Case Notes in


First published: Oct 2009
Leschins v. 3777 Independence Corp.

It was undisputed that Goodman was the co-op’s managing agent. A managing agent working on behalf of a co-op could not be held liable unless there was clear and explicit evidence that it intended to make itself personally bound. There was no evidence that Goodman ever intended to be personally and separately bound for any action it took. The court noted that an agent would not be exempt from liability if it acted outside the scope of its authority; however, Leschins presented no factual support for this theory. This case reminds us that the law will not help a shareholder who fails to comply with his or her obligations under the proprietary lease. Plaintiff attempted to obtain money damages from the co-op because there was water damage in his apartment. However, it was clear that the co-op was willing to make the repairs, but that plaintiff would not grant it access. The court reviewed the parties’ rights and responsibilities under the proprietary lease and the Business Judgment Rule and determined that the co-op’s obligation to repair was contingent on plaintiff’s obligation to provide access. Importantly, the court held that the shareholder could not dictate the method or manner of repair. The co-op had the right to determine how the repairs were to be made, particularly since it retained experts and was relying on their advice. The case also reminds us that managing agents will not be liable for acts taken in their capacity as managing agent. A managing agent will only be liable if its actions evidence an intent to be separately responsible or if it acts outside the scope of its authority.

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First published: Sep 2009
Batsidis v. Wallack Management Co. Inc., et al.

The shareholder and co-op entered into an alteration agreement that required the shareholder to pay all of the corporation’s costs associated with the shareholder’s proposed alteration. The appellate court recognized that the provision was intended to insure that other shareholders of the co-op were not required to pay charges directly attributable to a single shareholder’s renovations. Importantly, the court drew a distinction between the provisions of the alteration agreement and proprietary lease where the lease typically requires a shareholder to pay the co-op’s legal fees in the event of litigation between the co-op and a shareholder. In the case of the lease, the court explained, public policy considerations must be taken into account so that people are not dissuaded from seeking “judicial redress of wrongs.” This is not a concern when a shareholder and a co-op contract through an alteration agreement to require a shareholder to pay costs associated with issues directly related to a particular apartment. Query whether a proprietary lease should be amended to specifically permit a co-op to charge back shareholders for professional fees incurred in connection with a specific apartment in the absence of litigation.

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First published: Jul 2009
Loss v. 407-413 Owners Corp.

This case illustrates the due diligence purchasers should perform if they buy a cooperative or condominium apartment. When buying, it is important to learn whether a prior owner performed work in the unit, whether the work was authorized by the cooperative, and who is responsible if the work requires repair or causes damage to your apartment or any other part of the building.Although not specifically discussed in this case, it appears as if this cooperative’s proprietary lease would require the tenant-shareholder to be responsible for repairs and any damage caused in the event the leaks were emanating from alterations performed by a prior owner. In addition, this case explains that a cooperative’s diligent efforts to locate the source of leaks, and to make repairs as directed by proper professionals, may create an issue of fact as to whether there is a viable claim for breach of the warranty of habitability, breach of contract, breach of fiduciary duty, and other claims. As a practical matter, we propose that, in most situations, if there are leaks into an apartment, a cooperative immediately attempt to address those leaks and leave the issue of who is responsible for paying costs associated with the work until after the repairs have been completed.

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First published: Jun 2009
Bender v. Green, Zayas v. Franklin Plaza

Bedbugs have become a major nuisance in many apartment buildings. It appears that it is not an issue of whether the building or apartment is clean or well maintained. Bedbugs can be found in homes, at certain workplaces, and in hotels. They can be transmitted through luggage, furniture, bedding, or clothing. We understand that there are no accurate statistics, but that HPD has issued more than 2,700 bedbug violations in the last year. Indeed, in March 2009, Mayor Michael Bloomberg signed a law creating a “Bed Bug Advisory Board” to study health concerns as a result of bedbug infestation. The cases discussed here are consistent with other recent decisions holding that a tenant (or co-op shareholder) may receive an abatement of rent because of the presence of bedbugs in their apartment. As a practical matter, we believe that in response to a complaint made by an apartment occupant, a board should act quickly to inspect, identify the problem and eradicate the infestation. It is probably not enough to assert that it is the shareholder’s responsibility under the proprietary lease to maintain the apartment in “good repair.” The warranty of habitability is a potent resource for tenants to impose onto landlords the burden of remediating the presence of bedbugs. Other laws may offer relief from bedbugs for condominium occupants.

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First published: May 2009
New York Mercantile Exchange Condominium, By its Board of Managers v. Pambassab Ltd.

It is important to note the time periods involved in this foreclosure action. Assessments were to be paid beginning in 2001. The action began in 2005 and the condominium was first able to obtain summary judgment in January 2009, eight years after the first payments were due and roughly three years after the action was started. Further, even though the condominium was awarded summary judgment, the action is not over. One of the things this case teaches us is that, if a unit-owner does not pay assessments or common charges in a timely manner, it is imperative that the condominium act as quickly as possible to start and diligently pursue legal proceedings. Indeed, boards should review their bylaws on this point as many require the board to act as soon as a unit-owner is more than 60 days in arrears. In addition, this case reminds us that it is important that boards maintain minutes of board meetings. It is clear that the court relied, in several instances, on the minutes in order to determine whether Pambassab objected to (or waived objections to) the amount or imposition of the assessments or the vote taken to impose the assessments. This proof was important in order to allow the condominium to meet its burden and challenge Pambassab’s arguments.

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First published: Apr 2009
Mark Hotel LLC v. Madison 77th LLC.

Once again, the court reviewed and upheld the clear terms of the contract between the parties. Of particular interest was the landlord’s attempt to declare the lease provision invalid by asking the court to apply the provisions of the Condominium Act to a request to convert premises to cooperative ownership. As the appellate court properly noted, the two are distinct and separate forms of ownership. While the Condominium Act applies to condominiums (which requires residential real property to be owned in fee simple), the court correctly explained that it does not apply to cooperatives, in which shareholders own stock in a corporation owning real estate, which permits them to live in a specific apartment pursuant to a proprietary lease. Moreover, the court made it clear that the landlord’s attempt to delay a review of the tenant’s alteration plans until the tenant agreed that it would not seek to convert the building to luxury hotel cooperative units would not be permitted. The lease gave the landlord a final five-day opportunity to submit its objections to the renovations and specifically provided that, absent such objections, approval is deemed given. Thus, the court found that when the landlord failed to object, it could not preserve a right to object at a later date, i.e., when the tenant agreed that it would not convert the building to cooperative units. Finally, the term “owner” as used by the Department of Buildings, must be reviewed by all cooperatives and condominiums. Although this case relied on an interpretation of the administrative code, we note that new DOB rules, in effect as of August 4, 2008, may require buildings to change their practices concerning who may sign certain permit applications as “owner.”

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First published: Mar 2009
Kaung v. Board of Managers of Biltmore Towers Condominium Association.

We are once again faced with a situation where the courts look to the precise language of a condominium’s bylaws to establish the rights and responsibilities of the condominium and its unit-owners. Here, the bylaws did not permit the board to enter into a cell tower lease because the court found that the tower was not “incidental” to the residential use and occupancy of the building, as required by the bylaws. However, the court also held that – notwithstanding the board members’ incorrect interpretation of the by-laws – the board members’ decision to enter into the lease that allowed the cell tower to be installed was not actionable. The board members entered into the lease in accordance with their business judgment and their failure to properly interpret the document did not form the basis for a cause of action against them.

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First published: Feb 2009
Silverstein vs Westminister House Owners Inc.

Although the plaintiff tried to claim that there was self-dealing by the board members, he had no evidence of that. The board members’ wives had lost their exclusive on the apartment months before the first prospective purchaser was brought to the board and the wives had no involvement in finding either prospective purchaser. This is another case which demonstrates that, in order to prove breach of fiduciary duty, the shareholder must be able to plead acts which show that the board acted in bad faith, outside the scope of their authority or for something other than a legitimate corporate purpose. Merely framing an alternate cause of action based on the same facts as one for breach of contract will not successfully avoid application of the Business Judgment Rule. Speculation as to the intent or motives of board members is insufficient. Moreover, an unsupported claim that discovery will reveal an improper motive will not defeat a motion to dismiss.

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First published: Jan 2009
Baker vs. 16 Sutton Place Apartment Corporation

This case reminds us that when a person buys a co-op or a condo apartment, he or she gives up certain rights, including the right to determine the way in which common areas of the building can be used. This is true even if use of those areas may negatively affect a specific shareholder. Levandusky and Pullman are the seminal cases in this area. Levandusky taught us, and Pullman reaffirmed, that “the very concept of cooperative living entails a voluntary, shared control over rules, maintenance and the composition of the community.” A shareholder “voluntarily agrees to submit to the authority of a cooperative board, and consequently the board may significantly restrict the bundle of rights a property owner normally enjoys.” Although the Pullman court cautioned that courts must exercise “heightened vigilance” in examining board’s actions, there can be no question that when one purchases a cooperative apartment, one agrees to submit to the decision making authority of the board and to cede certain of the privileges of single ownership to a governing body. In this case, the plaintiffs purchased at a time when the roof garden was not in place. However, the board had the right to create a garden even though plaintiffs might lose certain privacy rights. We note that had plaintiffs and the co-op entered into a contract prohibiting the board from installing a roof garden above plaintiffs’ apartment, the business judgment rule would likely not have been applicable and the parties would have been required to abide by the terms of the contract. It is apparent from the decision that no such contract existed here.

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