Boards

Professional, Civil and Criminal Risks when Attorneys Serve as Board Members

Many Coops, Condos and HOAs have board members who are attorneys. Attorney board members can provide valuable input as board members but have to be careful not to provide legal advice. They definitely should not be relied upon as the Board or association’s attorneys for several reasons that will be discussed here. However, the attorney board member’s experience and training can help with identifying legal issues, framing those issues for the board, and presenting the questions with clarity to the association’s outside counsel. The attorney board member’s legal experience likewise aids attorney board members in helping the board understand the import and implications of legal advice received, and in the board’s adoption and implementation of appropriate actions in light of that counsel.

Attorney board members have to be very careful distinguishing between giving legal advice in place of outside counsel, and using their legal education and/or experience to aid in their decision making as a board member and helping other board members make decisions.

First, if the attorney board member is not a member of the bar in the state in which the association is located, the attorney board member risks engaging in the unauthorized practice of law. So if an attorney board member is not admitted to practice law in New York, the attorney definitely should not be giving legal advice to the board as it constitutes the unauthorized practice of law which is a sanctionable offense by the bar often leading to suspension or disbarment in the states that they are admitted, but also constitutes a crime in many states. In New York, the unauthorized practice of law is a class “E” felony. As such, conviction for a first-time offender can land the person in prison for up to four years or on probation while also requiring the offender to pay fines, restitution and be subject to other conditions imposed by the court.

If board members allow a fellow board member to give legal advice to the organization and engage in the unauthorized practice of law, they risk criminal punishment as well for assisting in the unauthorized practice of law, damages and claims that may result from decisions made by the board based on the unauthorized attorney’s opinion’s or legal advice and the denial of insurance coverage by the association’s insurers if a lawsuit is brought against the board members.

Even if the attorney board member is licensed to practice in the state in which the association is located so that there is no unauthorized practice of law concern, there still is an inherent conflict of interest in the attorney board member providing legal advice to the association for which the attorney serves on the board. New York’s Rules of Professional Conduct contains complicated rules regarding conflicts of interest and when an attorney has a conflict of interest it must be addressed. Condo’s in New York also have annual reporting requirements concerning conflicts of interest which must be satisfied.

There is also an ethical requirement of competency of an attorney giving advice in the condo/coop/HOA law area. If an attorney board member gives legal advice that the person is not competent to give because they don’t practice in the applicable area of law, then the attorney board member is arguably not competent to give the legal advice to the board which could also lead to a grievance complaint or malpractice claim in the event the legal advice turns out to be incorrect.

Offering legal advice on which the board relies initiates an attorney-client relationship. When that advice is provided regarding issues on which the attorney board member will also vote and that will affect the attorney board member personally, a potential conflict-of-interest issue raises questions about the
independent legal judgment exercised by the attorney board member.

Additionally, a board member is required to discharge his duties as a board member in accordance with the board member’s good faith business judgment in the best interests of the association. In New York a board is entitled to rely upon the advice of counsel in making business decisions, and by doing so helps to insulate the board from liability under the business judgment rule. When a board relies upon the advice of a fellow board member who is an attorney, especially when the attorney is not authorized to practice law in the situs state, there is arguably no protection afforded under the business judgment rule. At the very least your adversary will raise this against the board in arguing that the business judgment rule does not apply to the board’s decision or at least the attorney board member who was acting in conflict or worse, criminally.

An attorney board member can be a great asset for an association board, however, that is not an acceptable substitute for independent legal advice from a licensed New York attorney who is experienced in representing condos, coops and HOAs and their boards. The perils for the association and the board members are too great to take the risk.

People Falling Out of Windows

Tragic. It happens in high rises and even in shorter buildings more often than you may realize. When the news picks up the story, instant attention is brought to a building and the board and management need to spring into action and be proactive.

Legal thinkers will immediately assess liability and preventative work that can be done now that it has happened in your building and the board may be on notice of a dangerous condition that should be rectified promptly. The absence of window guards when required is an example. Even when such guards are not legally required in the applicable apartment it’s a good wake up call to take a look and make sure apartments that are supposed to have guards on windows actually have them. That any required notices are being sent and follow up documentation being collected.

Insurance for the coop, condo or HOA needs to be notified. The board has to plan for the worst and be concerned about the possibility of a lawsuit even if the board and management didn’t do anything wrong.

Notification of residents of the event and assuring them that the board and management are on top of it should be considered. How to address or not address the media attention? How to help neighbors in your building cope with the tragedy? How to make sure the attention of the event doesn’t impact the building in any further negative way and how to go on from here? These are all areas that experienced counsel and management can help the board navigate.

Read about the all too often tragedy on the upper east side of Manhattan (https://nypost.com/2022/07/16/nyc-man-falls-to-his-death-while-cleaning-windows-of-his-park-ave-high-rise/). Something as simple as window cleaning leads to tragic fall.

NY Condo’s Can Now Legally have Owners’ Meetings by Means of Electronic Communication

The Governor signed into law on June 30, 2022, a change to the Real Property Laws that govern New York condominiums. Effective immediately, boards, in their “sole discretion”, irrespective of what the bylaws say, can decide to hold owners meetings solely or partially by “means of electronic communication”. The law says that “the platform/service” is the “place of the meeting” and that boards can decide to hold the owners’ meeting completely by means of electronic communication, or both at a physical place and also using a “platform/service” that allows means of electronic communication. in that case, the board would give the owners an option of participating at the physical place and/or electronically. The law is not effective retroactively. Electronic voting is certainly going to make a world of a difference in condominiums and achieving quorum may not be impossible anymore.

At the end of 2021, the New York Legislature changed the laws allowing business corporations (most coops) and not-for-profit corporations (most HOAs) to have virtual and electronic shareholder and member meetings. Those law changes went a bit further than this Real Property Law change. The BCL and NCL changes also provided that “[m]eetings conducted partially or solely by means of electronic communications in reliance upon this paragraph and any member’s electronic participation in such meetings shall be subject to those guidelines and procedures as the board adopts, provided the board shall implement reasonable measures to: (1) verify that each person participating electronically is a member or a proxy of a member; (2) provide each member participating electronically with a reasonable opportunity to participate in the meeting, including an opportunity to propose, object to, and vote upon a specific action to be taken by the members, and to see, read or hear the proceedings of the meeting substantially concurrently with those proceedings; and (3) record and maintain a record of any votes or other actions taken by electronic communication at the meeting. The law goes on to say that “‘reasonable measures’ with respect to participating in proceedings shall include, but not be
limited to, audio webcast or other broadcast of the meeting and for voting shall include but not be limited to telephonic and internet voting.”

So, unlike most coops and HOAs, condos arguably don’t have to satisfy these additional requirements that the lawmakers left out of the Real Property Law change.

Reasonable Accommodation and Modification Notice Requirement Looming

The state Legislature passed a law in 2021 that requires qualifying housing providers — including co-op boards and landlords — to provide written notice to their shareholders and tenants of their rights to reasonable accommodations and modifications. The new law also required the New York State Division of Human Rights (DHR) to promulgate regulations regarding its notice requirements. It has taken almost a year for the DHR to accomplish this, but they have finally provided their rules.

And the deadline is looming. The notice must be given to existing residents by June 17th, and within 30 days of occupancy for all future residents.

On May 18, 2022, the DHR issued new rules regarding the required written notice that a qualifying “Housing Provider,” (i.e., “owner, lessee, sub-lessee, assignee, or managing agent of, or other person having the right to sell, rent or lease a housing accommodation…”) will have to provide to their existing and new tenants regarding their right to request a reasonable accommodation or modification. As a reminder, a reasonable “accommodation” is a change in rules and policies necessary to afford a person with a disability an equal opportunity to use an apartment, such as permitting emotional support animals in no-pet buildings, or assigning a parking space to a disabled resident who may not be next on the waiting list. On the other hand, a reasonable “modification” is a physical change to the building, such as installing ramps, automatic doors and grab bars.

Housing providers that are required to provide such notice include all co-ops, rental properties and other community associations that are renting out residential housing. For example, a condo board or homeowners association is not subject to the notice requirement — unless it owns a unit and is leasing it for home residency. Commercial tenancies are not included under the notice requirement.

The following are the notice requirements:

• The notice must be in 12-point font (or other easily legible font).

• It must include the telephone number and e-mail address of the property manager or other person responsible for receiving accommodation and modification requests.

• It may be sent electronically, by email, fax or other means. Links are acceptable provided the notice can be downloaded and printed.

• It must be posted physically, but posting the notice does not satisfy the requirement to send the notice to all existing and future residents.

• It may be sent along with other documents, such as leases and application documents.

• If you have a community website, you must post the notice or a link to it on the homepage of your website.

New Electronic Discovery Rules in New York State Court

The New York State Unified Court System just adopted additional rules and guidelines in the Commercial Division for Electronically Stored Information (“ESI”) on April 11, 2022. The goal of the revisions is to address e-discovery in a more consolidated way, modify the rules for clarity and consistency, expand the rules to address important ESI topics consistent with the CPLR and caselaw.

Under the amended Rule 11-c, parties are required to confer regarding electronic discovery prior to the initial conference.[i] The rule further provides that any topics upon which the parties cannot reach agreement are to be addressed with the Court at the preliminary conference.

The amended Rule 11-c also addresses efficiency and cost with respect to electronic discovery. The new rule adopts a cost-benefit analysis similar to the standard in Federal Court and requires that “[t]he costs and burdens of ESI shall not be disproportionate to its benefits.” Cost shifting can be a game changer in many cases if handled appropriately. To that end, the parties are required to consider “the nature of the dispute, the amount in controversy, and the importance of the materials requested to resolve the dispute.” The amended rule also encourages the parties to use technology-assisted review when appropriate, and the parties are required to confer regarding “technology-assisted review mechanisms” throughout the discovery period. Lastly, the amended rule adds a claw-back provision for inadvertently produced ESI that is subject to either attorney-client privilege or the work product doctrine. This is extremely valuable as waiving the privilege by inadvertent disclosure otherwise could result in attorney liability or violation of professional responsibility.

The amendments also modify Appendix A to Rule 11-c—which previously only addressed non-party ESI. The new Appendix A replaces the non-party guidelines “with new guidelines to cover all aspects of ESI, from parties and non-parties alike.” Specifically, the new ESI guidelines (1) encourage early discussion of ESI and suggest that an informal meet and confer process is preferred to formal discovery or motion practice; (2) counsel parties to limit discovery requests to what is proportional to the needs of the case; and (3) encourage informal resolution of disputes regarding ESI. The goal of these guidelines is to “facilitate the cost-effective, predictable, and fair adjudication of cases.” The guidelines make clear that parties “should not use discovery of ESI for an improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.”

The modifications also include general guidance on a number of specific ESI issues, including: (1) the importance of technical competence in e-discovery; (2) the obligation of counsel to actively assist in preservation, collection, search, review, and production of ESI; (3) defensible preservation and collection of sources of ESI; (4) processes for determining if ESI is “not reasonably assessable;” (5) processes for determining acceptable formats for ESI production; and (6) a claw-back provision for inadvertently produced documents.

The remaining amendments primarily streamline the rules and correct references based on the amended Rule 11-c. See more.

Manhattan Appeals Court Decides that Attorney and Engineering Fee Reimbursement is Appropriate in RPAPL Section 881 License Matter

The First Department issued a decision no February 15, 2022, clarifying that reimbursement of engineering and legal fees are appropriate components of consideration ordered by Courts when a building seeks a license to access a neighbor’s building under RPAPL Section 881. Here is the case. The Court ordered that an award of anticipated fees was not correct but that the ones incurred should be awarded. The Court also didn’t like escalating license fees as it saw them as punitive. The Court did modify the order by the lower court regarding the consideration granted and offers clarity for condo and coop boards negotiating license agreements for access with their neighbors in Manhattan. One particular provision the Court changed is not leaving the license open ended but rather limiting it to a period of time. For the condos that were being inconvenienced, it was the unit owners with rooftops or terraces that were being impacted which were awarded the license fees. This was based on a hearing before the lower court. The association as a whole is often impacted generally in addition to specific unit owner impact and thus arguments for a general license fee can be made. It is often helpful to work out an amicable agreement without court intervention but sometimes using the courts is the only way to reach a resolution. Having experienced people handle the negotiations, memorialization in an agreement or battle in court if needed is important.

NYC Coops, Condos and HOAs – Covid-19 Vaccine Requirements for Employees and Contractors

New York City’s requirement that all employees who perform in-person work or who interact with the public must show proof of vaccination against COVID-19 prior to entering the workplace went into effect on December 27, 2021. See NYC Commissioner of Health and Mental Hygiene Order. This applies to all employers including cooperatives, condominiums, and homeowners associations. Boards and their management must deny access to any employees who have not provided proof of vaccination unless they have a religious or medical exemption. Requests for those exemptions should be vetted for authenticity and propriety. The City provided some guidance and a form that can be used regarding exemptions.

Boards and their management must bar unvaccinated employees withiout an exemption from the workplace building, and can fire or discipline the employee. Consulting with experienced counsel beforehand is suggested to keep the association out of trouble; especially with these laws coming and going.

There are exceptions to the general rule such as workers who work from home or whose employment does not involve interacting with others, or individuals who enter the workplace for a quick and limited purpose.

There are also record keeping requirements for the employers. All records created or maintained by the employer must be treated as confidential and stored in a secure location separate from an employee’s regular personnel file, and available to only those employees or employer representatives who have a legitimate need to access the information. There are also posting requirements for the employers that have to be made. The association has to post a certification of compliance with the law in a conspicuous location like a lobby.

There are fines that may be issued for noncompliance. Noncompliance with the Order can result in fines up to $1,000 per violation with escalating penalties if violations persist. It is not clear yet how vigilant the City will be with enforcement but we expect that there will be some enforcement in order to deter employers from noncompliance. But, the City has set up a whistleblower hotline so we except there to be oversight from that perspective at least.

A subtle gem in this law is a requirement that the associations keep a log book of requests to contractors who work in the building as to whether they have been asked if they and their workers are in compliance with the law, and the contactor’s response. The law doesn’t require the association to make the inquiry of the contractor but if it does, then the exchange must be logged. Contractors by the way, are not just building contractors, but contractors for residents incuding nannies and housekeepers.

2019 Housing Stability and Tenant Protection Act No Longer Applies to Coops

Governor Kathy Hochul has signed a bill that exempts cooperatives from the restrictions in the 2019 Housing Stability and Tenant Protection Act. The law inadvertently lumped coop boards with commercial landlords because of the tenant-landlord relationship that exists in housing cooperatives.

Coop boards can once again collect more than one month’s maintenance as security deposit. Coops historically required some purchasers with marginal financial profiles to escrow several months of maintenance as a condition for the coop board’s consent to the purchase.

Because the law is no longer applicable to coops, coop boards can charge more than the the $50 cap on late fees and allows coop boards to impose late fees equal to 8% of the monthly maintenance. The $20 cap on application fees has also been removed, allowing coop boards to charge appropriate fees for background, credit and criminal history checks, as well as transfer agent fees. Most importantly perhaps, coop boards can now collect legal fees, late fees and other charges from proprietary shareholders.

Westchester County Coops have to give a reason now for Rejections

Westchester Coop Boards have new law to deal with. The parade of horrible litigation over rejections could result. A minefield of legal complication for boards and management to navigate.

The new local law amendment requires boards to provide a notice of rejection to the Westchester County Human Rights Commission with 15 days of notifying prospective buyers of a denial. It also requires coop boards to disclose their minimum financial requirements to potential buyers.

https://therealdeal.com/tristate/2021/06/30/westchester-compels-co-op-boards-to-justify-rejection-of-buyers/

Coops almost free of Tenant Protection Act Restrictions

Hallelujah. When new law passes, the constraints by the Tenant Protection Act like the recovery of legal fees in housing actions will not apply to coops.

Read more.

Professional, Civil and Criminal Risks when Attorneys Serve as Board Members

People Falling Out of Windows

NY Condo’s Can Now Legally have Owners’ Meetings by Means of Electronic Communication

Reasonable Accommodation and Modification Notice Requirement Looming

New Electronic Discovery Rules in New York State Court

Manhattan Appeals Court Decides that Attorney and Engineering Fee Reimbursement is Appropriate in RPAPL Section 881 License Matter

NYC Coops, Condos and HOAs – Covid-19 Vaccine Requirements for Employees and Contractors

2019 Housing Stability and Tenant Protection Act No Longer Applies to Coops

Westchester County Coops have to give a reason now for Rejections

Coops almost free of Tenant Protection Act Restrictions

Recent Attorney Publications

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When the Neighbor Builds: What Condo and Co-Op Boards Need to Know

Succession Rights in Limited-Equity Co-ops: Practical Lessons from Mutual Redevelopment Houses v. Manyevitch

The Post-Settlement Trap: What Fiondella Teaches Co-op Boards About Stipulations and Continuing Habitability Claims

The Derivative Action Threat: Why “Limited Common Elements” Present Litigation Risks for Condominium Boards and Managers

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Don’t Delay: Why Timely Enforcement of Common Charges is Critical for Condo Boards

RPAPL § 881 Licenses, and Why Fee Reimbursement Is a Core Deal Term

The 432 Park Decision: A Masterclass in Risk Management for New York Condo Boards

Protecting Your Building’s Integrity: Lessons from Board of Mgrs. of the 80th at Madison Condominium v. 1055 Madison Ave. Owners LLC