BLOG | Counsels’ Corner: An Update on Cooperative and Condominium Cases
By Kenneth J. Finger, Esq., Dorothy M. Finger, Esq., Carl L. Finger, Esq., and Daniel S. Finger, Esq.
Payment of Maintenance:
Virtually every landlord faces a claim that rent / maintenance / common charges should not be paid due to failure to maintain the premises, such as in the case of Andrea v. 186 Tenants Corp. – leaks in the apartment. The Court in Andrea found that the tenants were not entitled to withhold maintenance in light of the Proprietary Lease’s clauses precluding a setoff, diminution or abatement of rent.
Caveat: Make sure the lease is carefully reviewed when bringing or defending non- payment actions.
Alteration / Renovation Agreement with Board:
In the case of 131 Perry St. Apt. Corp. v. Clauser, the shareholder signed an agreement with the Board relative to an alteration, and agreed to be responsible for the new fixtures and also stated that future owners would be responsible.
A new shareholder purchased and was not informed of the Agreement and in fact did not sign anything with either the cooperative or the seller assuming the obligations for the fixtures. A leak ensued and the co-op brought suit claiming the new shareholder was bound by the alteration agreement. The Court held that the agreement could not be enforced as the new shareholder knew nothing about it, was not a party to it and the co-op should have required the new shareholder to sign the agreement.
Alternatively, the Cooperative could have amended all Proprietary Leases to provide that all purchasers are bound by agreements signed by prior shareholders.
Caveat: Cooperatives/Managing Agents should keep copies of all agreements. Perhaps a deposit by the shareholder at the time of the alteration could be considered.
Statute of Limitations knocks out cooperative from collecting rent:
In this case, the Sponsor was required to transfer a unit to the co-op in 2010, but did not do so. The co-op finally brought suit after the Statute of Limitations expired. While the co-op argued, in effect, there was a continuing “wrong” (or obligation to pay the rent monthly), the Court found that the wrong was in 2010 (not transferring the unit to the co-op) and thus there was no “continuing obligation” which would effectuate the continuing wrongs doctrine tolling the Statute of Limitations. 333 East 91st Street Owners Corp. v.165 First Avenue Associates.
Caveat: Always be aware of the Statute of Limitations.
Shareholder Challenge to Proprietary Lease Amendment Defeated:
The cooperative in this case, through a shareholder amendment to the Proprietary Lease, changed maintenance responsibilities for terraces from the co-op to the respective shareholders. The shareholders filed suit over a year later. The Court held that this was not a proprietary lease breach but a challenge to Board action, and thus, there was a four-month Statute of Limitations as an Article 78 proceeding. Dau v. 16 Sutton Place Apartment Corp.
Business Judgment Rule:
The basic rule, as applied to Cooperatives / Condominiums / Homeowners’ Associations, was set forth in detail in the case of Levandusky v. One Fifth Avenue Apartment Corp. In essence it protects the entity when the governing board acts within the scope of its authority, does not violate the law or its own governing documents and acts in good faith. Among other things a Board is not protected when the Board did not act within the authority granted it in its governing documents or acted in bad faith. It is validly applied when the Board acts in enforcement of its lease and house rules; as to rule making decisions or in management decisions.
Where a Condominium Board relocated a heating system and the unit owner objected, the Court found the action was in good faith and for the benefit of the Condominium. Aydin v. Bd. Of Mgrs. Of the Decora Condominium.
Contrariwise, the Court in Bacharach v. Bd. Of Mgrs. Of the Brooks-Van Horn Condo held that the Board’s extensive delay in dealing with a unit owner’s complaints as to an unabated noise condition was not justifiable as a legitimate good faith decision.
In Orange Orchestra Properties, LLC v. Gentry UnLtd., Inc. the Court dealt with a shareholder’s suit challenging the denial of an alteration (and later termination of the Proprietary Lease). In this case the Board’s approval authority provided that it not be “unreasonably withheld.” Also, other similar alterations had been approved, thereby calling into question the possibility of “bad faith.” Business Judgment did not protect the Board.
Caveat: Board approval authority should not be limited or qualified.
The Cooperative acted after a shareholder vote, to terminate the shareholder’s proprietary lease on the grounds of objectionable conduct. A 15-days’ notice to cure was required. The Court overturned the ejectment action because the conduct did not continue after the service of the 15-day notice to cure and the Board’s claim that it was protected under the business judgment rule since the termination of the lease was in contradiction of the proprietary lease. Tomfol Owners Corp. v. Hernandez
Where a shareholder engaged in years of objectionable conduct, including threats, false accusations, use of profanity and inappropriate photographing, the Court said that it would not second guess the Board as this is why the co-op is protected by the Business Judgment Rule. Haimovici v. Castle Vill. Owners Corp.
Caveat: Note that many of these cases, as set forth in the previous examples, are fact specific.
The General Obligations Law, Sec.5-903 requires notification of an automatic renewal provision in a contract between a vendor as to service, maintenance and/or repair and the Board and this section of the law trumps a continuing long term project. See Abstract Management, LLC v. 1701 Albermarle Owners Corp.
Real Property Action and Proceedings Law, Sec.1303(1 )(b).
Predicate notice to foreclosure action must be served on tenants occupying units.
U.S. Real Estate Credit Holdings III-B, LP v. BCS 20 West LLC.
Caveat: In foreclosure actions, the notice provisions must be strictly complied with.
Editor’s Note: The authors are attorneys with Finger and Finger, A Professional Corporation. The firm, based in White Plains, is Chief Counsel to The Building and Realty Institute of Westchester and the Mid-Hudson Region (BRI) and its seven component associations.
This article was featured in the Feb/Mar ’23 issue of IMPACT. View it here.