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2014

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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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First published: Feb 2014
Tucciarone v. The Hamlet on Olde Oyster Bay Homeowners Association

While 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.

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First published: Jan 2014
Cambridge Owners Corp. v. New York City Department of Transportation

The 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.

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