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Posted: January 21, 2014

Condominium Owners not Third-Party Beneficiaries of Contract Between Sponsor and Architect

On January 6, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Board of Managers of the 125 North 10th Condominium v. 125 North 10, LLC, 2014 NY Slip Op. 50035(U), dismissing a claim by condominium owners for breach of a contract between the building sponsor and an architect.

In Board of Managers of the 125 North 10th Condominium, the plaintiff board of managers of a condominium brought claims against a variety of defendants relating to the “design and construction of” a “luxury condominium” building in Brooklyn. Among the claims was a breach of contract claim against one of the building’s architects based on the theory that the condominium owners were third-party beneficiaries of the contract between the sponsor and the architect. The court dismissed the claim, explaining:

It is well established that if a party is not in privity with a defendant, a viable cause of action for breach of contract exists only if the party was an intended third-party beneficiary of the contract. Nonparty enforcement of a contractual promise is limited to an “intended” as contrasted with an “incidental” beneficiary. One is an intended beneficiary if one’s right to performance is appropriate to effectuate the intention of the parties’ to the contract and either the performance will satisfy a money debt obligation of the promisee to the beneficiary or the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

Absent evidence of an express intent to benefit a plaintiff, a plaintiff who purchases a condominium unit is merely an incidental third-party beneficiary to the contracts between the sponsor and service providers which participated in the development of the condominium and, thus, has no standing to bring a breach of contract claim against such contractors. As articulated in Lake Placid, that a developer had in mind the normal business motive to obtain a construction product of sufficient quality for ready marketability of the condominium units to potential customers is clearly not a basis from which to infer the requisite intent of the developer to bestow performance benefits upon the purchasers of the condominium units.

(Internal quotations and citations omitted) (emphasis added).

This decision highlights the distinction between persons who benefit–often in obvious and intended ways–from a contract and the persons who meet the narrow legal definition of third-party beneficiaries. This is a distinction counsel should keep in mind both in drafting contracts and in litigating contract claims.

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