Case Notes in


First published: Dec 2018
Perrault vs. Village Dunes Apt. Corp.

There are some co-op proprietary leases and condo bylaws that require that certain acts of the board be reasonable or that its consent not be unreasonably withheld. These are found most often in provisions concerning alterations and the establishment of house rules, or other rules and regulations. When reasonableness language is present, the burden is on the cooperative or condominium to demonstrate that its acts were “reasonable.”

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First published: Oct 2018
Fairmont Tenants Corp. v. Braff

This case is a good reminder that boards can successfully challenge a shareholder’s actions, even if the shareholder has engaged in an activity that is in violation of the lease for years – even decades. This court found that, given the proprietary lease’s “no waiver” provision, the passage of time did not waive the board’s right to object. Nor did the board’s apparent knowledge of the Braffs’ using the roof waive the right to object. The board knew about it in 2007, when it forbade the couple from using the setback. Also, while the offering plan is probably not an active document anymore, the board and shareholders are still bound by the certificate of incorporation, bylaws, and proprietary lease, all of which can be relevant when trying to determine the rights of the involved parties. In this situation, the offering plan was the document that identified whether use of outdoor space was permitted by the adjacent shareholder. It showed the intent of the original drafter, and Braff failed to demonstrate that anything set forth in the plan was overridden or modified. The court thus properly considered the terms of the plan as a guide to determine whether or not the outdoor area was for the exclusive use of the Braffs.

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First published: Sep 2018
Avramides v. Moussa

If a shareholder or unit-owner is so dissatisfied with the way a board is acting, a derivative action is one way to deal with the situation. However, as this case reminds us, the claim cannot be brought willy-nilly. The apartment owner must ask the board to act or must prove that the board was corrupt. Courts have been attempting to determine Fletcher’s true scope ever since it was decided in 2012. In effect, Fletcher said that board members were not protected by their position if they acted improperly. In Avramides, the board’s actions – repairs to the roof and terraces – were within its business judgment, and there was no basis to hold any individual liable. In Stinner v. Epstein, another case decided by another appellate court at about the same time as Avramides, the court found that allegations that a board member had improperly received a $25,000 payment was enough to allow a claim against that member to proceed. It seems that the facts in Avramides and Stinner lie at opposite ends of the spectrum. In the former, the board did not breach its duty and thus no individual could be held accountable; in the latter, the allegation that the board member did something in his own interest to the detriment of the building was sufficient to allow the court to deny a motion to dismiss the complaint.

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First published: May 2018
Ran v. Weiner

Whether shareholders can enforce house rules against other shareholders is not something many attorneys address directly when drafting or vetting a co-op client’s house rules. But, as this case demonstrates, it is important. Shareholders should understand that they can pursue a claim directly against a neighbor if that neighbor breaches the proprietary lease, but they must also understand the co-op/landlord’s role. This decision seems to say that the house rule would apply only if a shareholder leaked water into a common area. The co-op, as one of the parties to that specific lease, presumably could require the shareholder to pay for any damages. But the finding that shareholders cannot enforce house rules against each other would arguably apply to all house rules. Ran has filed an appeal. Assuming it goes forward, it will be interesting to see what the appellate court decides. Meanwhile, boards may want to rethink how they draft certain house rules.

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First published: Apr 2018
Koeppel v. 130 East End Avenue Tenants Corp.

The court here addressed a provision, typically found in proprietary leases, which is prone to create problems. Certainly, financial wherewithal is important. While not before the court in this action, there can be circumstances in which a family member is financially responsible, but the board may rightly want to reject their application. The proposed shareholder may be litigious, evicted from a prior building because of disruptive or objectionable conduct, or there is something else in his or her history that would make for an undesirable neighbor. It is one thing when an apartment passes, upon death, from one spouse to the other when both have lived in the building. It is another when this provision allows an estate to introduce a completely new individual into the mix. It is for this reason that many boards, when considering whether to propose lease revisions to their shareholders, often consider revisions to this paragraph.

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First published: Mar 2018
Minkin v. Board Of Directors of the Cortlandt Ridge Homeowners Association

Assessing fines may be the best way to enforce rules and policies. The declaration and bylaws were unambiguous. A court may look at the offering plan as an aid to interpretation only when governing documents are unclear or inconsistent. The declaration and bylaws are the contract between the board and owners. Finally, in the lower court decision, the court recognized that this decision would affect all unit-owners, not just the one who was a party to the suit. Although other homeowners could sue on the same theories (and could raise additional bases for their claims), for practical purposes these rulings decided the issues before the court for all homeowners.

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First published: Feb 2018
Olszewski v. Cannon Point Association Inc.

House rules are a funny thing. Many co-ops and condos begin with a standard form. It’s probably best not to adopt a standard form without carefully considering whether specific rules are applicable to the circumstances of your cooperative or condominium. And because the rules are incorporated into a proprietary lease or bylaws, violating them can cause the default of a governing document. The rules should clearly state what is intended, and not just be copied from another building’s. This is an issue boards and their attorneys face frequently. We believe this court clearly laid out the issues. When people buy into a planned community, they give up certain of their individual rights and interests for the benefit of everyone. But people also purchase knowing that the lease or bylaws form a contract, which can be amended by a supermajority of owners, not by board fiat. So while a board’s right to adopt rules is important, it cannot alter the contract that the owners signed when they purchased. Some rules are clearly not consistent with the bylaws or proprietary lease. Boards must look closely. Does the proposed rule conflict with the bylaws or other governing documents? If so, should the board propose it to the owners as a bylaw or lease amendment, rather than face opposition? Considering these questions in advance can avoid acrimonious and costly challenges down the road.

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First published: Jan 2018
Matter of Dicker v Glen Oaks Vil. Owners, Inc.

We cannot stress enough that the Business Judgment Rule does not give boards carte blanche. Boards may not act outside the scope of their authority, may not act in bad faith, and may not violate their own contractual obligations, including those set forth in the proprietary lease. There are a number of cases that raise the type of “disparate treatment” discussed in this case – that is, whether a board can treat some shareholders differently than others. We have seen other appellate level cases where the court upheld the right of a board to treat disimilarly situated shareholders differently. In one case, one group consisted of resident-owners, and another included investor-owners. A final question: would the appellate court have reached the same conclusion if the board had modified its rule under ordinary circumstances – not while the legal issue was pending between Haffey and Dicker? Boards have certain discretion, but we have found that to avoid the appearance of the board treating a shareholder disparately, it sometimes is preferable for a board to exercise its discretion when there is no specific matter before it. Although we cannot be certain as to how the court would have ruled had the modified rule already been in existence when Haffey decided to build her terrace, experience tells us that the rule might have been more likely to pass judicial muster.

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