As a reminder of the many and varied paths of law and law practice, here is a quote from today’s NYLJ Outside Counsel Column, written by T. James Bryan, of Herrick Feinstein. He discusses an arcane area of tax law coupled with condo sales.

The bottom line? Legal malpractice.

“You are asked to represent a purchaser of a condominium unit in a building that was recently converted into a condominium. The building was a commercial building before the sponsor purchased it for the purpose of converting it into residential use.

The building, a ministorage facility, was purchased by the sponsor on or about June 10, 1998. The sponsor rehabilitated the building for residential use and filed an offering plan with the attorney general to sell condominium units in the building. This offering plan was accepted for filing by the attorney general on Jan. 31, 2000. The closings for sales of the units did not start until sometime after May 11, 2001. Your client closed on the purchase of her unit in August 2001.

So far, nothing unusual. You agree to a standard fee of between $1,500 and $2,000 for your services. As part of your due diligence, you read the offering plan that was approved by the attorney general a year before, and a title report that you carefully scrutinized.

Everything appears in order and your client closes on the purchase of her unit. One year after the August 2001 closing, your client calls you and, in a distressed (perhaps hostile) tone, tells you that she has just been received a tax bill from the city of New York (the July 1, 2002 tax bill for 2002-’03) for her share of $338,339 in “deferred taxes.” The title report made no mention of “deferred taxes.” Nothing in the offering plan indicated or even hinted at such a potential liability.

‘7 Vestry LLC v. N.Y.C. Dept. of Finance’

According to a recent decision of the Appellate Division, First Department, you did not do your job. 7 Vestry LLC v. New York City Dept. of Finance, 22 AD3d 174, 800 N.Y.S.2d 398 (1st Dept. 2005), appeal denied, 2006 N.Y.App. LEXIS 596 (lst Dept. Jan. 19, 2006).

You should have examined the July 1, 2000 bill rendered to sponsor, and have seen a notation on that bill indicating that $6,046 of that bill was noted as being for “ICIP DEFERRED.” From this, you should have realized that your client would be liable for paying taxes that otherwise would have been paid by an owner of the building that was sold to the sponsor and converted from commercial to residential use. The court said that:

The individual unit owners had constructive notice [of their future tax liability] because a prudent purchaser would have scrutinized the tax bills for the current year and years prior to the purchase date and would have seen the ICIP deferral notation in 2000 and investigated further. Each purchaser who purchased his/her unit after the July 1, 2000 tax bill took title subject to the tax lien created by the ICIP tax deferral repayment requirement, which lien is enforceable against that purchaser. Id. at 184.

You never thought, as part of your due diligence, to ask for the July 1, 2000 tax bill since the offering plan contained the total taxes for 1999-’00 and 2000-’01, and made no mention that a portion of the 2000-’01 bill was for “deferred ICIP taxes.”