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Case Notes by

Richard Siegler & Dale Degenshein, Stroock & Stroock & Lavan

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First published: Apr 2010
Warner v. Kaplan

This case raises issues concerning the rights and obligations of an estate when a person dies while a contract is pending. The court first explained that, where a contract – even if merely in its printed form – provides that it shall be binding on the parties’ heirs, that means that if a person dies before the contract is consummated, their estate must complete the contract. The court was very clear that if the parties wanted a different result, they should have negotiated and amended the form contract. The other aspect concerns the purchaser’s obligations to the co-op under the contract. The court explained that, where an estate is responsible to complete the contract, it must comply with the terms of the contract and submit its own application to the board for approval. Because the estate here did not submit the application, the court did not consider what would have happened in the event that the board – which had approved the purchaser – refused to approve the estate. While we cannot be certain (particularly because we are neither familiar with the specific terms of the contract nor the assets held by the estate), we believe that if the board did not approve the estate, the estate would have been able to recover the down payment. However, the estate did not submit an application and, as a result, lost the down payment without any opinion as to whether it would have been an acceptable shareholder.

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First published: Mar 2010
Katz v. Board of Mgrs, One Union Square E. Condominium

The court recognized the long-standing principle that a condominium board cannot be liable for breach of the warranty of habitability or constructive eviction because both require the existence of a landlord-tenant relationship, which is not present between a condominium and its unit-owners. The court also interpreted the bylaws, and the board’s actions thereunder, in the context of the Business Judgment Rule. The court explained the well-settled law that the bylaws form a contract between the condominium board and its unit-owners and determined that, because the board acted within its business judgment when carrying out its contractual obligations, it could not be liable for breach of the bylaws. Finally, the court considered a cause of action for breach of the covenant of good faith and fair dealing, which asserted that the board did not act fairly or in good faith when performing its obligations under the bylaws. Such a requirement – to act fairly and in good faith – is an implicit requirement in every contract. Although claims under this cause of action have been asserted for years in general contract matters, we are seeing them asserted more frequently in cases involving cooperatives and condominiums. As this court explained, however, once a determination has been made that the board acted in good faith so as to defeat a breach of the Business Judgment Rule, it is highly unlikely that a board will be found to have breached the covenant of good faith and fair dealing.

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First published: Feb 2010
Ewen v. Maccherone

One of the issues which all condominiums (and cooperatives) face is whether to become involved in what is essentially a dispute between neighbors, whether it concerns smoke, other odors, decoration of a shared common space or noise complaints. The decision makes it clear that a unit-owner has the right to enforce a condominium’s bylaws and rules and regulations as against another unit-owner, even if the condominium (or its board of managers) is not a party to the action. The court did not discuss whether the plaintiffs had, prior to the action, complained to the board or the defendants, or whether anyone demanded that the sponsor correct what were apparently construction and design defects. Although we can anticipate that the defendants will seek to name the sponsor and possibly the board in a third-party action, this ruling stands for the proposition that a unit-owner can seek relief against another unit-owner directly without naming the board as a party. The court does not analyze the issue; however, the decision is clear that the condominium’s bylaws and rules and regulations form a contract not only between the condominium and its unit-owners, but also forms a contract between each unit-owner. Finally, the court confirmed that unit-owners may have causes of action for negligence and nuisance, independent of any claims concerning a violation of the condominium’s governing documents.

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First published: Jan 2010
First Avenue Owners Inc. v. Valentina Enterprises, LLC and J.A.V. Food Corp.

Typically, there is no protected right to light, view, or air. An exception exists if there is a recorded easement, such as the one in this case. It is for this reason that we recommend that those who are purchasing apartments that overlook the roof of an adjacent building perform due diligence to determine whether there is a recorded easement for light and air. Without such an easement, the owner of the adjacent building may be able to install mechanical equipment, a roof deck, or even additional stories (in which case “lot line” windows may have to be closed), provided that all laws are obeyed. When there is a recorded easement for light and air, however, its terms must be strictly followed. Courts may allow a minimal variance (such as if the volume were 253 cubic feet rather than the permitted 250), but in this case, the defendants’ failures to comply with the easement were substantial. In addition, even though the last sound measurements were taken in 2005 and 2006, the court determined that the cooling tower violated the noise control code. We believe that this ruling was made in part because the defendants’ failed to demonstrate – through expert testing and affidavit – that decibel levels 20 points above those permitted had been reduced at any time since 2006. The court also concluded that there was a private nuisance because there was a substantial, intentional, and unreasonable interference with the co-op residents’ right to use and enjoy their apartments. In opposition to the co-op’s motion, the defendants attempted to exert “form over substance” by arguing that certain “key” words were not contained in the co-op’s complaint. However, the court relied upon what the co-op actually demonstrated in its motion papers.

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First published: Oct 2009
Leschins v. 3777 Independence Corp.

It was undisputed that Goodman was the co-op’s managing agent. A managing agent working on behalf of a co-op could not be held liable unless there was clear and explicit evidence that it intended to make itself personally bound. There was no evidence that Goodman ever intended to be personally and separately bound for any action it took. The court noted that an agent would not be exempt from liability if it acted outside the scope of its authority; however, Leschins presented no factual support for this theory. This case reminds us that the law will not help a shareholder who fails to comply with his or her obligations under the proprietary lease. Plaintiff attempted to obtain money damages from the co-op because there was water damage in his apartment. However, it was clear that the co-op was willing to make the repairs, but that plaintiff would not grant it access. The court reviewed the parties’ rights and responsibilities under the proprietary lease and the Business Judgment Rule and determined that the co-op’s obligation to repair was contingent on plaintiff’s obligation to provide access. Importantly, the court held that the shareholder could not dictate the method or manner of repair. The co-op had the right to determine how the repairs were to be made, particularly since it retained experts and was relying on their advice. The case also reminds us that managing agents will not be liable for acts taken in their capacity as managing agent. A managing agent will only be liable if its actions evidence an intent to be separately responsible or if it acts outside the scope of its authority.

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First published: Sep 2009
Batsidis v. Wallack Management Co. Inc., et al.

The shareholder and co-op entered into an alteration agreement that required the shareholder to pay all of the corporation’s costs associated with the shareholder’s proposed alteration. The appellate court recognized that the provision was intended to insure that other shareholders of the co-op were not required to pay charges directly attributable to a single shareholder’s renovations. Importantly, the court drew a distinction between the provisions of the alteration agreement and proprietary lease where the lease typically requires a shareholder to pay the co-op’s legal fees in the event of litigation between the co-op and a shareholder. In the case of the lease, the court explained, public policy considerations must be taken into account so that people are not dissuaded from seeking “judicial redress of wrongs.” This is not a concern when a shareholder and a co-op contract through an alteration agreement to require a shareholder to pay costs associated with issues directly related to a particular apartment. Query whether a proprietary lease should be amended to specifically permit a co-op to charge back shareholders for professional fees incurred in connection with a specific apartment in the absence of litigation.

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First published: Jul 2009
Loss v. 407-413 Owners Corp.

This case illustrates the due diligence purchasers should perform if they buy a cooperative or condominium apartment. When buying, it is important to learn whether a prior owner performed work in the unit, whether the work was authorized by the cooperative, and who is responsible if the work requires repair or causes damage to your apartment or any other part of the building.Although not specifically discussed in this case, it appears as if this cooperative’s proprietary lease would require the tenant-shareholder to be responsible for repairs and any damage caused in the event the leaks were emanating from alterations performed by a prior owner. In addition, this case explains that a cooperative’s diligent efforts to locate the source of leaks, and to make repairs as directed by proper professionals, may create an issue of fact as to whether there is a viable claim for breach of the warranty of habitability, breach of contract, breach of fiduciary duty, and other claims. As a practical matter, we propose that, in most situations, if there are leaks into an apartment, a cooperative immediately attempt to address those leaks and leave the issue of who is responsible for paying costs associated with the work until after the repairs have been completed.

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First published: Jun 2009
Bender v. Green, Zayas v. Franklin Plaza

Bedbugs have become a major nuisance in many apartment buildings. It appears that it is not an issue of whether the building or apartment is clean or well maintained. Bedbugs can be found in homes, at certain workplaces, and in hotels. They can be transmitted through luggage, furniture, bedding, or clothing. We understand that there are no accurate statistics, but that HPD has issued more than 2,700 bedbug violations in the last year. Indeed, in March 2009, Mayor Michael Bloomberg signed a law creating a “Bed Bug Advisory Board” to study health concerns as a result of bedbug infestation. The cases discussed here are consistent with other recent decisions holding that a tenant (or co-op shareholder) may receive an abatement of rent because of the presence of bedbugs in their apartment. As a practical matter, we believe that in response to a complaint made by an apartment occupant, a board should act quickly to inspect, identify the problem and eradicate the infestation. It is probably not enough to assert that it is the shareholder’s responsibility under the proprietary lease to maintain the apartment in “good repair.” The warranty of habitability is a potent resource for tenants to impose onto landlords the burden of remediating the presence of bedbugs. Other laws may offer relief from bedbugs for condominium occupants.

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First published: May 2009
New York Mercantile Exchange Condominium, By its Board of Managers v. Pambassab Ltd.

It is important to note the time periods involved in this foreclosure action. Assessments were to be paid beginning in 2001. The action began in 2005 and the condominium was first able to obtain summary judgment in January 2009, eight years after the first payments were due and roughly three years after the action was started. Further, even though the condominium was awarded summary judgment, the action is not over. One of the things this case teaches us is that, if a unit-owner does not pay assessments or common charges in a timely manner, it is imperative that the condominium act as quickly as possible to start and diligently pursue legal proceedings. Indeed, boards should review their bylaws on this point as many require the board to act as soon as a unit-owner is more than 60 days in arrears. In addition, this case reminds us that it is important that boards maintain minutes of board meetings. It is clear that the court relied, in several instances, on the minutes in order to determine whether Pambassab objected to (or waived objections to) the amount or imposition of the assessments or the vote taken to impose the assessments. This proof was important in order to allow the condominium to meet its burden and challenge Pambassab’s arguments.

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First published: Apr 2009
Mark Hotel LLC v. Madison 77th LLC.

Once again, the court reviewed and upheld the clear terms of the contract between the parties. Of particular interest was the landlord’s attempt to declare the lease provision invalid by asking the court to apply the provisions of the Condominium Act to a request to convert premises to cooperative ownership. As the appellate court properly noted, the two are distinct and separate forms of ownership. While the Condominium Act applies to condominiums (which requires residential real property to be owned in fee simple), the court correctly explained that it does not apply to cooperatives, in which shareholders own stock in a corporation owning real estate, which permits them to live in a specific apartment pursuant to a proprietary lease. Moreover, the court made it clear that the landlord’s attempt to delay a review of the tenant’s alteration plans until the tenant agreed that it would not seek to convert the building to luxury hotel cooperative units would not be permitted. The lease gave the landlord a final five-day opportunity to submit its objections to the renovations and specifically provided that, absent such objections, approval is deemed given. Thus, the court found that when the landlord failed to object, it could not preserve a right to object at a later date, i.e., when the tenant agreed that it would not convert the building to cooperative units. Finally, the term “owner” as used by the Department of Buildings, must be reviewed by all cooperatives and condominiums. Although this case relied on an interpretation of the administrative code, we note that new DOB rules, in effect as of August 4, 2008, may require buildings to change their practices concerning who may sign certain permit applications as “owner.”

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