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.

227 results
First published: Sep 2020
Board of Managers of Fishkill Woods Condominium v. Gottlieb

Once again, we are reminded that the declaration and bylaws of a condominium constitute a contract between the unit-owner and the condominium association. While courts will occasionally look to the Business Corporation Law (which governs cooperatives), when it comes to governance issues in a condominium, the courts rely on the contract itself – the governing documents – when reviewing issues such as those raised in this case.

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First published: Jul 2020
Salvator v. 55 Residents Corp.

The court’s ruling as to trespass is instructive. The court declined to adhere to form over substance. The decision’s implication is that had the corporation served the plaintiff in accordance with the proprietary lease – by registered mail to the apartment – the plaintiff never would have known that the corporation’s agent was going to enter the apartment, since he did not live there. Also instructive is the court’s ruling on breach of fiduciary duty. By making the claim only against the board, the plaintiff was able to avoid having the claim dismissed. As to infliction of emotional distress, there was nothing to indicate that the corporation’s conduct was “outrageous.” Now that the court has sorted out what appear to be the final pleading issues, it is anticipated that the case will go to trial – more than five years after it was commenced.

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First published: May 2020
Tomfol Owners Corp. vs. Walker

In this case, the court relied on two new statutes. Specifically, the Business Corporation Law, under which many cooperatives are formed, recently added a provision that allows boards to permit shareholders to participate in meetings electronically. (This article is being written while there is an executive order in place that, among other things, bans annual meetings from taking place in person.) It used to be that only board members could join board meetings by conference call or video. Now, if the board allows it, shareholders can come to meetings electronically – and ballots can be cast electronically. Many buildings use what are called “directed proxies,” that is, a proxy in which the shareholder checks off the candidate(s) he or she wants the proxy holder to vote for. Some have proxies that allow the proxy holders to vote any way they choose. Either way, proxies can always be revoked by the shareholder attending the meeting and issuing a ballot. The new statute allows boards to accept electronic ballots so that shareholders do not have to be physically present at the meeting. Another new statute invoked is the Housing Stability and Tenant Protection Act, which, unless it is amended as to cooperatives, allows eviction proceedings to be commenced for “rent” but not for any other monies that a tenant, or shareholder, may owe. This means, as was the case here, that if the shareholder owes rent in addition to fines, the cooperative will have to make a choice. It can either maintain two separate actions: one for rent in housing court, where, if the court determines rent is owed but remains unpaid, a judgment of eviction can issue; and another in a separate court seeking money damages for the non-rent portion of what the cooperative claims is owed. Alternatively, cooperatives can commence one non-housing-court action for all monies due, including rent, but without the threat of eviction. It seems that these decisions will need to be made on a case-by-case basis by the board after consulting with counsel, and they may depend on the amount and duration of the arrears.

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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.

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First 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.

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First published: Dec 2019
Kling v. The 129 Lafayette Street Condominium

It 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.

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First published: Sep 2019
Leon v Harlan

The 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.

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First published: Jul 2019
Segev v 262 N 9 LLC

The 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.

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First published: Mar 2019
345 East 50th Street LLC vs. The Board of Managers of M at Beekman Condominium

Board 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.

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First 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.

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