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
- Access
- Alterations
- Appeals
- Arbitration
- Assessment
- Attorney Fees
- Attorney-Client
- Authority to Sue
- Balcony/Terrace Rights
- Bike Lane
- Board of Directors
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- Negligence
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- Ownership
- Parking
- Partnership
- Personal Injury
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- Proprietary Lease
- Reasonableness
- Receivership
- Release
- Repairs
- Representations
- Sales
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- Yellowstone Injunction
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First published: Mar 2020
Bellstell 7 Park Avenue, LLC v. Seven Park Avenue Corp.It used to be that cooperative sponsors were required to transfer shares to individuals within a period of time after conversion, and that those individuals would then be holders of unsold shares. When the Internal Revenue Code was amended in the late 1980s, there was no longer a prohibition against entities owning unsold shares. The reason why this case is important is that it would allow, theoretically, individual unsold shareholders to assign their shares to an entity owned by them. Depending on the language in the lease, this could happen either without board approval or with approval from the managing agent, not to be unreasonably withheld. Principals of the entity could then, theoretically, move into the apartment, live there for a period of years, and then – when they vacate – have the owner/entity maintain its unsold status so that it continued to receive the benefit of special rights. These could include the right to sublet or sell without interference and, possibly, exemption from certain fees. One final note: the cooperative argued that the plain language of the lease – the same language relied on by the holder-LLC – did not permit ownership of unsold shares by an entity because entities do not have families. Thus, plaintiff would have lost unsold-share status in all of the apartments it owned. This decision is being appealed.
Read full articleFirst published: Feb 2020
Wachtel v Park Ave & 84th St., Inc.This case raises a number of interesting issues for both boards and purchasers. As a purchaser, it is important that you do your due diligence, although it is not clear typical diligence could have helped these purchasers. There are representations that should be requested in a contract, but there is no indication here that the seller even knew there was an issue with the entrance or with the share allocation. Moreover, it is unlikely that any lawyer would seek to look at minutes going back 40 years, nor is it very likely that a managing agent would provide them. Having said that, the ADA-non-compliant step was obviously in place, and the purchaser could have inquired about it and retained an architect to look into DOB records. Although it is somewhat beside the point of this case, it is important to remember that someone purchasing a even a small home outside of Manhattan will have a home inspection, yet someone buying a far more costly apartment will often do no physical or architectural diligence at all. While it may cost more in the short term, asking an architectural professional to look at an apartment and public records might save money in the long term. As to the share-allocation issue, the court was able to rely on the business judgment of the board in part because the board had records that showed that the determination concerning the share allocation was made in accordance with proper corporate governance. This is important. Boards should make determinations at board meetings; minutes of those meetings should accurately reflect what took place; and those minutes should be maintained.
Read full articleFirst published: Dec 2019
Kling v. The 129 Lafayette Street CondominiumIt can be difficult for condo boards to know who is going to be a problematic subletter, even if the board – as some do – requires an application package with references. A board has a right of first refusal, and most boards are not in the business of being a landlord, nor should they be. The onus is properly on the owner of the unit to determine whether the subtenant is likely to comply with the rules of the building. If the subtenant fails to comply, it is the unit-owner who is responsible for the tenant’s behavior. Nonetheless, condo boards should review their rules and bylaws to see if there is a way to amend them to effectively discourage bad behavior.
Read full articleFirst published: Sep 2019
Leon v HarlanThe reason this case is important is not because it breaks exciting new legal ground but because it is a common complaint in vertical living: other people make noise. Aside from preposterously obvious nuisances – no, you cannot practice your tap routine at 1A.M. – most courts will tell litigants that if you’re going to live in an apartment building, you have to expect noise from other people living there. Carpets and padding should be required, but will not ensure the silence of living in a one-story house. There is another lesson for shareholders here, though: let he who is without sin cast the first lawsuit. Despite the fact that the initial complaint was filed by Leon, Harlan’s counterclaims took over the proceedings. Be wary – sometimes, if you sue a neighbor, she may turn around and sue you right back.
Read full articleFirst published: Jul 2019
Segev v 262 N 9 LLCThe theory behind a condo board’s right of first refusal is that the seller, a unit-owner to whom the board owes a fiduciary duty, is in no different a position if the apartment is sold to the buyer or to the building. It is thus the buyer – with whom the building has no contractual relation-ship – who takes the risk that the building will purchase the apartment. However, the theory Segev advanced here – tortious interference with the contract by the board – has previously been rejected by the courts in the context of a co-op board’s rejection of a purchaser. The conclusion is that any contract to purchase a co-op or condo apartment is subject to the board’s rights under its respective governing documents. Accordingly, the prospective purchaser signs on to the rules of the building and is required to abide by them.
Read full articleFirst published: Mar 2019
345 East 50th Street LLC vs. The Board of Managers of M at Beekman CondominiumBoard members are permitted to – and should be permitted to – operate their buildings as they see fit. They do, however, have obligations to all unit-owners (or shareholders in a co-op), including one to make repairs to the envelope of the building when required. While the board members did not act improperly, the court noted that, when Brown’s application for the roof deck work was submitted, the board could have let her know that a roof replacement was being considered. While failing to notify her may have been irresponsible, it was not actionable. The lesson for unit-owners is that when they are about to perform renovations of the type discussed here, they may want to ask the board if it is considering repairs that would affect the renovation. Unit-owners may even want to read the board minutes. That may seem like an unnecessary burden, but it also is a simple enough way to avoid situations like this one.
Read full articleFirst published: Feb 2019
Zazzarino v 13-21 E. 22nd St. Residence Corp.When faced with a foreclosure, it’s important for boards to review their documents to determine the corporation’s responsibilities to both the shareholder and the potential purchaser. As there is likely a recognition agreement (a contract entered into by the shareholder, co-op, and lender), the board should also review its responsibilities to the lender. Boards should be proactive in dealing with the lender to make sure, among other things, that the terms of sale in the foreclosure include a provision that any purchaser at auction is subject to board approval. As an aside, we note that courts have held that where a provision of a lease requires action by the managing agent, as opposed to the board, the managing agent may take the board’s position into consideration.
Read full articleFirst published: Dec 2018
Perrault vs. Village Dunes Apt. Corp.There are some co-op proprietary leases and condo bylaws that require that certain acts of the board be reasonable or that its consent not be unreasonably withheld. These are found most often in provisions concerning alterations and the establishment of house rules, or other rules and regulations. When reasonableness language is present, the burden is on the cooperative or condominium to demonstrate that its acts were “reasonable.”
Read full articleFirst published: Oct 2018
Fairmont Tenants Corp. v. BraffThis case is a good reminder that boards can successfully challenge a shareholder’s actions, even if the shareholder has engaged in an activity that is in violation of the lease for years – even decades. This court found that, given the proprietary lease’s “no waiver” provision, the passage of time did not waive the board’s right to object. Nor did the board’s apparent knowledge of the Braffs’ using the roof waive the right to object. The board knew about it in 2007, when it forbade the couple from using the setback. Also, while the offering plan is probably not an active document anymore, the board and shareholders are still bound by the certificate of incorporation, bylaws, and proprietary lease, all of which can be relevant when trying to determine the rights of the involved parties. In this situation, the offering plan was the document that identified whether use of outdoor space was permitted by the adjacent shareholder. It showed the intent of the original drafter, and Braff failed to demonstrate that anything set forth in the plan was overridden or modified. The court thus properly considered the terms of the plan as a guide to determine whether or not the outdoor area was for the exclusive use of the Braffs.
Read full articleFirst published: Sep 2018
Avramides v. MoussaIf a shareholder or unit-owner is so dissatisfied with the way a board is acting, a derivative action is one way to deal with the situation. However, as this case reminds us, the claim cannot be brought willy-nilly. The apartment owner must ask the board to act or must prove that the board was corrupt. Courts have been attempting to determine Fletcher’s true scope ever since it was decided in 2012. In effect, Fletcher said that board members were not protected by their position if they acted improperly. In Avramides, the board’s actions – repairs to the roof and terraces – were within its business judgment, and there was no basis to hold any individual liable. In Stinner v. Epstein, another case decided by another appellate court at about the same time as Avramides, the court found that allegations that a board member had improperly received a $25,000 payment was enough to allow a claim against that member to proceed. It seems that the facts in Avramides and Stinner lie at opposite ends of the spectrum. In the former, the board did not breach its duty and thus no individual could be held accountable; in the latter, the allegation that the board member did something in his own interest to the detriment of the building was sufficient to allow the court to deny a motion to dismiss the complaint.
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