather than legal leverage, would likely determine the outcome.

The woman at the desk asked them to wait in a small conference room. No one could guess what would happen next.

Winning Trust

When the office manager returned, Bailey calmly explained that they needed only the owner’s consent and were willing to cover the owner’s legal fees.

The conversation took an unexpected turn. The office manager introduced them to the attorney next door, who happened to be a longtime colleague of Bailey’s. That relationship immediately dispelled concerns that Bailey represented a creditor and established credibility that weeks of phone calls had failed to achieve.

“We walked through the existing agreements, the obligations under the zoning and development arrangement, and the consequences of continued delay,” Bailey said.

The firm had already drafted litigation papers, making it clear that legal action remained available if necessary. Yet because Bailey had approached every interaction with patience and professionalism, the discussion never became adversarial.

Only afterward did Bailey learn that the office manager was the building owner’s daughter.

That revelation reinforced what the firm had sensed from the beginning: every interaction mattered. “Treating everyone with courtesy—not just the decision-maker—had created the opportunity to resolve the matter without stepping inside a courtroom,” Bailey said.

The Best Outcome Is the One That Never Reaches Court

The neighboring owner ultimately signed the required zoning, building, and certification documents. Although the process added roughly two months to the transaction, Bailey was able to withdraw the prepared litigation and assure the client that the project could move forward without further delay.

For Bailey, avoiding litigation altogether made the result especially meaningful.

What began as a frustrating search became a successful resolution because the firm remained persistent after others had exhausted their options, prepared for litigation without rushing into it, and treated everyone with respect.

Bailey relished the firm’s exciting, high-stakes journey in guiding the project to completion.

“Lawyers who truly go above and beyond must assume several roles that transcend being a courtroom advocate—from detective to courier—and even pick up on the nuances of foreign languages,” Bailey said. “The most rewarding cases are the ones when I can help people against all odds, which is why I embrace the idea of being the underdog.”

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The post Ever the Underdog – How Adam Leitman Bailey’s Persistence and Humility Helped Save a $100M Development Without Litigation appeared first on Adam Leitman Bailey Articles.

Adam Leitman Bailey, P.C. successfully represented a longtime client, which manages over properties in Manhattan, during the course of an investigation by the Office of the New York State Attorney General (“OAG”). The client has produced responses to a subpoena served by the OAG in early 2024, and thus far the OAG has not brought any claims against the client based on the investigation.

The OAG had initially investigated, from 2021 to 2023, the landlord of one property managed by the client, for alleged discrimination based on a lawful source of income. One individual, apparently a housing “tester,” contacted a real estate broker whom the landlord had retained, and asked whether the landlord accepted housing subsidy vouchers under the federal Section 8 voucher program (“Section 8”). The broker replied that she did not think so. This was incorrect: the landlord (and the management company) was willing to accept Section 8 voucher holders as tenants, but, due to the high price of the units in the property, the property had rarely had any applicants who were recipients of Section 8 or other housing vouchers, because voucher recipients had insufficient income, even when the vouchers were added, to be able to afford the units in the property.

The New York State Human Rights Law (“NYSHRL”), codified at New York Executive Law § 296, and the New York City Human Rights Law (“NYCHRL”), codified at New York City Administrative Code § 8-107, both prohibit discrimination in housing on the basis of, among other factors, an applicant’s lawful source of income. Thus, for example, a landlord and a property management company in New York City cannot refuse to lease an apartment to a housing applicant on the basis of the tenant’s receiving a housing subsidy, such as Section 8.

Violations of antidiscrimination laws typically can be in two different forms. One is disparate treatment, in which the housing provider discriminates directly based on a factor that it is not permitted to consider. For example, this would be the case if the housing provider outright refused to accept any applications from persons who held Section 8 vouchers. The other form of violation is disparate impact, in which the housing provider bases its decisions on a characteristic that itself is not prohibited from being considered, but that is correlated with a characteristic that cannot be considered, such deciding based on the non-prohibited characteristic has a disparate negative impact on persons who possess the characteristic that cannot be considered, even though the decision is not based directly on that characteristic. One example of disparate impact discrimination, recognized by an early Supreme Court decision interpreting the employment discrimination provisions of the Civil Rights Act of 1964, was an employer’s imposition of a requirement that applicants be college graduates, for a job that primarily involved manual labor.

The client had required that housing applicants either earn an annual income that was forty (40) times the monthly rent for the apartment sought, or, if they did not, provide a person who did meet that requirement as a guarantor of the applicant’s payment of the rent, in order to have their applications considered. This is a standard requirement imposed by landlords and property management companies. However, some recent court decisions at the trial level have found that imposition of a minimum-income requirement for housing applicants constitutes disparate impact discrimination against voucher recipients. The reasoning has been that voucher recipients are likely to have lower incomes than non-voucher recipients, since voucher eligibility is based on not having an income an excess of a maximum amount. Thus, a minimum-income requirement is significantly more likely to exclude a voucher recipient than to exclude a non-voucher recipient.

In the initial investigation by the OAG, the OAG deposed two employees of the client in order to determine whether the landlord had discriminated against applicants who held Section 8 or other government housing vouchers. Adam Leitman Bailey himself defended both depositions on behalf of the client, and the testimony demonstrated that the landlord had not discriminated. The OAG did not bring any claim against the landlord, and the statute of limitations for any claim based on the alleged discrimination against the tester expired years ago.

However, based on that initial allegation, and sporadic other complaints against that and other landlords who also used the client as the management company, the OAG served a subpoena on the client. The initial complaints had included, in addition to alleged discrimination against housing voucher holders, complaints that the client had either not returned a tenant’s security deposits within fourteen days of the tenant’s having moved out of the apartment after the end of the lease term, as required by law, or had not returned the full lease deposit less deductions for repairs of any damage caused by the tenant to the unit. They also featured complaints that the client had sought to enforce a term of the lease that required the tenant to pay to the landlord an amount equal to one month’s rent in the event the tenant provided, fewer than sixty (60) days prior to the end of the lease term, notice of his/her intent not to renew the lease at the end of that lease term (“untimely notice fees”).

The subpoena required production of a huge amount of material by the client, including documentation of the timing of all refunds of security deposits to all tenants, over a five-year period, in ten of the buildings managed by the client; documentation of all instances, over that period and in those buildings, in which all or a portion of the security deposit had not been refunded due to damage caused by the tenant to the apartment; and documentation of all instances in which the client, or a third-party company hired by the client, had sought to collect untimely notice fees; all documentation regarding applications by persons holding governmental housing vouchers; and all documentation involving the application of the client’s minimum-income requirement, or of its requirement that an applicant not meeting such requirement have a guarantor of his/her rent obligations under the lease.

After initial paper production by the client, the OAG insisted upon production of electronic documents as well. The OAG brought a special proceeding in Supreme Court, New York County to compel production of documents by the client. Adam Leitman Bailey, P.C. moved to quash the subpoena on the ground that it represented a fishing expedition, requiring production of a huge number of documents based on a handful of complaints. Supreme Court denied Adam Leitman Bailey, P.C.’s motion, and issued an order compelling the client to produce more documents. Adam Leitman Bailey, P.C. then retained a third-party e-discovery company to collect electronic documents, review them to see whether they fell within the grounds set forth in the subpoena, and produce to the OAG those documents which were responsive. At one point the OAG, frustrated with what it considered the slow pace of production, moved to hold the client in contempt, but Adam Leitman Bailey, P.C. was able to defeat that motion. Ultimately, the client produced hundreds of thousands of pages’ worth of documents to the OAG.

One tactic that the OAG used was to seek, from the court presiding over the subpoena enforcement proceeding, an order tolling the statute of limitations on any possible claims arising from the investigation each time the court extended the time for the client to respond to the subpoena. Adam Leitman Bailey, P.C. ultimately moved to vacate the past tolling orders on the ground that the court could not toll the statute of limitations. There was apparently no caselaw on whether a court could toll the statute of limitations as a condition of extending the time to respond to a subpoena or another discovery demand, but the firm prevailed on that motion, and court vacated its prior tolling orders.

Late in the course of production, the Appellate Division, Third Department held that the NYSHRL’s prohibition of discrimination against persons on the basis of lawful source of income was unconstitutional to the extent that it required landlords to rent to recipients of Section 8 vouchers. This was because regulations of the United States Department of Housing and Urban Development (“HUD”) required landlords accepting payment by Section 8 vouchers to make their properties and records available to search by HUD agents without such agents’ first having obtained a warrant. By requiring landlords to accept Section 8 vouchers, the NYSHRL thus required them to consent to warrantless searches, which violated the Fourth Amendment’s prohibition on searches and seizures without a warrant. This ruling undercut the OAG’s investigation, because it meant that the client could not be held liable for having policies that had a disparate impact on recipients of Section 8 vouchers.

Production by the client was completed a few months ago, and the OAG has not yet brought any claims against the client based on its findings from the investigation. In this instance, Adam Leitman Bailey, P.C. successfully defended its client’s interests before a lawsuit alleging a substantive legal violation could be brought.

Adam Leitman Bailey, Jeffrey R. Metz, and Brandon M. Zlotnick worked on this matter.

The post Adam Leitman Bailey, P.C. Successfully Represents Property Management Company Through Investigation by New York State Attorney General’s Office appeared first on Adam Leitman Bailey Articles.

Adam Leitman Bailey, P.C. successfully represented a longtime client, which manages over properties in Manhattan, during the course of an investigation by the Office of the New York State Attorney General (“OAG”). The client has produced responses to a subpoena served by the OAG in early 2024, and thus far the OAG has not brought any claims against the client based on the investigation.

The OAG had initially investigated, from 2021 to 2023, the landlord of one property managed by the client, for alleged discrimination based on a lawful source of income. One individual, apparently a housing “tester,” contacted a real estate broker whom the landlord had retained, and asked whether the landlord accepted housing subsidy vouchers under the federal Section 8 voucher program (“Section 8”). The broker replied that she did not think so. This was incorrect: the landlord (and the management company) was willing to accept Section 8 voucher holders as tenants, but, due to the high price of the units in the property, the property had rarely had any applicants who were recipients of Section 8 or other housing vouchers, because voucher recipients had insufficient income, even when the vouchers were added, to be able to afford the units in the property.

The New York State Human Rights Law (“NYSHRL”), codified at New York Executive Law § 296, and the New York City Human Rights Law (“NYCHRL”), codified at New York City Administrative Code § 8-107, both prohibit discrimination in housing on the basis of, among other factors, an applicant’s lawful source of income. Thus, for example, a landlord and a property management company in New York City cannot refuse to lease an apartment to a housing applicant on the basis of the tenant’s receiving a housing subsidy, such as Section 8.

Violations of antidiscrimination laws typically can be in two different forms. One is disparate treatment, in which the housing provider discriminates directly based on a factor that it is not permitted to consider. For example, this would be the case if the housing provider outright refused to accept any applications from persons who held Section 8 vouchers. The other form of violation is disparate impact, in which the housing provider bases its decisions on a characteristic that itself is not prohibited from being considered, but that is correlated with a characteristic that cannot be considered, such deciding based on the non-prohibited characteristic has a disparate negative impact on persons who possess the characteristic that cannot be considered, even though the decision is not based directly on that characteristic. One example of disparate impact discrimination, recognized by an early Supreme Court decision interpreting the employment discrimination provisions of the Civil Rights Act of 1964, was an employer’s imposition of a requirement that applicants be college graduates, for a job that primarily involved manual labor.

The client had required that housing applicants either earn an annual income that was forty (40) times the monthly rent for the apartment sought, or, if they did not, provide a person who did meet that requirement as a guarantor of the applicant’s payment of the rent, in order to have their applications considered. This is a standard requirement imposed by landlords and property management companies. However, some recent court decisions at the trial level have found that imposition of a minimum-income requirement for housing applicants constitutes disparate impact discrimination against voucher recipients. The reasoning has been that voucher recipients are likely to have lower incomes than non-voucher recipients, since voucher eligibility is based on not having an income an excess of a maximum amount. Thus, a minimum-income requirement is significantly more likely to exclude a voucher recipient than to exclude a non-voucher recipient.

In the initial investigation by the OAG, the OAG deposed two employees of the client in order to determine whether the landlord had discriminated against applicants who held Section 8 or other government housing vouchers. Adam Leitman Bailey himself defended both depositions on behalf of the client, and the testimony demonstrated that the landlord had not discriminated. The OAG did not bring any claim against the landlord, and the statute of limitations for any claim based on the alleged discrimination against the tester expired years ago.

However, based on that initial allegation, and sporadic other complaints against that and other landlords who also used the client as the management company, the OAG served a subpoena on the client. The initial complaints had included, in addition to alleged discrimination against housing voucher holders, complaints that the client had either not returned a tenant’s security deposits within fourteen days of the tenant’s having moved out of the apartment after the end of the lease term, as required by law, or had not returned the full lease deposit less deductions for repairs of any damage caused by the tenant to the unit. They also featured complaints that the client had sought to enforce a term of the lease that required the tenant to pay to the landlord an amount equal to one month’s rent in the event the tenant provided, fewer than sixty (60) days prior to the end of the lease term, notice of his/her intent not to renew the lease at the end of that lease term (“untimely notice fees”).

The subpoena required production of a huge amount of material by the client, including documentation of the timing of all refunds of security deposits to all tenants, over a five-year period, in ten of the buildings managed by the client; documentation of all instances, over that period and in those buildings, in which all or a portion of the security deposit had not been refunded due to damage caused by the tenant to the apartment; and documentation of all instances in which the client, or a third-party company hired by the client, had sought to collect untimely notice fees; all documentation regarding applications by persons holding governmental housing vouchers; and all documentation involving the application of the client’s minimum-income requirement, or of its requirement that an applicant not meeting such requirement have a guarantor of his/her rent obligations under the lease.

After initial paper production by the client, the OAG insisted upon production of electronic documents as well. The OAG brought a special proceeding in Supreme Court, New York County to compel production of documents by the client. Adam Leitman Bailey, P.C. moved to quash the subpoena on the ground that it represented a fishing expedition, requiring production of a huge number of documents based on a handful of complaints. Supreme Court denied Adam Leitman Bailey, P.C.’s motion, and issued an order compelling the client to produce more documents. Adam Leitman Bailey, P.C. then retained a third-party e-discovery company to collect electronic documents, review them to see whether they fell within the grounds set forth in the subpoena, and produce to the OAG those documents which were responsive. At one point the OAG, frustrated with what it considered the slow pace of production, moved to hold the client in contempt, but Adam Leitman Bailey, P.C. was able to defeat that motion. Ultimately, the client produced hundreds of thousands of pages’ worth of documents to the OAG.

One tactic that the OAG used was to seek, from the court presiding over the subpoena enforcement proceeding, an order tolling the statute of limitations on any possible claims arising from the investigation each time the court extended the time for the client to respond to the subpoena. Adam Leitman Bailey, P.C. ultimately moved to vacate the past tolling orders on the ground that the court could not toll the statute of limitations. There was apparently no caselaw on whether a court could toll the statute of limitations as a condition of extending the time to respond to a subpoena or another discovery demand, but the firm prevailed on that motion, and court vacated its prior tolling orders.

Late in the course of production, the Appellate Division, Third Department held that the NYSHRL’s prohibition of discrimination against persons on the basis of lawful source of income was unconstitutional to the extent that it required landlords to rent to recipients of Section 8 vouchers. This was because regulations of the United States Department of Housing and Urban Development (“HUD”) required landlords accepting payment by Section 8 vouchers to make their properties and records available to search by HUD agents without such agents’ first having obtained a warrant. By requiring landlords to accept Section 8 vouchers, the NYSHRL thus required them to consent to warrantless searches, which violated the Fourth Amendment’s prohibition on searches and seizures without a warrant. This ruling undercut the OAG’s investigation, because it meant that the client could not be held liable for having policies that had a disparate impact on recipients of Section 8 vouchers.

Production by the client was completed a few months ago, and the OAG has not yet brought any claims against the client based on its findings from the investigation. In this instance, Adam Leitman Bailey, P.C. successfully defended its client’s interests before a lawsuit alleging a substantive legal violation could be brought.

Adam Leitman Bailey, Jeffrey R. Metz, and Brandon M. Zlotnick worked on this matter.

The post Adam Leitman Bailey, P.C. Successfully Represents Property Management Company Through Investigation by New York State Attorney General’s Office appeared first on Adam Leitman Bailey Articles.