TAKEAWAY One common mistake many co-op boards make is believing they have unfettered control over shareholder alterations. That is not necessarily true. Boards must review the proprietary lease and follow its exact language. If the lease requires board consent but states that consent cannot be unreasonably withheld, the board must proceed carefully. In that situation, the board may not be protected by the business judgment rule. A court has the authority to review the board’s decision to determine whether the board acted reasonably based on the facts. If the court finds that the board acted unreasonably, it may determine that the board breached both the proprietary lease and its fiduciary duty. The consequences for a board that does not act properly can be serious.
Read full articleTAKEAWAY Boards should regularly update their alteration agreements to effectively manage risks associated with owner renovations such as damage to common elements, alignment with updated declarations and by-laws, incorporation of modern technology, and liability management. In this case, the record reflects that the managing member of the limited liability company that owns the unit is a real estate developer and that the owner decided that it would be cheaper to pay daily license fees to the board than to incur the costs involved in negotiating a second alteration agreement for the second phase of the work. But the unit owner may not have been counting on being required to pay the board’s attorneys’ fees which may exceed $100,000. This may not be the last decision in this litigation as the owner may proceed to litigate its potentially valuable counterclaims.
Read full articleTHE LESSON FOR BOARDS This case demonstrates how a well-crafted alteration agreement can protect a cooperative or condominium from legal liability and defense costs when, as happens frequently enough, an apartment renovation is unsuccessful. Here, the shareholder’s duty to indemnify and hold the cooperative harmless for work performed by her contractor shielded the board in the absence of insurance. The alteration agreement explicitly required the shareholder to produce the contractor’s certificates for $1 million in liability insurance and $500,000 workmen’s compensation insurance naming the cooperative, management and shareholders as additional insureds. Boards should have their alteration agreement forms reviewed by counsel, especially if such a review has not been recently conducted, to ensure that their alteration agreement contains appropriate protection for the building and the board and incorporates current developments in the law.
Read full articleTAKEAWAY The key lesson is that no matter how outrageous the facts seem to be, a party asking for summary judgment, which is a request for the judge to decide the case without a trial, must be able to convince the court that there really are no issues of fact. Courts have long required that anyone seeking summary judgment present solid, detailed evidence showing that they are entitled to win as a matter of law and that all meaningful factual questions have been resolved. If the moving party cannot meet this high standard—because the request is premature or the evidence is incomplete—the court has no choice but to deny its motion for summary judgment.
Read full articleTAKEAWAY This case is a warning for co-op and condo boards: even if bad renovation work was done by a previous owner, a new owner can still try to hold the board responsible if problems aren’t addressed. Here, the court allowed claims about noise and water leaks to move forward, finding they could amount to a nuisance tied to earlier faulty work. The decision shows why boards should always require proper alteration agreements for renovations and the importance of requiring that future owners assume the continued obligations of a previous owner under such alteration agreement.
Read full articleTAKEAWAY This case demonstrates how a well-crafted alteration agreement can protect a cooperative or condominium from legal liability and costs of defense when, as happens frequently enough, an apartment renovation is unsuccessful. Here, the shareholder’s duty to indemnify and hold the cooperative harmless for work performed by her contractor shielded the board in the absence of insurance. Where was the insurance? The alteration agreement explicitly required the shareholder to produce the contractor’s certificates for $1 million in liability insurance and $500,000 workmen’s compensation insurance naming the cooperative, management, and the shareholders as additional insureds. Unfortunately, property manager Douglas Elliman claimed – suspiciously, according to Mandracchia – that the certificates were lost and could not be located. In any event, boards should have their alteration agreement forms reviewed by counsel, especially if such a review has not been conducted recently, to ensure that the alteration agreement contains appropriate protection for the building and the board and incorporates current developments in the law.
Read full articleTAKEAWAY What happened here is a repeat of the famous court decision Levandusky v. One Fifth Avenue Apartment Corp, which found actual alteration work did not follow the signed alteration agreement. Boards can take action when a unit owner violates an alteration agreement and makes changes affecting other residents or impacting common areas. These actions are subject to the Business Judgment Rule, which gives boards broad discretion as long as they do not act beyond their authority and decisions are made in good faith. And as established in the Levandusky case, such decisions are not subject to second-guessing by the courts.
Read full articleThe court ruled in favor of Mr. Clauser, stating that he was not liable for the repair and maintenance of the French doors in his apartment, as he had never signed an agreement with the co-op or the previous owner.
Read full articleTAKEAWAY: Courts like to defer to the business judgment of boards. As long as a condominium board acts in good faith, within the scope of its authority under the bylaws, and to further a legitimate interest of the condominium, a court is not likely to meddle in board business.
Read full articleTAKEAWAY Boards and shareholders alike should read this decision (and the lower court decision) as cautionary tales of how a seemingly innocuous issue can snowball into a complete breakdown in communication and trust, and ultimately result in costly litigation. While it may be too late for the parties involved, boards and shareholders who find themselves in similar situations should consider mediation as a first attempt to resolve these “domestic” disputes amicably. In particular, boards should consider encouraging shareholders to submit their disputes with neighbors to mediation so that the parties are afforded an opportunity to communicate their concerns and interests. Ideally, having been given an opportunity to do so, they will be able to develop their own mutually agreeable resolutions without the board’s involvement and legal expense (let alone without resorting to litigation). Boards seeking to require mediation of disputes among residents should work with their attorneys to develop and implement appropriate changes to house rules and other governing documents.
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