First published: Jan 2025
Alteration Agreement To The Rescue
TAKEAWAY This case demonstrates how a well-crafted alteration agreement can protect a cooperative or condominium from legal liability and costs of defense when, as happens frequently enough, an apartment renovation is unsuccessful. Here, the shareholder’s duty to indemnify and hold the cooperative harmless for work performed by her contractor shielded the board in the absence of insurance. Where was the insurance? The alteration agreement explicitly required the shareholder to produce the contractor’s certificates for $1 million in liability insurance and $500,000 workmen’s compensation insurance naming the cooperative, management, and the shareholders as additional insureds. Unfortunately, property manager Douglas Elliman claimed – suspiciously, according to Mandracchia – that the certificates were lost and could not be located. In any event, boards should have their alteration agreement forms reviewed by counsel, especially if such a review has not been conducted recently, to ensure that the alteration agreement contains appropriate protection for the building and the board and incorporates current developments in the law.
MANDRACCHIA V. RENOVATE-CREATE SOURCING AND PROCUREMENT CORP.
WHAT HAPPENED In 2013, Martine Mandracchia entered into an alteration agreement for a gut renovation of her co-op apartment at 405 East 63rd Street. She hired an architect to develop a renovation plan and submitted the plan to the cooperative, management, and the cooperative’s architect. It took three years of several rounds of comments and revisions before the plans were finally approved, and Ms. Mandracchia hired a general contractor and principal to supervise the project who were recommended by the co-op’s board president. Renovation began in March 2016 and was estimated to be completed in three months.
More than a year later, however, the project was still ongoing and, it turns out, the contractors did subpar work. Ms. Mandracchia claims the apartment was unlivable and unsellable, forcing her to vacate for two years. In 2019 she sued to recover monetary damages as a result of the allegedly substandard renovation done to the apartment and the fact that the board president didn’t tell her the contractors were not licensed to perform contracting work in the city and didn’t have insurance.
The trial court granted summary judgment to the cooperative, the managing agent, and the cooperative’s architect, dismissing the plaintiff’s claims under Multiple Dwelling Law §78, for breach of fiduciary duty, and for negligence. Ms. Mandracchia appealed.
IN COURT The Appellate Division affirmed the dismissal of her claims. She alleged that the cooperative and its managing agent had violated Multiple Dwelling Law §78 by failing to keep the apartment in good repair. The court said that while an owner’s duty under Multiple Dwelling Law §78 to maintain the premises in good repair can’t be delegated, here she, herself, assumed contractual responsibility for the renovations and damages caused by her contractors. The court also said that a Multiple Dwelling Law §78 claim against the cooperative defendants could not be maintained for damages caused by her own renovations.
The plaintiff alleged that the managing agent, Douglas Elliman, breached its fiduciary duty to her by signing off on defective construction work and failing to notify the plaintiff that the contractors were unlicensed. The court disagreed and said that nothing in the record indicated any breach of duty by the managing agent relating to the plaintiff’s retention of the contractors or in Douglas Elliman’s limited oversight of the renovation work, which was restricted to code compliance. In addition, the evidence showed that the cooperative did not require general contractors to provide proof of licensing.
The court also said that the cooperative was properly awarded summary judgment on its counterclaim for attorneys’ fees based on the indemnification provision of the alteration agreement. The court said such indemnification was appropriate because the record demonstrated that the damage to the apartment was caused solely by Ms.Mandracchia's contractors.
The court also said that the claim for negligence against the cooperative’s architect was properly dismissed because the record did not show a relationship between the plaintiff and the architect that was the functional equivalent of privity, or that the architect had sufficient control and authority over the project to support a duty of care to the plaintiff.
