A recent New York Supreme Court case, Elias v. 36 E. 69 Corp., has underscored the importance of understanding and adhering to lease terms and co-op bylaws in disputes over unpaid maintenance fees. The case centered on a cooperative’s attempt to terminate a resident’s lease and shares due to nonpayment of maintenance fees.
Key Takeaways for Property Managers and Boards
- Strict Adherence to Lease and Bylaw Terms: The court’s decision emphasizes the necessity of adhering meticulously to the procedures outlined in both the proprietary lease and the cooperative’s bylaws when addressing defaults in maintenance payments. Failure to comply with these procedures, even by a seemingly small margin, can invalidate a termination notice.
- Limited Grounds for Challenging Termination: The case highlights the limited grounds available for challenging a co-op’s decision to terminate a lease for nonpayment. As long as the co-op follows the prescribed procedures and acts in a non-discriminatory manner, its discretion in enforcing the lease terms is largely upheld.
- Covenant of Good Faith and Fair Dealing: The implied covenant of good faith and fair dealing exists in contractual relationships, but it does not override the express terms of a lease or bylaws. A co-op’s adherence to the lease provisions generally satisfies the covenant, even if the outcome is unfavorable for the shareholder.
- Board Discretion in Share Transfers: Co-op boards generally have broad discretion in approving or denying share transfers, as long as their decisions are not discriminatory. This discretion extends to situations where a shareholder in default seeks to sell their shares to avoid termination.
Property managers and boards should regularly review their proprietary leases and bylaws to ensure they are up-to-date and clearly outline the procedures for addressing defaults and terminations. They also should maintain detailed records of all communications and actions related to defaults, including notices, payment demands, and any discussions with shareholders. Using experienced counsel to make sure that lease provisions and termination procedures are applied properly is critical for a smooth collection process and provides a defense to shareholders who claim that the cooperative acted improperly.
Read the decision.
In a significant decision for New York condo boards and property managers, the Supreme Court of the State of New York, County of New York, denied a motion to dismiss a lawsuit brought by the Board of Managers of the 443 Greenwich Street Condominium against the building’s sponsor and related entities. The case, centered around allegations of fraudulent conveyance and construction defects, holds vital implications for condo associations grappling with sponsor-related issues.
Key Takeaways for Condo Boards and Property Managers
- Fraudulent Conveyance Claims Upheld: The court recognized the Board’s claims of both constructive and actual fraudulent conveyance, alleging that the sponsor transferred assets to related parties at significant discounts, leaving it unable to address construction defects and obtain a permanent certificate of occupancy. This ruling underscores the potential vulnerability of sponsors engaging in such practices.
- Implications for Sponsor Liability: The decision serves as a warning to sponsors who may attempt to evade responsibility for construction defects by transferring assets to related entities. The court’s refusal to dismiss these claims reinforces the legal recourse available to condo associations seeking to hold sponsors accountable.
- Relevance of Related-Party Transactions: The case highlights the scrutiny that courts will apply to transactions between sponsors and related parties, especially when those transactions involve the sale of units at substantial discounts. Condo boards and property managers should be vigilant in monitoring such transactions for potential red flags.
- Impact on Construction Defect Litigation: This ruling could embolden condo associations to pursue legal action against sponsors in cases involving construction defects, particularly where there are allegations of fraudulent conveyance. It emphasizes the importance of thorough investigation and legal counsel in such disputes.
The 443 Greenwich Street decision will be helpful to condo boards seeking to hold their sponsor and sponsor members financially responsible. It underscores the importance of due diligence and legal preparedness for boards and property managers in navigating the complex landscape in condo sponsor defect actions.
Read the decision here.
A recent decision from the New York Supreme Court, Appellate Division, First Department, underscores the importance of meticulously adhering to your condominium’s governing documents when assessing fees for capital improvements and repairs.
In the case of Board of Managers of the 100 W. 93 Condominium v. 660 Columbus Retail Owner, the condominium board attempted to recover allegedly unpaid assessments from commercial unit owners. These assessments were for capital improvements to the building’s roof and façade. However, the commercial unit owners argued that the board had not followed the proper calculation method for these assessments, as outlined in the condominium’s declaration and by-laws.
The court agreed with the commercial unit owners, affirming the lower court’s dismissal of the board’s case. The court’s decision hinged on the specific language in the condominium’s governing documents, which included a formula for calculating common charges and assessments for repairs and maintenance.
Key Implications for Condominium Boards and Property Managers
This case highlights several crucial points for those involved in the management of condominiums in New York:
- Governing Documents are Paramount: The court’s decision was based on the specific language in the condominium’s declaration and by-laws. This emphasizes the importance of these documents being clear,comprehensive, and up-to-date.
- Proper Calculation of Fees: Boards must meticulously adhere to the formulas and procedures outlined in their governing documents when calculating common charges and assessments. Failure to do so can lead to disputes and potential legal action.
- Clarity on Repairs, Maintenance, and Capital Improvements: The case also underscored the importance of clearly defining what constitutes repairs, maintenance, and capital improvements in your condominium’s governing documents. This clarity can help prevent disagreements about how costs should be allocated.
The complexities of condominium law can be challenging to navigate. If your board is facing a dispute over fees or assessments, it is crucial to seek guidance from an experienced attorney specializing in real estate and condominium law. An attorney can help you interpret your governing documents, ensure compliance with legal requirements, and effectively resolve disputes.
Here is the decision.
On April 20, 2024, a significant change came to New York’s landlord-tenant laws with the passage of the Good Cause Eviction Law (“Good Cause”). This wide-sweeping law affects rental housing in New York City and offers potential expansion into villages, towns, or cities across the state. Colbert Law LLC is here to provide clarity on the law’s requirements and implications for landlords. Our cooperative and condo boards are thrilled by the specific exclusion of cooperatives and condos from the law, but other landlords not excluded will have to comply with this tenant friendly law.
Key Points of Good Cause Eviction
- Limits on Evictions: Landlords now face restrictions when seeking to remove tenants. Evictions require “good cause”, as defined by the law (see below). A court order is required for removal, even if due to non-renewal of a lease.
- Rent Increase Regulation: Rent increases exceeding a certain threshold are presumed unreasonable. Landlords must justify larger increases, with property tax increases, significant repairs, and other factors considered by the court.
- Mandatory Notices: All leases (new and renewals) and other key notices must include a “Good Cause Eviction Law Notice.” Even exempt housing units need this notice, explicitly stating the exemption.
What is “Good Cause”?
The law defines specific grounds under which a landlord can pursue eviction:
- Non-payment of rent (unless deemed “unreasonable”)
- Significant lease violations
- Nuisance behavior
- Property damage
- Illegal use of the premises
- And other specific scenarios (full list in the original law)
Exemptions: Important for Landlords to Understand
Good Cause does not have universal coverage. Key exemptions include:
- Units with monthly rent exceeding 245% of HUD-designated Fair Market Rent.
- Buildings owned by landlords with 10 or fewer units within New York State.
- Owner-occupied buildings with 10 or fewer units.
- Units already under rent regulation.
- Units designated as affordable housing through specific programs.
- Buildings with a Temporary/Permanent Certificate of Occupancy issued after January 1, 2009 (exemption lasts for 30 years).
- Cooperatives and condos
Opt-in for Areas Outside NYC
Villages, towns, and cities elsewhere in New York can choose to adopt Good Cause. They may establish their own rent thresholds for exemptions
Community association governing documents offer a framework for board actions, but it’s imperative for boards to carefully follow them to ensure protection and validity of their decisions. Decisions and actions must be supported by the provisions in these documents and other applicable laws.
Key Points and Case Example
- Governing Documents as a Guide: These documents define the board’s authority and outline procedures. Adhering to them minimizes the risk of legal challenges to board actions.
- Interpretation Matters: Provisions may sometimes need careful interpretation. Boards might need to consider past experience and other laws to ensure their understanding aligns with the intent of the documents.
- Staying Within Authority: Boards cannot exceed the powers granted to them. Actions outside the scope of authority leave them vulnerable to disputes, even if well-intentioned.
- Case Example (Zollo v. Adirondack Lodges Homeowners Assn., Inc.): The community’s governing documents (declaration) mandated the Association to maintain a harbor. The court found the Board was justified in using regular maintenance assessments to fund the harbor’s substantial repair, as it fell under their responsibility to maintain the property.
The Court’s Decision
The Zollo case highlights that courts uphold board decisions when they’re anchored in the association’s governing documents. Here, the Board’s actions were supported by the explicit language in the documents outlining maintenance responsibilities. The court refused to overrule a legitimate decision rooted in the Board’s granted authority.
Important Takeaways for Boards
- Know Your Documents: Meticulously understand the provisions of your community association’s governing documents.
- Document Support: Ensure every decision has a clear basis in the governing documents to defend potential challenges.
- Seek Advice: When in doubt about proper interpretation or the extent of authority, consult legal professionals for guidance.
A legal battle between the Board of Managers of the 57 East 73rd Street Condominium and unit owner James Wright concluded in a settlement. This dispute, centering on Mr. Wright’s efforts to combine two units and alleged unauthorized work, serves as a reminder of the crucial role settlement agreements play and the risks associated with poorly drafted terms.
The Settlement and Its Consequences
The settlement agreement included key provisions:
- Unit Combination Approval: The Board granted consent for Mr. Wright to combine the units.
- Mandatory Sale: Mr. Wright was required to sell the combined units to an unrelated third party by April 1st, 2024, with a $500,000 penalty (secured by a confession of judgment) for non-compliance.
- Work Approval: The Board approved prior work and agreed to cooperate in obtaining governmental approvals.
- Legal Fee Payment: Mr. Wright covered the Condo’s $100,000 in legal fees.
- Lawsuit Discontinued: Pending litigation was dropped.
- Additional Obligations: Mr. Wright had agreed to specific building modifications.
Crucially, the agreement lacked a provision allowing for a grace period should circumstances beyond Mr. Wright’s control delay the sale closing. This omission proved costly when the closing could not be completed by the deadline.
The Aftermath: Renewed Litigation
Mr. Wright subsequently filed for an injunction against the Condominium, seeking to prevent enforcement of the settlement and the condominium charging yet more legal fees and costs back to Mr. Wright. The condominium’s D&O insurance likely provided defense counsel, who successfully opposed the injunction. The court determined that Mr. Wright had not met the standard for injunctive relief.
Lessons Learned
This case underscores the following:
- The Binding Nature of Settlement Agreements: These agreements are legally enforceable contracts. Parties must exercise extreme caution, fully understanding all implications of the terms.
- The Value of ‘Get-Out Clauses’: Where possible, incorporate reasonable contingencies or escape clauses through skilled negotiation.
- The Importance of Experienced Counsel: Experienced legal counsel is essential when navigating complex settlements to protect your interests in the long run.
The Court decision is below.
The NY Times recently tackled a hot-button issue: Can co-op shareholders challenge a major assessment? Key takeaway: Boards have broad financial power, but communication is crucial for avoiding costly disputes.
Read the full Q&A:
In the case of 360 E. 72nd St. Owners Inc. v. Wolkoff, a New York State Court in Manhattan handed down a decision regarding pets in cooperative buildings that co-op boards and property managers should beware. The outcome underscores the importance for co-ops to take prompt legal actions when dealing with residents who violate pet-related house rules and the risks of delaying enforcement. Time is of the essence.
The defendant, a co-op resident, owned a mixed-breed dog that included American Staffordshire Terrier, a breed prohibited by the building’s House Rules. The co-op board was aware of the dog but failed to start a legal action seeking the dog’s removal within three months, as required under New York City Administrative Code §27-2009.1.
Because the co-op didn’t act quick enough, its only hope was to prove in a full-blown hearing with witnesses and other evidence that “the harboring of a household pet causes damage to the subject premise, creates a nuisance or interferes substantially with the health, safety or welfare of other tenants or occupants of the same or adjacent building or structure” (NY Code § 27-2009.1 (d)). The court held for the pet owner, upholding a strict application of the Pet Law.
Key Takeaways for Coop Boards and Their Property Managers
- Time is of the Essence: If a resident violates pet-related house rules, co-op boards need to take immediate legal action. The three-month window specified in the New York City Administrative Code is absolute. Failing to act promptly waives the co-op’s right to enforce those rules, even against prohibited breeds.
- Breed Doesn’t Matter: The court decision emphasized that the particular breed of the animal is irrelevant. The focus is on whether the animal’s presence was known and if the required legal action was taken within the specified timeframe.
- Waiver Exception: There is a narrow exception to the law. If a pet causes property damage, creates a nuisance, or substantially interferes with other residents’ health, safety, or welfare, the three-month rule doesn’t apply. However, co-op boards bear the burden of proving that the animal fits this exception, based on its specific behavior, not just breed generalizations. Collecting evidence quickly and having experienced counsel prepare to present a case for waiver is critical or you’ll be stuck with the pet in the building.
This court decision highlights the challenges faced by co-op boards when enforcing pet policies. It reinforces the importance of proactive measures, clear communication, and timely legal action to protect the interests of their co-op community.
Read the decision here.
Condominium boards embroiled in construction defect lawsuits against developers (sponsors) often see a further complication arise: the sponsor bringing in the project architects as third-party defendants. Sometimes the condo can sue the project architect directly but many times the focus is on the developer and its members and they point the finger at the architect. This tactic can introduce additional complexities into the condo board’s case against the sponsor. A recent New York case sheds light on this dynamic.
In the case of Board of Managers of the 15 Union Square West Condominium v. BCRE 15 Union Square West LLC, the condo board sued the building’s sponsor. The sponsor, in turn, filed claims against various third-party defendants, including the project architects, Perkins Eastman Architects P.C. Perkins Eastman argued that the sponsor’s claims against them were time-barred under their contract and that certain claims were duplicative and should be dismissed.
Key Points for Condo Boards
- Shifting Focus: When the sponsor brings the architects into the lawsuit, it can divert attention from their own potential liability for construction defects. Condo boards need to maintain a strong focus on the primary case against the sponsor. If there are additional pockets to pay for damages sought by the condo, great. But, stay focused on moving the condo’s case against the sponsor and its members forward.
- Statutes of Limitations: There is a limited window of opportunity to file claims against architects based on design flaws or oversight errors. Expired statutes of limitations can protect architects and prohibit claims against the if too much time goes by.
- Breach of Contract vs. Professional Negligence: Sponsors may attempt to pursue architects on both breach of contract and professional negligence grounds. However, demonstrating professional negligence requires proving a violation of broader industry standards that goes beyond the contract itself.
- Contractual Indemnification: Contractual indemnification clauses, by which sponsors might seek to shift liability to architects, often have time limits that diminish their usefulness.
In view of this, condo boards should be aware that sponsors may try to deflect blame and responsibility by bringing architects into the lawsuit. This additional layer of complexity can delay the condo’s suit and make it more complicated because of the additional parties and issues involved, but in the end, if there are more parties available to pay for the damages sought. However, it could end up being a good thing provided experienced counsel is leading the charge and stays focused on pushing the condo’s claims full speed ahead.
Here’s the case.
In Board of Managers of the Brighton Tower II Condominium v. Brighton Builder, LLC, the Second Department which overseas Brooklyn and Long Island lower courts, issued a decision which clarifies what condo boards and owners have to establish in order to succeed against sponsors and their principals in construction defect cases. The court offered important clarifications on when condo boards can sue sponsors and their principals, as well as time limits for doing so. Here’s what condo boards and their management need to know at least in the Second Department:
1. Limited Liability for Sponsor’s Principals:
- Merely signing the offering plan as a sponsor’s principal does not automatically create personal liability for contractual breaches related to the condo’s purchase agreements.
- Boards seeking to hold a sponsor’s principal individually accountable must establish grounds for “piercing the corporate veil”. This requires proof of complete domination of the sponsor entity and its abuse for fraudulent purposes that caused harm to the condo board.
2. Piercing the Corporate Veil: What Boards Need to Prove
- Complete Control: The principal must have exercised near-total control over the sponsor company’s actions related to the dispute. Being a manager or controlling principal is not enough on its own.
- Abuse and Fraud: The principal must have misused this control to commit a wrong (e.g., commingling assets, diverting condo funds) resulting in concrete harm.
3. Breach of Fiduciary Duty: Timing Matters
- The statute of limitations for a fiduciary duty breach by a sponsor principal acting as board member or officer doesn’t start until the relationship is terminated or the duty is openly repudiated.
- Condo boards should be mindful of the applicable limitations period (often 3-6 years) but may not need to rush to action if the fiduciary relationship is ongoing.
4. Conversion Claims: Be Aware of the Clock
- Unlike fiduciary breaches, the limitations period for conversion (misuse of condo funds) starts when the wrongful act occurs, not when it is discovered.
- Boards must act within the 3-year period from the date that funds were allegedly diverted or used improperly according to the Court.
It’s a good idea to thoroughly document any suspected wrongdoing, including control exercised by a principal, financial discrepancies, and communications indicating a breach of duty. While you’re doing that keep an eye on the statute of limitations clock and get early legal advice from experienced counsel.
Read the Court’s Decision here.
