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Buyers Remorse: Penthouse Plaza Owner Wants $10 Million Deposit Back

Written by Amy Gunderson 09/12/2008
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A Bedroom at the Plaza New York The buyer of two penthouses at the newly renovated New York landmark, the Plaza Hotel, is seeking the return of his $10.7 million deposit. The reason? The quintessential New York apartment beef: Low ceilings and small windows.

The lawsuit alleges that the developer, El-Ad Properties, made design changes to the penthouses that impacted the units’ aesthetics. In addition to the deposit refund, the buyer, a Russian financier, is also seeking a cool $20 million in damages. “We want our deposit back with interest,” said the buyer’s attorney Y. David Scharf, according to the New York Observer. The two penthouses were scooped up for $53.5 million, a price that ranked as one of the most expensive condo sales ever in Manhattan.

The multi-million dollar lawsuit is just one in a string that has been hitting courtrooms recently. Judging by the court’s reaction to these lawsuits, the Plaza buyer may be in for a battle, according to the Wall Street Journal, which recently reported on an increasing number of buyers suing developers for the return of their deposits. The courts are largely siding with the developers. The Journal reported that some two dozen federal lawsuits brought by buyers were recently dismissed by the U.S. District Court in Miami.

Buyers clamoring for deposit refunds is nothing new, of course. As the real estate market tightened, more second home owners and real estate investors who picked up condominiums in preconstruction phases have grown gun shy at the closing table. Some have walked away from tens of thousands of dollars rather than take possession of a unit that may be worth a lot less now, while others are turning to the courts for a solution.

The question is, do these buyers have any case? Buyers trying to avoid closing on a unit often cite that the project has been materially changed from the original plan. This argument doesn’t always hold up. One group of buyers at a Florida project complained that the swimming pool wasn’t as large as expected (the court dismissed those cases), while another buyer sued over a promised marina that never materialized. That case is still in court.

Contracts may have clauses that cover construction delays, and such clauses may allow a buyer to have their deposit refunded if construction goes beyond the promised completion date, but when it comes to details like aesthetics, overall, developers have ensured that their contracts are airtight. The only certainty? If there real estate market continues to contract, there will be even more of these cases ahead.

Reader Feedback

  • From: kathy rTuesday, September, 23, 2008 at 02:16 PM

    we are having terrible water damage in our apartment at the plaza...this is an ongoing problem and we are getting frustrated. pls let me know what attorney has taken care of these other residents for we too, need to junp on board.

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