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: Jun 2015
Mishaan v 1035 Fifth Ave. Corp.

There is little question that most elections are uncontested. Even when contested, very few end in litigation. But for many people, an apartment is a very large asset and owners want to do what they believe is necessary to protect that asset. There can be huge disparity in how individuals believe their boards should act – how the building should be managed both financially and in terms of its physical plant. There can often be a situation where someone runs and he or she obtains one percent of the vote. But when it is clear there is going to be a closely contested election, boards and shareholders should try to come to some creative solution – if they can – to address one another’s issues. If that cannot be done – and sometimes the disagreements are too fundamental to come to agreement – the shareholders must be able to decide. When an election is close, from a practical standpoint, it is often good practice to have more than one inspector of elections. Another practice may be to close the polls at the end of the meeting so that no additional votes can be issued, and to allow the inspectors to place all the ballots in an envelope, seal it, and have someone sign his or her name across the flap – that way, they can open and count the ballots the next day at the office of the inspectors (often two members of the managing agent). If done this way, inspectors can check and double-check their work. There is one final point that, for some reason, was not addressed by the court. When an election is uncontested (and thus there is a successful candidate or slate by acclimation), proxies and ballots are not an issue. But when there is a contest, we want to remind people that a proxy is just that – a proxy. It is not a ballot and, indeed, New York does not use absentee ballots in these types of elections, even if the one giving the proxy identifies whom the proxy-holder must vote for. When a person or board is a proxy-holder, a ballot must be completed and submitted with the proxy. Without that procedure, no matter how duplicative it seems to be, the vote by proxy alone should not be counted.

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First published: May 2015
Jasinski v. Hudson Pointe Homeowners Association

Although this case ultimately turned on ownership of a road that ran through an HOA, it raises a broader issue that we regularly see in co-ops, condos, and HOAs. Often, the board and management may think that a rule exists, in part, because it has been followed for years. However, when the rule is broken and an apartment owner challenges it, the board may discover that the rule doesn’t actually say what everyone thought it said. Or, in some instances, a rule that has been enforced may never have been actually formally adopted. This case is yet another example of why boards and management should review their governing documents and rules to make sure the documents say what is intended and, if not, to take steps to bring them up to date so they reflect current building practice (and the current state of the often-changing law). Although it may not be practical to adopt some amendments (if a vote of a super-majority of apartment owners is required to make the change), review of the documents may still be a worthwhile, and informative, exercise.

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First published: Mar 2015
Green v. Board of Directors of 880 Fifth Avenue Corporation and Francis L. Mitterhoff

This is a situation that managers and practitioners see every day. A “transfer” or some formal or informal agreement was reached years earlier and the paperwork, if it ever existed, is nowhere to be found. What can a board (and an affected shareholder) do? The defendants here were able to show historic use and prior agreements through the testimony of Schneider and his daughter. The information they were able to provide was important in this instance because Mitterhoff needed to be able to demonstrate that the Schneiders used the area for a period of years – at the very least for more than a decade. Presumably, they asked the board to review its records and confirm, in a resolution, that Schneider had the right to use the rooms. Although Green tried to use the resolution as a “starting point” for the statute of limitations, the court was able to rely on the language of the resolution, which stated that the board “confirmed” Schneider’s rights. If a shareholder has the right to use space that is not within the four walls of that shareholder’s apartment, the shareholder may want to confirm with the managing agent what paperwork is on file with the building. Better yet, the shareholder may want to give to the managing agent a copy of any documentation regarding the space so that it can be retained in two places.

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First published: Feb 2015
Ho Foong Shiu Realty Corp. v. Pullman

While this case addresses a landlord–tenant relationship in a rental building, it serves as a cautionary tale for cooperatives and condominiums as well. If a co-op or condo elects to bring an action against an apartment owner as a result of a barking dog, it should make sure it has more than one occupant backing it up. The board should also know up front whether there are any unrelated harsh feelings among the involved parties. For practical purposes, a managing agent and/or resident manager will typically save all e-mails and letters concerning complaints about a building resident. If a resident calls the door staff to complain, notes are typically made and maintained in the building log, and copies of those pages should be kept with the file for that apartment owner. Before a board makes the decision to begin an action, its counsel may want to speak with those who have complained about the noise. Among other things, counsel will want to know that the people complaining are prepared to participate in any legal action. We have seen several situations where occupants have complained about noise, yet, when asked to participate in a lawsuit (or even when asked to allow the board to identify them in correspondence), they have refused, apparently because they do not want to be put in an adversarial position with their neighbors. Under these circumstances, there is often little a board can do to resolve the problem.

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First published: Sep 2014
Board of Mgrs. of the Clermont Greene Condominium v Vanderbilt Mansions

A condominium acts through its board of managers. But the board must act as a body. A group of board members cannot make a decision like the one made here. Boards have rules and procedures and must follow them. Although this case involved a condo, the principle is equally applicable in a cooperative. In an unrelated case, co-op board members were sued for making certain decisions, but their actions were taken at properly called board meetings and minutes reflected what took place at the meetings. It was irrelevant that the vote may have been divided along sponsor/non-sponsor lines. The board called meetings, acted, and, even though one “faction” may have been outvoted, the acts were acts of the “board” and were upheld. What we don’t know here is whether the board’s failure to act properly created other problems. It certainly created delay, but one wonders whether the delay was such that any applicable statute of limitations expired. In the end, when the board takes an action, it must be the board – and not just some of its members – that acts.

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First published: Jul 2014
Goldhirsch v. St. George Tower & Grill Owners Corp.

There have been a number of cases where courts have refused to award damages or abate maintenance charges to an apartment owner because the owner has been unable to use the terrace in connection with repairs, even for an extended period of time. Without performing an exhaustive analysis, the courts have generally held that a co-op has the right to perform building repairs and has the concomitant right to use a terrace to do so. This is provided, of course, that the work is warranted and diligently performed. The court here engaged in an interesting interpretation of the interplay between the BJR and the apartment owner’s breach-of-lease claim. Although the court quoted certain provisions of the proprietary lease concerning damages from general use of a terrace, it did not state whether there are provisions that specifically allow a co-op the right to use a terrace for building repairs, a provision found in many leases. Regardless, the result – that the co-op is not required to abate maintenance charges for its use of the terrace for building repairs –appears to be consistent with other decisions. We note that in a condominium, access rules and use of a terrace would be guided by the particular condominium’s bylaws. The warranty of habitability, codified in the Real Property Law, does not apply.

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First published: Jun 2014
1855 7th Ave. Housing Dev. Fund v. Wigfall

By Richard Siegler and Dale Degenshein, Stroock & Stroock & Lavan After analyzing a number of post-Pullman decisions, the court laid out the procedure courts should use when there is an issue of fact that eliminates the possibility of summary judgment. The court was given a copy of the co-op’s proprietary lease and house rules; there was testimony about the procedure put in place by the board in order to record the misconduct (including entry into a log book and review of security footage); and Wigfall had received earlier notices telling her that the behavior had to stop. With this information, the court did not need to satisfy itself that the conduct was objectionable, but instead found that the Business Judgment Rule applied so that the court was bound to defer to the board’s decision. As always, it is important to remember that one of the key factors of the Business Judgment Rule is that it is the one challenging the board’s decision who has the burden of showing that what the board did was improper. Here, Wigfall was unable to successfully challenge the procedure the board used to evict her.

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First published: May 2014
The South Tower Residential Board of Managers of Time Warner Center Condominium v. The Ann Holdings LLC

This case is unusual. Boards rarely exercise a right of first refusal; and they rarely designate the right to purchase to another. Even when boards do it, however, sellers rarely sue. The seller is, presumably, receiving what it bargained for – the right of first refusal is set forth in the bylaws, the seller will receive the same purchase price, and the board is to purchase on the same terms and conditions as were set forth in the contract. In other words, the seller is not harmed. Any claim that Wohlstadter did anything to depress the price so that he could purchase at less than he (maybe) previously offered was rejected by the court. All in all, the court found that the board acted consistently with its rights under the bylaws and Wohlstadter was permitted to purchase the apartment.

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First published: Apr 2014
AMT CADC Venture v. 455 CPW, LLC

So why is this case important? The Condominium Act is clear that a valid first mortgage has priority over a common charge lien. It is highly significant if condominiums can limit the amount the bank is allowed to collect in a first position. Although this has always been an issue, we are seeing more and more cases where boards are looking for ways to challenge a lender’s apparent right to receive – before any other creditor is paid – all money claimed under the mortgage. Individual condominium units may be heavily mortgaged. When you add interest at the “default rate” under the mortgage, there may be little if anything left for the condominium. Therefore, if they can get some – if not all – of the money before the bank does, then that’s a big deal.

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First published: Mar 2014
Jeffrey Sardis, Lauren Sardis and JAS Holding Corp. v. Sofia Frankel and Michael Frankel

Why are we using this “Case Notes” column to discuss fraudulent transactions under the debtor and creditor law? Unfortunately, we have lately seen several cases where condominium unit-owners attempted to transfer their units to avoid paying creditors. In this instance, the creditor was a third party. In many instances, however, the creditor is the condominium’s board of managers. Based on anecdotal evidence only, it appears that the number of unit-owner defaults has increased substantially since 2008. Boards – the liens of which are third in priority to taxes and valid first mortgages – are finding themselves embroiled in foreclosures and, often as a sale is imminent, unit-owner bankruptcies. Some unit-owners, however, try to avoid those litigations and instead – owing money (whether before or after judgment) – transfer their apartment to a relative or friend, typically without the “purchaser” paying the monies owed to the condominium. Because the transfer of a condo (unlike a co-op) can, and occasionally does, take place without the knowledge of the condominium, a board should determine whether to try to void the transfer, as the plaintiffs did. One interesting aspect of this case concerns the mortgage secured by the condominium unit. It appears from the decision that Ms. Frankel had a mortgage. There is no indication that the mortgagee was paid, or that it had agreed to allow title to pass to the son (or, for that matter, that it was ever advised of the transfer). Based on most every mortgage document we have seen, such a transfer typically would constitute a default under the mortgage documents, which would have allowed the mortgagee to foreclose. This case is important because the appellate court covering Manhattan and the Bronx gives guidance as to what is required under the debtor and creditor law to sustain a conveyance. It informs us how courts will interpret and apply the “good faith” requirement and circumstances under which one who conveys the property simply can’t meet the burden.

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