River House not sure of next legal maneuver

June 27, 2009
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The lack of attention to a simple contractual detail may become costly for the developer of River House condominiums, a detail the judge said a law clerk could have handled.

A legal decision made last week could cost Bridgewater Condos LC, the development company of the River House owned by Robert Grooters, up to $7 million in sales revenue and deposit refunds. The decision can be appealed to the state Court of Appeals, but the development firm hadn’t decided whether it will take that action.

“We are still consulting with our attorneys,” said Kristen Myers-Chatman, director of marketing for River House, a tower of residential condominiums at 335 Bridge St. NW.

Whether or not the ruling is appealed, Myers-Chatman said the sales effort will continue.

“We’re making every effort to keep the level of interest in our building strong, keeping traffic up and going along with business as usual. So we’re staying positive and moving forward to the best of our ability,” she said.

Circuit Court Judge Donald Johnston granted the defendants’ motion to dismiss 15 of the lawsuits brought by Bridgewater Condos because the firm did not fully comply with a portion of the state’s condominium act, a 1978 statute. The law requires that a purchase agreement contain the name and address of the escrow agent, but the agreements Bridgewater Condos had drawn up contained only the name of the agent: Metropolitan Title Co.

Gary Schenk, a partner at Schenk, Boncher & Rypma PC and lead attorney for Bridgewater Condos, argued that the escrow agent’s name and address were clearly visible in the disclosure statement, which every buyer received as part of the purchase package they were given, so they had the address.

Schenk also said each buyer said they understood the details of the transactions and the commitments they were making.

“Now, two-and-a-half to three years later, because somebody has a smart lawyer, they say they don’t want these condos,” said Schenk.

Although Johnston sympathized with Schenk’s argument, he said the disclosure statement did not qualify as an agreement. He also said he lacked the power to change the law, and then granted the defendants’ motion for summary disposition.

“The purchase agreement did not include the name and address of the escrow agent,” said the judge. “There isn’t a whole lot of doubt as to what the law requires, and there isn’t a whole lot of doubt that the purchase agreement doesn’t comply with what the law requires.”

The decision means Bridgewater Condos will have to refund the buyers’ down payments and the buyers do not have to close on the condominiums.

Tom Kuiper, a partner at Kuiper Orlebeke PC and the attorney for 11 of the 15 buyers, estimated the decision will cost the development firm from $5 million to $7 million in sales revenue and another $200,000 to $250,000 in deposit refunds.

Kuiper said he expected Bridgewater Condos would appeal the court’s decision with so much at stake for the $80 million development.

“I think ultimately the Court of Appeals will uphold what Judge Johnston decided, because he followed the correct approach and he took a very textualist approach. He said the Legislature has detailed exactly what a purchase agreement is supposed to contain, and in this case it didn’t, so the buyers weren’t protected,” he said.

“If the buyers aren’t protected and the act isn’t complied with, there is a remedy. And the remedy is the developer gets the units back. He can sell them, but we don’t have to buy them,” he added.

Schenk told Johnston it was only after the housing market collapsed that the buyers began balking about closing on their units and didn’t contact management at River House.

“There is truth to that because that wasn’t a focus for a lot of the buyers. What’s not true is a lot of the buyers didn’t talk to Mr. Grooters about wanting out of the agreements. They talked to him for many, many months. Most of the buyers even offered to let him keep the money they put down and he said, ‘no,’” said Kuiper.

“That’s where the buyers really were forced into having to defend and take the approach that we didn’t want to get here, we didn’t want to litigate, but if you force us to do this then let’s look at the act in your own documents. The documents that your lawyers prepared don’t comply with the act, and if you didn’t follow the law, you can’t seek the relief of the law. And that’s ultimately what the judge held,” he added.

Bridgewater Condos sued 36 buyers beginning in January because they signed purchase agreements to buy units in River House but then refused to close on the deals. Four have either closed on their condos or made other arrangements with the firm. Myers-Chatman said she was working on a resolution with two other buyers

“Everyone is fearful of this market and that is why we are where we are. But there have been some that have come to the table to close. There have been some that we knew couldn’t. The whole purpose of filing the suits to begin with was to truly determine who could close,” said Myers-Chatman.

Myers-Chatman said 66 of the condominiums had been sold as of last week and there was a possibility that two more would be sold before the week was over.

“There is no project in this community that has closed on 66 homes — that I’m aware of — in a matter of nine months. That’s a good thing. We’ve got over 100 people living in the building now,” she said.

Section 84 of the condominium act, Public Act 59 of 1978, lists what must be included in a purchase agreement. It clearly states “the statement shall include the name and address of the escrow agent.”

Johnston told Schenk that whoever wrote the purchase agreement should have followed the statute and checked the items as each one was completed. “Wouldn’t it have been a good idea to open the statute and follow it?” Johnston said. “A law clerk could have done that.”

Varnum, the legal counsel for Bridgewater Condos, wrote the purchase agreement.

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