Owners of Residential Units in Luxury Condominium Were Third-Party Beneficiaries of Clause in Ground Lease Concerning Quality of Hotel To Be Operated on Lower Floors of Building

On August 5, 2021, the First Department issued a decision in Residential Board of Millennium Point v. Condominium Board of Millennium Point, 2021 NY Slip Op 04649, holding that owners of residential units in a condominium were intended third-party beneficiaries of a ground lease between Hugh L. Carey Battery Park City Authority as landlord and the building’s sponsor as tenant, because a clause in the ground lease providing for the quality of the hotel to be operated in the building to meet a particular standard was intended for the benefit of the building’s residential owners, explaining:

[P]laintiffs are intended third-party beneficiaries of the ground lease. The circumstances indicate that the original parties to the ground lease, BPCA and the Sponsor, intended to give plaintiffs the benefit of Millennium BPC’s promise that the commercial unit of the condominium would be operated only as a hotel with the highest rating by a nationally recognized hotel rating service under a nationally recognized brand, flag, or franchise that was equal to or better than the standards set forth in the Hotel Operator Management Agreement between Millennium BPC and nonparty Ritz-Carlton Hotel Company, L.L.C. (see generally Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., 66 NY2d 38, 44 [1985]). Inasmuch as the availability of the services provided by a first-class hotel to the residential unit owners “affect[s] a condominium unit owner's standards of living and ability to sell,” the unit owners are intended rather than incidental beneficiaries (Board of Mgrs. of Astor Terrace Condominium v. Schuman, Lichtenstein, Claman & Efron, 183 AD2d 488, 489 [1st Dept 1992]).

Generally, parties may sue for breach of a contract only if they were party to that contract. But an exception exists when that party was an intended third-party beneficiary of the contract.

The attorneys at Schlam Stone & Dolan LLP frequently litigate disputes concerning whether a party is a third-party beneficiary under a contract. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning whether a party has rights under a contract to which it is not a party.