Case Notes by
Richard Siegler & Dale Degenshein, Stroock & Stroock & Lavan
Category
- Access
- Alterations
- Arbitration
- Assessment
- Attorney Fees
- Attorney-Client
- Authority to Sue
- Balcony/Terrace Rights
- Bike Lane
- Books and Records
- Breach of Lease
- Business Judgment Rule
- Bylaws
- Bylaws/House Rules
- Certificate of Occupancy
- Charges/Fees
- Commercial Unit
- Common Element
- Common Elements
- Companion Animal
- Constitutionality
- Construction Defects
- Contracts
- Conversion
- Defamation
- Discovery
- Discrimination
- Due Diligence
- Easement
- Elections
- Estate
- Eviction
- Eviction/Termination
- Fiduciary Duty
- Fines
- Foreclosure
- Fraud
- Governance
- Gym
- House Rules
- Indemnification
- Indemnification/Subrogation
- Injunction
- Insurance
- Labor Law
- Liability of Directors
- Licenses
- Liens
- Maintenance
- Malpractice
- Management
- Mechanic's Lien
- Misrepresentations
- Motion Practice
- Motion Practive
- Notice of Pendency
- Nuisance
- Occupancy Agreement
- Ownership
- Parking
- Partnership
- Personal Injury
- Pets
- Property Damage
- Proprietary Lease
- Reasonableness
- Receivership
- Release
- Repairs
- Representations
- Sales
- Sponsor
- Statute of Limitations
- Stock/Shares
- Stocks/Shares
- Sublets
- Succession Rights
- Tax
- Third-Party Liability
- Transfers
- Trespassing
- Trial Practice
- Violations
- Warranty of Habitability
- Yellowstone Injunction
- Zoning
First published: May 2014
The South Tower Residential Board of Managers of Time Warner Center Condominium v. The Ann Holdings LLCThis 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.
Read full articleFirst published: Apr 2014
AMT CADC Venture v. 455 CPW, LLCSo 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.
Read full articleFirst published: Mar 2014
Jeffrey Sardis, Lauren Sardis and JAS Holding Corp. v. Sofia Frankel and Michael FrankelWhy 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.
Read full articleFirst published: Feb 2014
Tucciarone v. The Hamlet on Olde Oyster Bay Homeowners AssociationWhile this case involves an HOA, and not a co-op or a condo, it is instructive. The HOA board knowingly placed the Tucciarones in a catch-22 situation. From the decision, it appears that the only way for the couple to stop the imposition of the fines and penalties, including the denial of car access, was to make a deal with their next-door neighbor. We cannot tell from this decision whether the couple or the neighbor was being reasonable (if either of them was), but we are not sure it makes a difference. The way in which the board chose, apparently, to force a settlement, placed the Tucciarones in an untenable position. Although the court referred to the board’s behavior as possibly “unconscionable,” identifying such activity as an exception to the Business Judgment Rule, it appears that the court was actually speaking about a component of the good faith standard imposed by the rule. In other words, it appears that the owners were able to demonstrate that the actions taken by the board were in bad faith so that the rule would be inapplicable and the court need not defer to the board’s determination. From the facts recited in this opinion, it appears that the board consciously placed the Tucciarones in a no-win position. Indeed, according to the decision, the board admitted that “the purpose of the new directive is [to] obtain remediation, i.e., settlement of the Fadlon Action, of the bamboo infestation.” An important factor is that the board plainly did not follow its own rules. There is no question that it had to comply with its governing documents in any treatment of unit-owners. In instances such as this, strict compliance is required and it is advisable that a board have – and produce to the court – the paperwork to demonstrate it has done precisely that. In this case, the board apparently failed, and this alone was likely a basis for the relief granted.
Read full articleFirst published: Jan 2014
Cambridge Owners Corp. v. New York City Department of TransportationThe Citi Bike program, officially launched in May 2013, has been met with enormous controversy. The unofficial, anecdotal opinion of the authors is that people either love the program or hate it – there are very few who have a middle-of-the-road stance. In any event, although this case is not specifically about cooperative and condominium issues (notwithstanding the fact that the petitioner is a co-op), it is important. A Challenging Standard. It is apparent that Cambridge asserted good, solid, and extensive arguments to challenge the placement of bike share stations in front of its building. At the end of the day, however, it is very difficult for a co-op or condo to meet the requirements imposed, i.e., was the action of DOT in installing a station in front of their building arbitrary and capricious? Where, as here, DOT apparently complied with its own guidelines, Cambridge could simply not overcome its burden. We note that this is a trial-level case, that there are other cases pending, and that we do not know how appellate courts will treat the issue when it is presented to them. Think Local. This case also reminds us that co-op and condo boards must be diligent about following local politics and familiarizing themselves with the issues under consideration by their local community boards. We find several situations where an item on a community board’s agenda is belatedly brought to a board’s attention, so that the building has to scramble to present its case. Often, the board is not advised of an item that – in its opinion – may affect its building, so that no director appears at a community board hearing to contest the issue. Boards and managing agents should keep abreast of local issues, so that they can identify projects of concern and provide timely comment on actions for which a city agency or a private organization has requested permission.
Read full articleFirst published: Dec 2013
Goldstone v. Gracie Terrace Apartment CorporationThis case raises interesting issues in that it specifically acknowledges that the co-op will be in breach of the proprietary lease by reducing the size of the apartment and requiring the reconfiguration of rooms. Notwithstanding, the court would not issue a preliminary injunction because this de minimis “taking” could be compensated by money damages and because the equities were such that the co-op’s concerns far outweighed those of the plaintiff. Notably, the court acknowledged the co-op’s obligations to all shareholders such that demolition and reconstruction of portions of the building – if other solutions were available – were not required. Given the particular (although not unique) facts of this case – that the space was being taken in connection with a repair to the plaintiff’s apartment, where the only other alternative was prohibitively expensive – we do not know how or if this decision will affect other situations where a co-op may wish to “take” a portion of living space from an apartment. Initially, the decision comes to us in the posture of a preliminary injunction, so that there is very limited precedential value. Regardless, we can envision situations where a co-op might want to enlarge a common area hallway (particularly in older buildings) to make it wheelchair accessible by reducing the size of someone’s closet or foyer. Will it be permitted (required?) to do so based on the holding here? Unlikely as such an outcome may be, it is certainly something that should be considered by boards and their counsel.
Read full articleFirst published: Jul 2013
Thomas Campaniello v. Greene Street Holding Corp. and the Board of Directors of Greene Street Holding Corp.In many co-ops, the commercial space is owned by the co-op and leased to a tenant, whether through a “sweetheart” lease to the sponsor or an arm’s length lease to a tenant. In those situations, the commercial occupant is only a tenant, and the lease forms the agreement between the parties. In arm’s length transactions, those leases are negotiated and the terms of any sublet would be contained in the commercial lease. In this situation, the commercial units were owned by shareholders of the co-op, so that the agreements between the parties were the same as the agreements between the co-op and its residential shareholders – the proprietary lease and bylaws. This case reminds us that it is important for the managing agent to maintain accurate and complete records of meetings and, in particular, votes by the board or shareholders. In order for a board to amend bylaws, the terms of the amendment should be set forth in the notice of meeting. Because the board (or agent) did not have a copy of the notice of meeting in this instance, the shareholder was able to argue that the meeting was not properly announced. Here, the board was able to locate persons who had served as board members more than 30 years ago, and those persons were able to recall the sum and substance of the notice of meeting on this issue. Without their affidavits, we do not know how the court would have resolved this issue – although there appeared to be evidence that the shareholders were advised of the bylaw amendment. Additionally, this case underscores the importance of uniformly implementing lease and bylaw provisions, as the court noted that the sublet fee had been charged to all shareholders – residential and commercial – for more than 30 years.
Read full articleFirst published: Jun 2013
Barasch v. Williams Real Estate Co., Inc.Again, this is not a case that directly involves cooperatives or condominiums. However, it is an issue we see frequently. Here, the court, relying on various factors to determine whether a shareholder/director had an absolute right to all board-attorney communications, offered some guidance. Barasch and Williams clearly were adversaries to one another at a certain point in time. In fact, the communications from counsel discussed ways in which Barasch could make it difficult for Williams to take action in accordance with the plan of the other, majority directors. The New York appellate court found it important that Barasch’s claims were made by her in her capacity as a shareholder and that the corporate attorney-client privilege trumps the director’s right to information when the director is acting in her capacity as a shareholder. The decision states that it is important for cooperatives and condominiums, in any instance where they are asked for documents in a litigation with a director, to review carefully whether the documents and communications are privileged and thus should not be produced.
Read full articleFirst published: May 2013
Elias v. Orsid Realty Corp.This case reminds us that there is a difference between the Business Judgment Rule and a requirement that a board or its agent act “reasonably.” Under the rule, a court defers to a board if its actions are taken in good faith, with honest judgment, for the lawful and legitimate furtherance of corporate purposes. Although some of the case law is unclear, typically, the Business Judgment Rule will not apply if the document at issue – a proprietary lease or bylaws, for example – requires consent to be “reasonable” or “not unreasonably withheld.” Cases have said that this reasonableness standard requires that the board or its agent take actions “legitimately related to the welfare of the cooperative.” In many circumstances, this is a distinction without a difference. As demonstrated in this case, however, boards and their agents must be mindful that there can be actions that may be protected under the rule but may not be acceptable. It has been the law for several years that a managing agent has the right to impose the rules of a cooperative if the proprietary lease requires the agent – and not the board – to approve purchasers of unsold shares. Here, the court determined that the board’s rules could be applied in principle. But because specific language in the lease required the managing agent to be “reasonable,” it could not reject a purchaser solely because the financing was in excess of the amount permitted by the board. This decision is subject to appeal and therefore could be modified or reversed.
Read full articleFirst published: Apr 2013
Alphonso v. Commissioner of Internal RevenueWe do not normally report on tax cases; however, we believe that this decision is significant. Putting aside whether Alphonso can ultimately demonstrate that the wall collapse was a “casualty,” it is important that the appeals court determined that the shareholders had a property interest in the wall and the common areas owned by the cooperative corporation such that they could take a casualty loss deduction. If it had been determined that only the co-op had a property interest, it would have left the shareholders with little comfort, as cooperative corporations themselves typically operate on a break-even basis and have little or no net income, so that the right to take a loss has no practical benefit to the co-op. The lease required tenant-shareholders to pay “cash requirements,” which included maintenance of the property owned by the co-op. It was also important that the house rules, which are incorporated into the proprietary lease and which grant shareholders their leasehold interest, specifically permitted shareholders use of the grounds. This decision may have an impact on the ability of co-op shareholders to claim losses in connection with money paid for co-op assessments for, among other expenses, hurricane-related damage.
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