Case Notes
Case Notes provides insight on one particularly relevant co-op or condo case—clearly explaining what happened, why it’s important, and what lessons can be learned within.
Category
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First published: Jul 2017
Kikis v. 1045 Owners Corp.This case involved a situation where the board asserted that it had a policy in place concerning home equity loans, but the policy did not appear in the proprietary lease or bylaws. If a board resolution was passed, it was very recent. While it is difficult to determine from the decision, it appears as if the form purchase application distributed by the managing agent advised purchasers that HELOCs could not be secured by the shares. In any event, the case raises the question of whether a board can promulgate and enforce a policy even if it is not in the governing documents or house rules. Although the court did not cite or reference the proprietary lease or bylaws, we must presume that the policy did not violate any specific provisions of the documents. Accordingly, the court found that the policy – which was consistently applied to all shareholders – would be upheld in accordance with the Business Judgment Rule. This is consistent with a number of other post-Levandusky cases that have refused to interfere with decisions of boards provided the shareholder did not demonstrate that the board acted beyond its authority or in a way that did not further the co-op’s legitimate purpose or in bad faith. It is also consistent with a pre-Levandusky case reported in this column in the July/August 1985 edition of Habitat. There, we discussed Browne v. 930 Fifth Corporation, where a shareholder wanted to use his shares to secure a loan to purchase real estate in Westchester County. The board refused to sign a recognition agreement, and the shareholder sued. Consistent with the later decision in Kikis, the court dismissed Browne’s complaint as the co-op was not required to execute the recognition agreement. Kikis also reminds us that cases will not be sustained against individual board members absent a showing, with specific allegations, that they committed a tort separate and independent from any action they may have taken in their capacity as board members.
Read full articleFirst published: Jul 2017
Coliseum Tenants Corp. v. BenmarkThis case is an important reminder to purchasers: always do your due diligence. Purchasers may want to review DOB records and have their lawyer get as much information as possible from the managing agent – not just what can be gleaned from board minutes. If a purchaser suspects an alteration may have been performed without appropriate permits and sign-offs, it would be prudent to obtain from the cooperative written confirmation that the alteration work was done with consent, or an indemnity from the seller, should an issue involving a previous alteration arise. Further, this case highlights the importance of properly maintaining records. We believe this problem will be minimized given the data programs available and the current practice of scanning most documents electronically. Finally, although it is not discussed in depth in the decision, Benmark was using the apartment for short-term rentals, in violation of the law and therefore the lease and building rules. There is no discussion as to whether Benmark has ceased that practice.
Read full articleFirst published: Jun 2017
Domaszowec v Residential Mgt. Group LLCA contractor dies on the job. Who’s liable?
Read full articleFirst published: May 2017
Cohen v. CASSM Realty Corp.There is apparently bad blood between these parties; they have been in litigation for years. This particular decision is important largely because the parties’ claims and defenses cover a lot of legal ground. One issue that also came up in the case was whether Cohen – because of the board’s failure to maintain and repair the building’s roof and roof beams, making it impossible to live in her top-floor apartment – was entitled to an abatement of maintenance and the reasonable cost of working/living elsewhere. She had sued O’Neill and another board member, Thanos Vassilakis, and the court said she was not entitled to the abatement and reimbursement. It said that individual board members would not be liable, as individuals, for claims concerning actions taken in their capacities as members of the board. Although the court did not order injunctive relief at this interim stage in the litigation, the court left the issue open for trial, so that the shareholder who is not an artist may indeed be required to sell his apartment.
Read full articleFirst published: Apr 2017
Bluff Point Townhouse Owners Assn., Inc. v KapsokefalosIt appears from the decision reported here, and from other cases concerning these parties both at the lower court and the appellate level, that the two sides continue to litigate in part because of a personal incident. Where there are personal disputes in an association setting, it is important that the parties try to keep them in perspective. Homeowners should not take action merely to flout the rules, nor should a board implement rules solely directed at an owner as a result of a personal animus. Condominiums, cooperatives, and homeowners associations require people to live together and comply with the rules, which are presumably implemented for the benefit of all owners. While the motion discussed here was a “preliminary injunction,” we suspect that, if the matter proceeds to conclusion, Bluff Point would probably receive the injunctive relief it seeks, assuming the rules were promulgated in accordance with Bluff Point’s governing documents. This is because it has long been the law that when one buys into a community such as a cooperative, condominium, or homeowners association, one submits to the governance of that community.
Read full articleFirst published: Feb 2017
Matter of Delkap Management v. NYS Division of Human Rights; Temple v. Hudson View Owners Corp.Courts must balance the rights of apartment owners against the rights of a board to enforce its rules (and the rights of other apartment owners to expect even-handed enforcement of those rules). Perhaps the court in Hudson View explained the balance best, noting that the disability statutes are “not intended to elevate plaintiffs above their fellow residents. The law requires only equality, not that a ‘superior advantage’ be given.” Thus, both apartment owners and boards must think about accommodations in this context: will the accommodation allow the apartment owner to enjoy the apartment as any other resident would?
Read full articleFirst published: Jan 2017
11 Wooleys Lane Housing Corp. v. Smith; 50 Sutton Place South Owners Inc. v. FriedWhen a co-op is trying to determine whether family members can live in an apartment without the shareholder also being present, a necessary first step is to analyze the terms of the lease itself. Although not discussed in either of the cases, we also believe that the cooperative’s course of conduct is an important factor to be considered. Course of conduct will rarely, if ever, trump a contract; yet, if the clause is ambiguous, the way in which it has been enforced may properly be used to consider how the parties interpreted the provision. Moreover, co-op boards must treat their shareholders equally, so that allowing one shareholder to have family members as the sole residents, while disallowing the same arrangement in another apartment, may give rise to a charge that the two shareholders are being treated differently, which is a breach of the board’s fiduciary duty. In a perfect world, use clauses would be unambiguous. To the extent possible, boards should propose and encourage shareholders to vote in favor of an amendment to the proprietary lease so that the use clause actually requires the kind of occupancy the shareholders intend and expect to have the board enforce.
Read full articleFirst published: Dec 2016
Singh v. Turtle Bay Towers Corp.; Graham v. 420 East 72nd Tenants Corp.The Business Judgment Rule is an important tool. It allows boards to operate their cooperatives or condominiums without excessive interference – unless there are acts of wrongdoing or self-dealing, or if there is a contractual obligation to the contrary. But courts will question a board’s actions if those actions defy common sense. It appears that this board offered nothing to explain how it could assert that the purchase price was too low while at the same time offering substantially less money to purchase the apartment itself. The question of whether boards can require a floor price to enhance apartment values in the building has been controversial. The most obvious reason is that some apartments may be newly renovated while others are not. One hopes that in those situations, boards will use their judgment and, where warranted, make exceptions to their own rules. The decision in this case does not address whether this was the first time this board had rejected an application because the sale price was too low, or whether it had adopted a formula to determine acceptable prices. Nor does it address why the board was apparently not influenced by the appraisal. The board in this case may genuinely believe that the purchase price is too low. However, if that were the case, it would have been bound to offer more when it sought to purchase the apartment. Boards can’t have it two ways.
Read full articleFirst published: Sep 2016
Citimortgage Inc. v. Abdou Salam Gueye and Plotch v. CitibankThe first of these cases is very important for condominiums. Most of the cases we have seen that preclude a lender from collecting interest (or a portion of interest) are because the court found the lender was acting in bad faith. In this case, however, the court was very clear that the lender’s failure to diligently pursue the case warranted a reduction of interest. As to the second case, the Court of Appeals has now clarified that consolidated mortgages, at least so long as they are consolidated prior to the filing of a common-charge lien, become a first mortgage so that the condominium’s lien is behind the total loan. Until the Condominium Act is changed, we suspect that condominiums will continue to have problems collecting their common charges during foreclosures.
Read full articleFirst published: Jun 2016
Board of Managers, Soundings Condominium v. FoersterIt’s unusual for a co-op or condo board to initiate a legal action based on misrepresentations in the purchase application. The case merely denied Foerster’s motion for summary judgment. Accordingly, there remain many issues and unanswered questions. In this case, the misrepresentations were plain and undeniable. But what happens when the misrepresentation is less obvious? And how long can a person be held to a representation made in a purchase application? Clearly, no one believes that a representation made 20 years earlier should be binding. Another question is whether the Social Services Law requires a condo or co-op to allow a group home to be in place even if the governing documents require that apartments be used only for residential purposes. And what rights – or obligations – will the initial sellers have? We don’t have the answers to all of these questions, but the board’s decision to sue here – and the court’s refusal to dismiss the claim for rescinding the sale – should be taken into account by any purchaser seeking to “put one over” on a board.
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