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Terrace Condominium Association v. Midlantic National Bank

Decided: July 19, 1993.

THE TERRACE CONDOMINIUM ASSOCIATION, PLAINTIFF,
v.
MIDLANTIC NATIONAL BANK, DEFENDANT



Kole, J.A.D., retired and temporarily assigned on recall.

Kole

Plaintiff, Terrace Condominium Association, (the "Association"), is a not for profit corporation of the State of New Jersey, formed to administer, manage and operate the common affairs of the unit owners of the residential condominium known as "The Terrace," and to maintain, repair and replace the common elements and limited common elements of said condominium.

On September 10, 1982, with about $1,000,000 worth of construction yet to be completed, the original builder of The Terrace gave a deed in lieu of foreclosure to its construction mortgagee, Midlantic National Bank/Citizens. Through subsequent name change and merger, Midlantic National Bank/Citizens is now known as the defendant, Midlantic National Bank ("Midlantic").

Subsequent to attaining ownership of the partially completed project, Midlantic represented to the public that it had assumed sponsorship of the condominium and had undertaken all responsibilities related to the construction of the condominium and the marketing of the residential condominium units. Thus, the master deed for The Terrace, as recorded by Midlantic, represents that,

as sponsor of the condominium, Midlantic intends to construct twelve condominium units, together with certain roads, driveways, and other improvements; and for purposes of the new home warranty and Builders' Registration Act (N.J.S.A. 46:3B-1 to -20.), apparently Midlantic registered with the Department of Community Affairs as a "builder," or successor to the developer, rather than as a mortgagee in possession. See Central Heights Condominium Ass'n v. Little Falls Savings & Loan Ass'n, 251 N.J. Super. 335, 598 A.2d 233 (App.Div.1991).

Although some condominium units had already been sold, Midlantic engaged in construction. It remained in control of the Association until at least April of 1985. At that time, Midlantic was still the owner of a number of the condominium units, at least one unit of which was not in occupiable condition when primary construction was completed in 1986. Midlantic incurred about $1,000,000 in construction costs to complete The Terrace.

Located in the Borough of Fort Lee, The Terrace comprises 12 condominium units on 6 residential floors. Constructed and marketed as a luxury condominium, The Terrace boasted such amenities as working fireplaces, "Kohler environments," "talking elevators," extensive balconies, glassed-in rooms and panoramic views of New York City.

Since The Terrace was first occupied in 1986, its residents have been beset with a number of problems. Included among such problems is substantial water infiltration into and water damage in the condominium units, in the limited common elements, and in the common elements. In addition, terrace surfaces have manifested construction defects, and the fireplaces have been inoperable without creating smoke conditions in other units of the building. Such problems were brought to Midlantic's attention by the Association. The Association hired a firm of engineering consultants, Kipcon Inc., to prepare a report which would analyze the problems. This report was completed in February of 1987, and the Association gave it to Midlantic.

Midlantic endeavored to meet the Association's complaints and remedy the foregoing problems until late 1988 or early 1989. It used the Kipcon report supplied to it by the Association as a guide to the defects requiring remediation. The primary concern was with complaints of leaking at the windows and terraces on the upper floors and water seepage in the exterior walls. The work that Midlantic thus performed at The Terrace was with the asserted purpose of remedying the foregoing problems. However, although performed as a good faith remedial endeavor, much of the work consisted of short-lived or improper repairs to the most significant of the above problems and generally had the effect of concealing the true causes of the problems. Midlantic's failure to properly correct many of the condominium's construction defects adversely affected the habitability of the condominium, including its common elements and limited common elements. Furthermore, in many respects, Midlantic misconceived its duty to repair as one of maintenance for a limited period of time, thereby placing the onus of the expense of repair on the Association.

In or about the end of 1988 or early 1989, Midlantic ceased all remedial activity at The Terrace without fully curing the problem areas. Shortly after Midlantic ceased making repairs, the Association commissioned and paid for various professional studies in an attempt to identify the causes of the problems and their most reasonable remedies.

These studies revealed that many of the problems at The Terrace were the result of various patent and latent defects, both structural and otherwise, in and about the condominium units, limited common elements and common elements. All of these defects were caused by improper workmanship and the use of substandard (and, in some instances, missing) materials in the construction of the building project.

I find that the Association demonstrated the specific construction defects and associated costs of remediation which follow. I further find that the stated remedies for these defects are necessary and that the indicated costs thereof are reasonable. [The

court discussed each defect and the reasonable cost of remediation.]

All of the defects, representing $157,300 in curative costs, are the result of inferior workmanship and materials in the construction of The Terrace. Moreover, essentially all of such defects adversely affect the habitability of the premises, particularly in light of the fact that each unit was marketed as a luxury condominium.

In effecting in good faith what it deemed to be the remedial work required in order to satisfy the Association's complaints, Midlantic spent somewhat in excess of $78,000. Although such work did not fully correct all of the defects, some of it did ameliorate the problems involved and was of benefit to the Association. Cf. Saint Barnabas Medical Center v. Essex County, 111 N.J. 67, 79-80, 543 A.2d 34 (1989); Power-Matics, Inc. v. Ligotti, 79 N.J. Super. 294, 305-07, 191 A.2d 483 (App.Div.1963). Indeed, the Association's expert witness Gehorsam indicated as much, at least as to the parapets.

After considering the evidence relating to its repair work, I am satisfied that Midlantic has conferred a benefit on the Association to the extent of $25,000.

Midlantic contends that since the unit owners purchased their condominiums at what it considers bargain prices, plaintiff can not claim that the unit owners bought with the expectation that they would be in a luxury building. But the fact is that the units were sold by Midlantic as luxury apartments with the concomitant amenities. In any event, in view of the foregoing defects, it cannot be said that the purchasers are attempting to upgrade their purchase at Midlantic's expense.

The defendant, as the developer, sponsor, and builder of The Terrace, had an obligation to construct the condominium so that it would be of reasonable workmanship and be fit for its particular use: ...


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