Material defect and breach of contract?

Asked by K. Allison, Hoboken, NJ Fri Feb 20, 2009

If a building's documented electrical problem was not revealed to me before I ever went to contract and now, as the new owner of this unit in a condo conversion building, I am being asked to pay for a substantial part of the amperage upgrade (there are only 4 owners in an 8-unit building) in order to make the slightest renovation (like grounding outlets!!) in my condo, what is my recourse? I never would have bought the unit or at the price I paid had I known. I consider it a material defect and can prove the owner was made aware of the issue and the town asked for remedy before I ever went to contract.

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Gilli Axel, Agent, Jersey City, NJ
Sun Feb 22, 2009
No secrets just difficult to provide valuable feedback without knowing the entire story but I will take a crack at it. I do have several years of experience as an engineering consultant designing mostly commercial high-rise building infrastructure in Manhattan. Maybe more applicable to this situation is my experience as the developer of small condominium projects in the area.

It is unclear wether the previous owner did any renovations requiring permits or approvals from the building department or not. In the event that there were such renovations it is more likely that upgrades such as an increase of electrical service were specified by the architect and/or required by the construction official. Therefore it seems he did not.

This particular building appears to be a condo conversion in the simplest form where it is just a change in the form of ownership from a single owner of a multi-unit building to multiple owners of condominium units in a single building, no construction or renovations.

It is rare that the city forces a property owner to make standalone upgrades unless it is a life safety issue. They will however tie such requests in as a condition that has to be met in order to obtain permit or project approvals. In the absence of this 'fair trade' property owners often elect to defer these capital improvement projects.

This is the situation our friend K. Allison is faced with. The approval for the permit is being tied to the construction officials request for an upgrade in electrical service. The city will not approve one without the other and the upgrade of service is a high-cost item.

I would keep in mind that common building infrastructure assessments are the responsibility of all the condo owners based on the percentage ownership as detailed in the bylaws of the condo association, this includes the individual or entity owning 4 units (about 40% of the building) and it also includes the owner of the commercial space (probably more than 20% of the building). So the cost for the upgrade if necessary and required should be shared by all owners based on their percentage interest in the building and not equally among 4 owners. If my guesstimates are correct you should be responsible for about 10%, check the bylaws.

Furthermore, you should investigate into how much power the commercial tenant is drawing. With a commercial tenant there should be a cap on the electrical demand and it should be written into the lease. Now that this is a commercial condo unit it should also be written into the bylaws. If the occupant of the commercial space exceeds the budgeted demand they should be required to generate the necessary overage onsite or make arrangements with the local utility to provide more capacity.

I believe all units in a condo conversion project should be brought up to local and International Building Code under the guidelines for existing construction and inspected by local officials. It's just the cost of doing business and if the owner is not willing or prepared to do this then the building should be sold as a single property not condos. That's just my opinion.

However, this same situation could still have occurred even if the conversion was done several years ago and several owners past. That's why it is so important to understand the condition of the systems and infrastructure of the building because this is the only way to know the value of the property outside of the value associated with the land and that bundle of rights.

I am fortunate in this sense to have a technical background and have been able to steer unsuspecting friends and clients away from or at least identify such land mines.

Keep us posted.

1 vote
William Leigh…, , New Jersey
Mon Feb 23, 2009
K. Allison: Mr. Ma has come through in elegant fashion! I gave his second answer a thumbs up. The bottom line, in this case and EVERY case is simply CAVEAT EMPTOR (Let the buyer beware.) Just as in buying a horse, one MUST be a good judge of horseflesh or get the advice of one who is. There is no consumer protection from poor decisions based on lack of knowledge and there are no "take backs," unless you can prove prior knowledge of latent (hidden) conditions that would lead the purchaser into buying something different than what was stated.

I hope that your electrical upgrade ends up being shared and that your total project bill is within your budget.

An aside to Mr. Ma: Thank for expanding your answer. We have all learned some very valuable information from you.
0 votes
Bill Eckler, Agent, Venice, FL
Mon Feb 23, 2009

We would agree with the common thread being presented by the Trulia Pros. This is the importance of understanding, that if you feel you have been taken advantage of, it would be in your best interests to seek the advice of a real estate attorney.

Good luck
0 votes
William Leigh…, , New Jersey
Fri Feb 20, 2009
K. Allison: I'm sorry that you were sort of lead down the garden path, as it were. In point of fact, ANY contract negotiation will contains a lot of "give and take." In this case, the seller blustered his way into getting you to accept the condition of the building. You could have got him to fix the problem or walked away

I do sell properties badly in need of repairs all the time when I represent a repossessor. They rarely fix anything and it's quite all right because the buyer understands this is exactly where he/she stands and usually knows the cost of the fixes (at least in broad terms.) If you did not have your own buyer's agent, the seller's agent or disclosed dual agent was only doing his/her job by telling you what the seller wished to give you in the sale. I don't think that that is a "dirty little secret." Brand new construction is usually sold with the builder's guarantees. Resales are ALL as-is, excepting for agreed upon repairs. If you had a buyer's agent they should have told you that you could at least ask the seller to fix the electric. but in the ultimate, it was your decision to buy the place with at least a cloud over it that you had discovered. I do note that you were indeed aware that something was up. The best way for you to have handled it was for you to get a good estimate of the work needed before you invested in such a major purchase.

There is an issue of what kind of CO was obtained and what was the staus of the construction permit. That might add weight to your arument that you are owed something. Don't expect that city hall will gladly admit that they allowed substandard housing to be sold though, that might take a bit of prying, as in pulling teeth out kind of prying.

At this point, this being a legal issue of who shot John and when and where and the party of the first part etc., etc. and realtors not being licensed to advise on legal matters, there is little we can offer.

While Mr. Ma seems to have some secret information that he will not share with all of us, you may wish to see how valuable it is. Still, unless he is either a licensed engineer or electrician or an attorney, I don’t see how he can offer much. I know that, even if I were licensed in any of these fields, I'd say nothing without reviewing the physical situation and the exact wording of the contract and the reports you received.

Please keep in mind that most Realtors are hired to represent a client and that they are not, unless dual agents, even allowed to represent the other side. This, of course does not mean that they are allowed to participate in criminal activity or fraud.

Again, best of luck.
0 votes
K. Allison, Home Buyer, Hoboken, NJ
Fri Feb 20, 2009
Already got some good feedback, so I thank all of you. I brought this to the site because it is something nobody seems to talk about in real estate circles. It's a dirty little secret that first-time buyers need to know about and be aware of. And for buyers to have faith in real estate professionals, they need to know that those professionals will actually engage in a discussion of ithe unsavory part of the biz and help them understand what questions to ask before purchase. I couldn't find one conversation about this exact thing on the site. Though I am in good standing financially, some folks come to this site for info who may not have the legal/$$ means to know better.
0 votes
Gilli Axel, Agent, Jersey City, NJ
Fri Feb 20, 2009
Dear K. Allison,

I'm sure you were already aware that attorneys handle legal matters. Perhaps you would have already hired a legal team if you were inclined to throw money at all of your problems. If money wasn't an issue maybe you would just pay the entire electrical assessment for the whole building out of good will.

In reality maybe you reached out to this forum in the hopes that you might receive some valuable insight to your situation based on the knowledge and experience of its members. In so doing you might obtain the material basis for your arguments enabling you to approach the other parties involved regarding this matter.

I wouldn't mind taking a few extra moments to understand your situation if it might help you to resolve your issue. Please feel free to contact me directly for advice or local references in your efforts to resolve your problem.

0 votes
K. Allison, Home Buyer, Hoboken, NJ
Fri Feb 20, 2009
I did have a home inspection and poor electrical outlets were noted, lack of grounding, etc. I requested they be fixed before close and the owner rejected it because I was buying "as is." At the time, that was not unusual. Knowing what I know now, it's garbage. Under NJ law, "as is" pertains to the unit - not the building - and supersedes anything the owner puts in the contract to remove culpability, as I understand it.

I discovered the problem when my contractor was denied an electrical permit to do the most basic work - renovate my bathroom and ground/add some outlets. He was not looking to increase the 60 amps. Turns out the city had asked the owner to upgrade the entire building's amerpage. The first person who had attempted renovations that included amerpage increase from 60 to 100 discovered she couldn't, alerted the owner, commissioned an electrical engineer report when the owner nastily told her to "deal with it", and discovered the buidling - due to to heavy use by commercial properties on the ground - was woefully low on amerpage and in danger of brownouts and other problems. She made the owner, his agent and the city aware of the report findings. The owner refused to do any upgrade despite the city's request and continued on to sell me the unit. He must sell four more. I sit here, unable to get a permit to do the most basic work or increase the value of my home, and feel I have therefore lost the entire value of my place. It could be years before the other units sell and to fix it..and to ask just four unit owners to pay for a $20-30K upgrade is robbery. I will pursue it heavily with my lawyer.
0 votes
William Leigh…, , New Jersey
Fri Feb 20, 2009
K. Allison: Whenever you feel that you have been defrauded in a contract, and that's the impression I get, your ONLY two responses are:
1. Talk to the defrauder and his agent to try to get them to voluntarily make you whole. If you can make a deal, that's the fastest and easiest way to get to where you want to be.
2. Consult an attorney. This may cost you up front and may cost more than the fix of the problem but getting an attorney to write a letter should not be too expensive and will put the defrauder and his agent on notice, forcing them to also think about avoiding legal expense. This would be especially true if you were to ask for your legal costs in addition to the cost to fix the problem.

Realtors can't practice law. If you had a buyer's agent, they might make a call to the selling agent for you in pursuit of option 1 but that's as far as we Realtors should go.

You've been asked by others (and I do not think that they were attorneys) about what you coulda, shoulda, woulda done when you bought the place. Frankly, a known concealed defect is a fraud, regardless of all that. Other actions might have helped you avoid the problem but the lack of proper electrical installation may not have been detectable in the kind of inspection that you would most likely have had. It’s a secondary issue and I would not let that stop my pursuit of appropriate recompense.

Lots of luck.
0 votes
Gilli Axel, Agent, Jersey City, NJ
Fri Feb 20, 2009
Hi K,

I'm sorry to hear about to your unfortunate circumstance. Please answer a few questions to provide a better picture of your situation:

1. Where you a tenant in the building before you purchased this unit?
1a. If yes, was the power sufficient and working properly before your purchase?
2. Who owns the other 4 units?
3. Is the electrical service up to code?
4. Why is the upgrade of sevice being requested?
5. Did you order a home inpsection before purchasing the unit?

0 votes
Walter Burns, Agent, Hoboken, NJ
Fri Feb 20, 2009
K. Allison,

My first question would be, did you conduct a home inspection on the condo prior to purchasing it? If you did, see if the inspector noted the electrical issue in the report. Some inspection companies have a guarantee that if they failed to recognize the defect, they will pay for it. Contracts of sale have a home inspection clause in there if the buyer chooses to conduct one, however sellers are not obligated to fix any issues unless they agree to it. Most contracts state that properties are sold in "as is" condition.

The next step I would do is to speak with your lawyer who did the closing and see if they think you have any legal recourse against the seller or inspection company. Your lawyer would the best person to tell you if this situation would be a material defect or breach of contract.

On ground up new construction there is a 10 year home owner's warranty through the State of NJ that covers these kinds of defects. It sounds like your unit is not new construction, therefore this warranty would not apply.

Please let me know if you have any additional questions.


Walter J. Burns
Weichert Realtors
1 Newark St.
Hoboken, NJ 07030
201-653-8488 Ext: 230
201-694-8946 Mobile
201-653-4154 Fax
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