Court Dismisses Action Brought By Real Estate Lenders and Lien Holders Concerning Allocation Of Building Expenses For Lack Of Standing

Posted: May 12, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Commercial, Motion to Dismiss

Court Dismisses Action Brought By Real Estate Lenders and Lien Holders Concerning Allocation Of Building Expenses For Lack Of Standing

On April 11, 2025, Justice Andrea Masley granted a motion to dismiss an action brought by several lenders and lien holders on real property because their interest in the retail share of the property as collateral, even after a foreclosure and with power of attorney, did not suffice to give them standing. In Wilmington Trust, National Association, et al., v. Board of Managers 229 West 43rd Street Condominium, et al., Index No. 154811/2023, the lender plaintiffs sought a declaratory judgment declaring the allocation of expenses on façade work improper, as well as damages resulting from the allegedly improper allocation. The defendant board of managers moved to dismiss, arguing that the mere holding of promissory notes secured by a mortgage on parts of the property did not give the lenders standing to sue over expense allocation at the time it occurred, even if the lenders had since foreclosed on the collateral and secured power of attorney. The Court granted the motion to dismiss, explaining

On its face, this is an action to determine the Retail Owner’s share of the Local Law 11 façade work expenses and for the return of the alleged overpayment. The obligation to pay common expenses is a covenant “touching and concerning the land and thus run with the land.” . . . Admittedly, however, when this action was filed, the Lenders were not the retail unit owners; the Lenders merely held a lien on the Property, including the retail unit (see NYSCEF 20, Mortgage ¶ 1.01), as well as an assignment of leases, rents, and related property. (NYSCEF 21, Assignment ¶ 1.1.) Indeed, the Lenders acknowledge that “[a] justiciable controversy exists between the Board and Lender, on behalf of the Retail Unit, as to the method of allocation of General Common Charges for the Local Law 11 work on the façade.” (NYSCEF 1, VC ¶ 61 [emphasis added].) The Lenders point to no provisions in the Mortgage or the Assignment vesting the Lenders, as mere lienholders, with any interest in the determination of the proper expense allocation method. Thus, at the time this action was filed, the Lenders had no standing in this dispute over the proper method of allocation of Local Law 11 work expenses between the two condominium units. . . . Accepting as true, without deciding, the proposition that Wilmington Trust, as trustee, for the benefit of 2016-CD2 Trust Certificate Holders, can bring this action in its own name pursuant to the power of attorney, the condominium’s declaration bars any actions against the Board by any party other than a unit owner. . . . The power of attorney does not overcome this bar.

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