A New Jersey couple has been awarded more than $381,000 in a trial over a land deal where they lost money because a real estate cooperative’s Board of Directors decided not to inform them that the property lacked the required permits for building.

In Travers v. Edgewater Colony Inc. and the Board of Directors of Edgewater Colony Inc., New Jersey Superior Court Judge Alexander H. Carver III in Bergen County awarded the plaintiffs $381,229 plus interest and costs, finding that the defendants committed fraud, breach of fiduciary duty and negligent misrepresentation. The verdict followed a three-week trial in which the plaintiffs were represented by Jason T. Shafron, Partner in Archer & Greiner’s office in Hackensack, N.J.

Edgewater Colony, a development of luxury homes along the Hudson River in the Borough of Edgewater, is owned by Edgewater Colony Inc. The corporation operates as a cooperative and is governed by a Board of Directors, which had to approve any prospective buyer’s purchase of rights to use the land, in the form of a share of stock. The Board also acted as a land use board that had to approve construction on any vacant plots as well as any substantial renovation of existing homes. Historically, once the Board approved, construction could begin.

In 2003, the plaintiffs, who owned the share of stock for a home at the Colony, arranged to purchase another share of stock for a vacant plot, which the Board had approved for home construction. The plaintiffs intended to re-sell the stock at a profit to another family that planned to build a home.

But prior to the plaintiffs’ purchase and unbeknownst to them, the New Jersey Department of Environmental Protection (DEP) informed the Board of a change in policy: no further building could take place at the Colony without a state waterfront development permit (WDP) for each project – an approval contingent on installation of a multi-million dollar sewer system to serve the entire development. Unable to secure a construction permit due to the lack of a WDP, the prospective buyers terminated the purchase agreement with the Travers. It would be nearly six years before the plaintiffs could complete a sale, and then only at a drastically lower price.

Mr. Shafron demonstrated at trial that the Board knew of the DEP’s policy change in February 2004 and, in fact, discussed it and voted not to inform the approximately 100 other shareholders, including the Travers. Ruling that the “Defendants clearly and convincingly acted unreasonably and in bad faith and in fact conspired to withhold critical information from the Colony shareholders, including the Travers,” the Court awarded damages based on mortgage interest and maintenance fees paid as well as profit lost due to the failed transaction.

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