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.
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First published: May 2018
Ran v. WeinerWhether shareholders can enforce house rules against other shareholders is not something many attorneys address directly when drafting or vetting a co-op client’s house rules. But, as this case demonstrates, it is important. Shareholders should understand that they can pursue a claim directly against a neighbor if that neighbor breaches the proprietary lease, but they must also understand the co-op/landlord’s role. This decision seems to say that the house rule would apply only if a shareholder leaked water into a common area. The co-op, as one of the parties to that specific lease, presumably could require the shareholder to pay for any damages. But the finding that shareholders cannot enforce house rules against each other would arguably apply to all house rules. Ran has filed an appeal. Assuming it goes forward, it will be interesting to see what the appellate court decides. Meanwhile, boards may want to rethink how they draft certain house rules.
Read full articleFirst published: Apr 2018
Koeppel v. 130 East End Avenue Tenants Corp.The court here addressed a provision, typically found in proprietary leases, which is prone to create problems. Certainly, financial wherewithal is important. While not before the court in this action, there can be circumstances in which a family member is financially responsible, but the board may rightly want to reject their application. The proposed shareholder may be litigious, evicted from a prior building because of disruptive or objectionable conduct, or there is something else in his or her history that would make for an undesirable neighbor. It is one thing when an apartment passes, upon death, from one spouse to the other when both have lived in the building. It is another when this provision allows an estate to introduce a completely new individual into the mix. It is for this reason that many boards, when considering whether to propose lease revisions to their shareholders, often consider revisions to this paragraph.
Read full articleFirst published: Mar 2018
Minkin v. Board Of Directors of the Cortlandt Ridge Homeowners AssociationAssessing fines may be the best way to enforce rules and policies. The declaration and bylaws were unambiguous. A court may look at the offering plan as an aid to interpretation only when governing documents are unclear or inconsistent. The declaration and bylaws are the contract between the board and owners. Finally, in the lower court decision, the court recognized that this decision would affect all unit-owners, not just the one who was a party to the suit. Although other homeowners could sue on the same theories (and could raise additional bases for their claims), for practical purposes these rulings decided the issues before the court for all homeowners.
Read full articleFirst published: Feb 2018
Olszewski v. Cannon Point Association Inc.House rules are a funny thing. Many co-ops and condos begin with a standard form. It’s probably best not to adopt a standard form without carefully considering whether specific rules are applicable to the circumstances of your cooperative or condominium. And because the rules are incorporated into a proprietary lease or bylaws, violating them can cause the default of a governing document. The rules should clearly state what is intended, and not just be copied from another building’s. This is an issue boards and their attorneys face frequently. We believe this court clearly laid out the issues. When people buy into a planned community, they give up certain of their individual rights and interests for the benefit of everyone. But people also purchase knowing that the lease or bylaws form a contract, which can be amended by a supermajority of owners, not by board fiat. So while a board’s right to adopt rules is important, it cannot alter the contract that the owners signed when they purchased. Some rules are clearly not consistent with the bylaws or proprietary lease. Boards must look closely. Does the proposed rule conflict with the bylaws or other governing documents? If so, should the board propose it to the owners as a bylaw or lease amendment, rather than face opposition? Considering these questions in advance can avoid acrimonious and costly challenges down the road.
Read full articleFirst published: Jan 2018
Matter of Dicker v Glen Oaks Vil. Owners, Inc.We cannot stress enough that the Business Judgment Rule does not give boards carte blanche. Boards may not act outside the scope of their authority, may not act in bad faith, and may not violate their own contractual obligations, including those set forth in the proprietary lease. There are a number of cases that raise the type of “disparate treatment” discussed in this case – that is, whether a board can treat some shareholders differently than others. We have seen other appellate level cases where the court upheld the right of a board to treat disimilarly situated shareholders differently. In one case, one group consisted of resident-owners, and another included investor-owners. A final question: would the appellate court have reached the same conclusion if the board had modified its rule under ordinary circumstances – not while the legal issue was pending between Haffey and Dicker? Boards have certain discretion, but we have found that to avoid the appearance of the board treating a shareholder disparately, it sometimes is preferable for a board to exercise its discretion when there is no specific matter before it. Although we cannot be certain as to how the court would have ruled had the modified rule already been in existence when Haffey decided to build her terrace, experience tells us that the rule might have been more likely to pass judicial muster.
Read full articleFirst published: Dec 2017
Matter of Steinberg-Fisher v North Shore Towers Apts., Inc.Alteration work that drags on with no end in sight is a problem in all buildings. Neighbors are disturbed by noise, odors, and workers, and building systems (especially elevators) often endure additional strain. On the other hand, if a shareholder is physically or psychologically incapable of complying with policies, the policies must be reasonably modified. It seems this case is one where the courts would have liked to see the parties engage in an “interactive process.” It is a construct often used in employment cases, where the parties collaborate to arrive at a solution acceptable to all. It has been applied in the housing context for the last several years, and it appears that the court here was indeed bothered that the parties went, almost immediately, into “litigation mode.” It seems Steinberg-Fisher wanted unlimited time, and the board was unwilling to budge from the 90-day limit. When a reasonable accommodation is requested – especially one, as here, in which the need for some accommodation appears to be unchallenged – it is important that the parties speak with one another in an attempt to find a solution acceptable to all. That approach can often obviate the need to involve the DHR or the courts altogether, which is always preferable.
Read full articleFirst published: Sep 2017
Moltisanti v. East Riv. Hous. Corp.An important issue in this case was whether either party was likely to succeed on the merits – a necessary element for the granting of a preliminary injunction. The lower court determined that Moltisanti would probably prevail because of the actions taken by the board. The appellate court, however, demurred, finding instead that the board’s actions created issues of fact, meaning that the case had to go to trial for resolution. Although Moltisanti v. East River Housing Corporation will not be the final word on this subject, we remind boards that they may not be able to rely on a proprietary lease clause if the cooperative, through its board or agent, violates that provision. We cannot stress often enough the need to comply with governing documents and procedures.
Read full articleFirst 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?
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