Case Notes in


First published: Dec 2010
Gotham Partners, LP v. High River Limited Partnership

In this case, and in the Batsidis case, the appellate court for Bronx and New York Counties prescribed the circumstances under which parties to a contract (including, we believe, proprietary leases, alteration agreements and bylaws) can obtain an award of attorneys’ fees. Batsidis specifically addressed the circumstance where there was no litigation, yet fees were expended as a result of a particular shareholder’s alteration. Given the clear language in an attorneys’ fees provision in the alteration agreement at issue in that case, attorneys’ fees were awarded. Gotham addressed what happens when there is no applicable attorneys’ fees clause but a party attempts to obtain an award of such fees relying on an indemnification provision in the contract. What we take from these cases is that if the language in an attorneys’ fees section in the agreement is clear and unequivocal, it will be interpreted according to its meaning. If, however, a party seeks attorneys’ fees based upon a contract’s indemnification provision (rather than a section addressing legal fees specifically), the language of the indemnification provision must be specific and explicit that it was intended to apply where one party to a contract prevails in a lawsuit and seeks attorneys’ fees from the other. Given the recent case law concerning attorneys’ fees and the interpretation of different contractual provisions, we suggest that boards ask their counsel to review the provisions in their governing documents and alteration agreements in order to make sure the documents are in line with the most recent rulings.

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First published: Nov 2010
Fair Hous. Justice Ctr., Inc. v. Silver Beach Gardens Corp.

This case discusses two forms of discrimination and raises the question of whether facially neutral policies and procedures of a co-op or condo could be considered discriminatory. Although in the context of a motion to dismiss, the court concluded that a policy requiring prospective purchasers to obtain references from three current owners in co-op communities constitutes a sufficient basis to allow a complaint based on “disparate impact discrimination,” i.e., where a policy does not discriminate on its face but, when implemented, has the effect of discriminating. The court made note of the fact that residents of the co-ops are predominantly white in an area where homeowners are 35 percent black. It is unclear whether the court would have permitted the claim to go forward if the co-ops were racially mixed. The court also considered statements made by a real estate agent and employees of one of the cooperatives in order to determine that plaintiff had the right to attempt to prove “intentional discrimination” by virtue of a claimed selective enforcement of the three-reference policy. Even though the real estate agent was not an “agent” of either co-op, and her comments could not be directly attributable to them, the court clearly took the statements into consideration when determining that the plaintiff should have the right to prove intentional discrimination. Finally, we note that, although not part of the motion, the black testers were also plaintiffs, having sued the real estate agent. It is important for all co-ops and condos to review their policies and procedures to insure that they comply with all discrimination laws and do not – even unintentionally – create a situation where members of a protected class are treated differently from others.

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First published: Oct 2010
Lombard v. Station Square Inn Apartments Corp.

The co-op tried to limit the amount that the plaintiff could recover by asserting that the plaintiff had to have started the action within three years of when the conditions began. While the court limited some of the damages plaintiff could recover, it also explained that a six-year period was applicable in most instances. In passing, the court discussed an important rule which was been well established by the courts - that a tenant or shareholder cannot recover damages for breach of the warranty of habitability unless they live in the apartment. Further, the court explained one of the exceptions to the Business Judgment Rule. If a co-op has a contractual obligation, it cannot avoid it by claiming that it is in the best interest of the co-op to not perform. Thus, if a proprietary lease requires a co-op to act (or bylaws require a condominium to act), the entity cannot ignore its obligations by reliance on the Business Judgment Rule. Finally, the court discussed the qualified privilege or common interest exception to claims of defamation. This privilege – which protects speech where all parties have an interest in the subject matter – is important because it allows a free flow of communication about co-op or condo matters so long as statements are not made with malice.

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First published: Sep 2010
Baker v. Bay Terrace Co-op Section XII

As we have previously discussed, specific contract language is important and must be reviewed when determining the rights of a co-op and its shareholders. The occupancy agreement required the co-op to maintain the premises in good repair, except under certain circumstances. Those exceptions did not include the situation here – where the co-op required access in order to perform exploratory work to locate a building wide leak. The court did not directly address that portion of the memo attached to the co-op’s rules and regulations which stated that painting was decorative and the responsibility of the shareholder. Because the court awarded Baker the full $850 he spent to paint and wallpaper, it is implicit that the co-op was responsible for the cost of restoring what Baker had in place prior to the exploratory work. This is an important consideration where a shareholder installs expensive finishings. Accordingly, we recommend that boards review all their governing documents concerning responsibility for repairs and decorations if repairs need to be made through no fault of the apartment owner. If it is the building’s responsibility, it is important that the board understands the cost of restoring the decorations.

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First published: Jul 2010
Ismael-Aguirre v. Wharton and Hiralion Real Estate Inc v. 225 5th LLC

These cases address when and if a prospective purchaser is entitled to a refund of the down payment. In Ismael-Aguirre, it determined that the terms of the contract were unambiguous and that, based on the board’s failure to act, the contract was terminated. As to Hiralion, the court was faced with a different issue: whether the sponsor of the conversion misrepresented that the 12th-floor terrace would have views, as opposed to an eight-foot wall which enclosed the space. Based on the ambiguity between the written words of the offering plan and the floor plans, the court was willing to consider oral representations made by the sponsor, even though they would not normally be used when interpreting a contract.

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First published: Jun 2010
2229-13 Apt. Corp. v. Portnov

This case reminds us that the pet law, which is applicable to cooperatives (and to condominiums under certain circumstances), must be strictly followed so that any action to evict the owner of a pet that is being harbored without permission, has to be started within 90 days of the date on which the co-op, its employees, or agents first knew about the pet. In a co-op, it is imperative that the co-op act very quickly and give the shareholder no respite. This is because, before starting an action to evict a shareholder for a violation of the proprietary lease, most leases require that the co-op first serve a 30-day notice to cure and a 5-day notice of termination. When one adds in time allowances for service, correspondence, discussions, negotiations, and the like, the 90-day deadline is a very short time period. We recommend that, even where a shareholder claims the pet is temporary, these notices be promptly served. The co-op can always decide to withdraw them at a later date. We note that the court provided another alternative to immediate service of notices and the start of an action: entry into an agreement with a date by which the pet must be removed from the premises. While we are in favor of settlement agreements, again, a co-op must watch its time periods so that, if no agreement is signed despite a shareholder’s promises, the co-op has enough time to serve a notice to cure, notice of termination, and notice of petition and petition (or summons and complaint) to meet the stringent requirements of the pet law. As to attorneys’ fees, the court decided not to reward the shareholders for misleading the co-op. While the court believed it was constrained under the pet law to allow the dog to remain in the apartment, it concluded that there was no determination “on the merits” so that there was no “prevailing party.” In this way, it was able to decline to award legal fees to the shareholders.

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First published: May 2010
Beudert-Richard v. Richard

This case presents an excellent example of what may happen when there is a change in the law not addressed by property owners. The majority decided to allow the case to proceed, taking into consideration the apparent intent of Adam and Pamela, even though neither ever formally altered the way in which they held title to the co-op shares. The dissenting judge would have adhered strictly to the long-standing rules concerning ownership of shares and would have dismissed the complaint, as the lower court did. While we question whether there are many apartments that were purchased by couples as joint tenants prior to 1996 who have since divorced, we offer this case as a cautionary tale and a reminder that it is important that you communicate with your attorney about any changes in the law or your marital status which may affect ownership of property.

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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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