Case Notes

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First published: Jun 2016

Board of Managers, Soundings Condominium v. Foerster

It’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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First published: Apr 2016

Osberger v. 18 Mercer Equity Inc.

Although incidental to the issue of legal fees, this case raises a point we have seen many times. When a city agency issues a violation, it is often (if not always) issued against the building and not the offending apartment owner. In some situations, an administrative law judge will allow an apartment owner to intervene or to take over the defense; in some instances he or she will not. It is important for a building, upon receipt of a violation, to be clear that the responsibility both for defense and to cure a violation and pay fines or penalties rests with the apartment owner. The court’s analysis of the Osbergers’ claim for attorneys’ fees under the co-op proprietary lease is noteworthy. The cooperative would not have been able to assert a claim for fees since the Osbergers were not in default, and a default was required under the lease. Our experience has been that, in situations like this, most boards would in fact demand its fees be paid by the shareholder.

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First published: Apr 2016

Osberger v. 18 Mercer Equity Inc.

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First published: Mar 2016

OA Manhattan LLC v Condo Board of Managers of Cassa NY Condominium and Residential Board of Managers of Cassa NY Condominium

Many condominiums are governed by a single board of managers. Many others, however, have “sections” and each section typically has its own board. So, for example, a residential section will have its board manage all residential issues; a commercial section board will operate and oversee commercial common elements; perhaps there is a parking board, a rental board, an office board. Depending on the structure of your condominium’s declaration and bylaws, there are many possible ways for sections to be divided. When separate boards are given power and authority for their respective sections, there is typically an “over board” – a supervising entity – that determines issues that affect the entire condominium. More often than not, the commercial board doesn’t care what the residential board does and vice versa, in which case there is no reason for a supervising board to be involved. In fact, in some buildings, this over board never actually has to meet, the intent being that each sectional board be permitted to operate its section with as little interference as possible. But what happens when the boards have competing interests, or simply don’t believe the other board is doing the right thing for the building?

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First published: Feb 2016

Berkowitz v. 29 Woodmere Blvd. Owners Inc.

This case can be used as a teaching tool – because many of the issues and arguments involve practical, real-world acts that boards come across regularly. First, it is important to remember that, in the context of discrimination, there are two ways people may sue. The person who was allegedly the victim of discrimination may assert a claim against a board directly. Or the shareholder could have claims for breach of contract against the corporation or breach of duty against the individual board members, or even charges of discrimination. In its ruling, the court spends very little time discussing the action Lax brought against the co-op; however, it does note that Berkowitz was a party to the action. We are not certain why the board agreed to settle with Lax, yet there was no settlement at that time with Berkowitz. While it is true that boards do not need to set forth their reasons for rejecting a proposed purchaser, this does not mean that boards have carte blanche. Once a person raises an arguable basis for rejection that, if proven, would be actionable, the board cannot simply rely on the Business Judgment Rule to say that the person was rejected and that’s that. Boards, on occasion, believe they are safe from legal harm when rejecting a purchaser, particularly if there has been no interview – the theory being that board members would not know the rejected applicant was of a protected class because they had not met. That, of course, was not the case here, and the board’s apparent reliance on the fact that Lax had not been interviewed was irrelevant. The court’s decision to dismiss Manginelli’s claims is consistent with general court principles. If there is an objective reason to reject a purchaser, then there will be no viable claim. However, the rationale is suspect when an applicant is a member of a protected class, and the board rejects, citing a lowball price – then allows the sale to go forward for 20 percent less. In such a situation, the court will not simply dismiss the decision as a legitimate exercise of business judgment. Finally, boards must remember that even though the attorney-fees lease provision says the co-op can recover fees, the provision is reciprocal but not precisely parallel. Therefore, while a default by the shareholder is required to allow the corporation to recover fees, a default by the corporation is not necessary for a shareholder to seek fees against the corporation. As a best practice, if a board is going to reject a prospective purchaser – particularly if it is not for obvious financial reasons – it may be prudent for the board members to step back, take a breath, and call the board’s lawyer to ascertain what courts will consider when deciding whether the board and its individual members acted within their rights.

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First published: Jan 2016

John Oriogun v. Board of Managers of Hampton House Condominium and Hampton House Condominium

When a building wants to offer health club facilities to its apartment owners, it is important to consult insurance professionals, have them review maintenance contracts for equipment, and draft waivers, releases, and see that documents generally comply with the building’s governing documents and with applicable law. The GOL provision at issue here specifically provides that any waiver of liability as a result of the negligence of the operator of the gym – whether the condominium or a third-party operator – is void. We have seen cases where a failure to carve out negligent acts of the operator – or in the case of other GOL provisions, the owner of a premises – renders the entire provision void, so that even if the owner/operator was not negligent, there will be no enforceable waiver of liability. It is thus important that these provisions be drafted carefully. We note that the GOL provision, however, requires that some payment be made in consideration for using the gym facility. We presume Hampton House requires a payment, but do not know how the court would address the issue if maintenance or payment to the gym were merely a budget item in common charge calculations. Further, it appears as if the court in this case determined that the hold harmless provision be removed. We do not know what would happen if the provision were merely redrafted to comply with the GOL by carving out the negligence of the operator.

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First published: Dec 2015

Trump Village Section 4 and Igor Oberman v. Yuliya Bezvoleva Aka Julia Bezvoleva, Inna Yeselson, Josef Stalin, Aborigen, www.tv4news.org

As the appeals court told us in Levandusky v. One Fifth Avenue Apartment Corp. 25 years ago, cooperatives and condominiums are quasi-governments – “a little democratic sub-society of necessity.” The board makes decisions for the building and, thus, the apartment owners. And if an owner does not like the way the building is being run, there are things he or she can do, all within the dictates of a democracy, such as run for the board or propose a slate or complain to management and the board. Depending on the nature and severity of the alleged issue, he or she can call a governmental agency to complain about building conditions or even start a lawsuit. If owners want to solicit information and support from other apartment owners, they can write letters, and even if the owners’ statements are questionably defamatory, they may be protected by the common-interest privilege if the complaining owners keep it “all in the family.” In other words, the common-interest privilege may apply if the information is communicated only to those within the community who have an interest in those same common issues. What a complaining apartment owner cannot do, however, is make (arguably defamatory) assertions on the internet or in a publication for all to see. The defendants in this case raised just about every possible defense to the publication (and alleged authorship) of the statements on the website, and the court analyzed, and disposed of, every argument. On a final parenthetical note (although perhaps not really beside the point), we do not know why an apartment owner would want to make public some of the claims the defendants are alleged to have made here. Even if the statements are patently true and accurate in all respects, those kinds of statements might be expected to have a negative effect on resale prices. It’s something to consider before an apartment owner gets up on a soapbox.

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First published: Oct 2015

Natalie and Geoffrey Richstone v. the Board of Managers of Leighton House Condominium

Outdoor space – terraces – are a very valuable amenity, especially in an urban setting. We all know that New Yorkers lucky enough to have terraces are not happy when their board requires access to perform alterations, particularly if access is required during the summer months. Or when there are delays – so that a request for two months of access becomes three months, then five months, and so on. And let’s face it, boards probably aren’t happy about having to use an apartment owner’s terrace as a staging area. But under the bylaws of many condominiums, the board has the right to use the terrace for building-wide repairs and, assuming that the work is being performed in an appropriate and timely manner, there is little a unit-owner can do about it. This means that, while it has the right to install a rig blocking a terrace, a board shouldn’t simply leave it up for a year while nothing is done. In this case, although the court does not go into the background leading to the litigation, it appears that the board and plaintiffs agreed that the equipment would be removed by March 31, but that the board’s construction professionals required use of the rig beyond that date. It is not clear why the board would have agreed to an end-date (if in fact it did agree to one), and in that regard this may serve as a reminder. If an apartment owner wants a final date by which equipment must be moved from a terrace, boards and owners must know that there may be construction delays, because of • weather • unforeseen circumstances (contractors find something they didn’t expect when they open a wall or floor) • government agency delays • lack of diligence by a contractor The board must look at each of these issues carefully if they arise but there should be an acknowledgement between a board and a unit-owner that delays may occur, no matter how frustrating it may be for board and unit-owner alike. As for the wood terrace, plaintiffs brought this action even though they knew, or should have known, that the wood terrace was not approved by the board or the DOB. We do not know whether the board would have challenged installation of the wood terrace had it not been for the lawsuit. Once the plaintiffs sued, however, the board raised the issue so the court could presumably make a decision on all issues concerning the terrace. Regarding the attorney fees, the court awarded them to the board noting it “is entitled to costs and attorney fees associated in curing plaintiffs’ breach of the” bylaws. Presumably, then, the board can recover fees to the extent incurred to abate or remove any violation or default by the plaintiffs – for costs incurred to cause plaintiffs to remove the wood terrace and otherwise comply with the bylaws. This provision is fairly typical in condominium bylaws and – depending on the specific language and circumstances – may not provide for attorney fees when a condominium merely defends an action started by a unit-owner.

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First published: Sep 2015

Newman v. 911 Alwyn Owners Corp.

The board’s actions here raise questions that the court never addresses. The decision refers to the board’s conclusion – after the second round of bids were received – that the co-op would be better off financially if it leased, rather than sold, the areas. However, there can be no question that the board considered these issues prior to its announcement that bids would be solicited; indeed, it even had the spaces appraised. The court never discusses the board’s stated reason for this change of heart (if it stated a reason). This was a motion to dismiss – early in the proceeding, before any discovery took place. The court’s decision, however, indicates that even given this seeming lack of explanation, the plaintiffs simply could not demonstrate the elements necessary to sustain a breach of fiduciary duty or breach of contract cause of action. In a situation like this – where a board acted within the bounds of the law but, perhaps, in a manner disagreeable to certain apartment owners – the owners may be best served by seeking relief not from the courts but by running for the board or campaigning against the reelection of the board members to cause a change to the lease/sale policy.

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First published: Jul 2015

Pastor v. DeGaetano

We cannot stress enough how important it is to know what you are buying. And to make sure the board agrees! In a condo, one can – and should – always look to the tax lot drawings, which are filed with the Department of Finance (many are available on the Automated City Register Information System). In modern condominiums, the tax lot drawings will show the boundaries of what you are about to purchase, although we have found that there is often less information on older drawings. In a co-op, however, this information is not recorded and not always readily available. The proprietary lease (which will be available) may refer to the offering plan, or one of the amendments to the plan. If the co-op was created before 1962, there may never have been an offering plan as there was no filing requirement. And if the co-op is more than ten years old, the plan and amendments may no longer be available. The attorney general’s office has an official retention policy of only 12 years. Even worse than referring back to the plan, the lease may refer to a drawing, or even a separate agreement, of which no one has a copy (or perhaps no one has an executed copy). While it may be easy to blame the managing agent – it is, after all, the agent’s responsibility to maintain documents – the reality is that when a building changes from one agent to the next, all the records often do not necessarily get transferred, and no one realizes it until years later. The takeaway, of course, is to make sure the seller, buyer, and board all agree on what exactly is being purchased.

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First published: Jun 2016

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