Condominiums have a contractual duty to maintain common elements. While the business judgment rule normally protects condo board members from personal liability if their choices seem unwise, it won’t shield the condo if the board breaches its contractual obligations to owners. Boards who neglect these responsibilities could open the condominium up to significant liability.
The Case: 580 Llorrac St. Corp. v. Board of Managers of 580 Carroll Condo.
In this case, a condo unit owner suffered water damage to its unit for several years due to the board’s failure to promptly repair a common element – the building’s facade. The owner repeatedly alerted the board to the ongoing water infiltration. Expert reports confirmed that the damage was directly caused by the degraded facade.
Despite this, the board took over a year to even investigate the source of the leaks and delayed repairs for yet another seven months. The court ultimately ruled this was a breach of the condo’s bylaws, which contractually obligated the board to maintain common elements.
Key Takeaways for Property Managers & Boards
- Common Element Maintenance is Crucial: Condo boards can’t avoid their responsibility to repair and maintain common areas. Ignoring issues will likely lead to greater damage and potentially, lawsuits.
- Promptness Matters: Contractual language often calls for “prompt” or timely action. Boards may be liable if they delay repairs without a reasonable justification.
- The Business Judgement Rule Has Limits: Boards usually enjoy protection under the business judgment rule, meaning courts won’t second-guess their decisions. However, this rule does not always apply.
- Mitigation of Damages: Unit owners have a duty to mitigate (minimize) damages to the extent possible, but failure to do so won’t completely bar them from suing the condo over breach of contract.
How to Protect Yourself as a Board or Property Manager
- Know Your Bylaws: Thoroughly understand your condo’s bylaws and governing documents, outlining your specific obligations regarding common areas.
- Act Reasonably Prompt on Reports: Don’t drag your feet when unit owners report leaks or other damage that might relate to common elements. Investigate promptly.
- Document Your Process: Keep meticulous records of all reported issues, investigations, the decision-making process, and contractor bids. This can help if a disagreement arises.
- Consult Experts: If in doubt about the technical aspect of a problem, get advice from professionals like engineers and building inspectors.
Here is the 580 Carroll Condo Court decision by the Supreme Court in Brooklyn, New York.
A recent case decided by the New York Supreme Court (390 Riverside Owners Corp. v. Stout) underscores the importance of shareholders granting access to their apartments for necessary repairs, and actions that property managers and coop boards can take when shareholder-proprietary tenants do not do so.
The Issue:
- A co-op board requested access to a shareholder’s apartment to repair a leak affecting the unit below. Shareholders refused, disputing the source of the leak and the necessity of the board’s proposed repairs.
The Court’s Ruling:
- The court ruled in favor of the co-op board, ordering the shareholders to grant access. The key points:
- Proprietary Leases are Critical: These leases typically grant the co-op board broad access rights for maintenance and repairs.
- Business Judgment Rule: Decisions on repairs made in good faith by the board are protected by the business judgment rule, limiting judicial interference. Management did a good job laying the foundation with an expert plumber and investigation into the need for the repair in this particular invasive way.
Lessons for Property Managers and Co-op Boards:
- Document Your Case: Gather evidence, such as professional plumber or engineer reports, to substantiate the repairs’ necessity.
- Follow the Lease: Adhere to the procedures for requesting access and repairs laid out in the proprietary lease.
- Act Reasonably: The board must show it exercised good faith and followed reasonable procedures when requesting access.
- Communicate Clearly: Transparent communication with shareholders about the reasons for repairs can help avoid disputes.
Why Shareholders Should Grant Access
- Prevent Further Damage: Refusing access can worsen the situation and lead to increased costs and damage to other units.
- Fulfilling Obligations: Proprietary leases place a duty on shareholders to allow necessary repairs.
- Avoiding Costly Litigation: Denying access could result in legal action and the responsibility to pay the co-op board’s legal fees. In this case, the Court awarded the coop legal fees and set the matter down for a hearing on the amount to award.
Read the case here.
The recent case of Alford v. 72nd Tenants Corp. offers a stark reminder for property managers in the cooperative housing sector: Disputes over terraces and other potentially shared spaces can lead to costly lawsuits. Even when your client board operates in good faith, detailed records play a vital role in successfully defending their actions.
Case Background: “Terrace” or Tenant Trouble?
A tenant-shareholder claimed that a rooftop area adjacent to her apartment qualified as a “terrace” under her proprietary lease. When the cooperative performed extensive repairs to the roof, the tenant alleged a breach of contract, and a kitchen sink of claims, due to delays and inconveniences.
The court, however, ruled in favor of the cooperative. The key factor was counsel’s ability to demonstrate through good record keeping that the board’s obligation was to protect the building’s structural integrity which outweighed the tenant’s claimed right to uninterrupted enjoyment of their own space, and that the board satisfied its obligation.
Why Your Records are Your Boards’ Legal Shield
This case highlights the importance of meticulous records for property managers. In Alford, the cooperative’s defense crucially relied on evidence documenting:
- Initial Condition of the Space: Detailed descriptions, photos, and engineering assessments of the pre-existing damage supported the necessity of repairs.
- Decision-Making Process: Board meeting minutes, resolutions, and correspondence with architects and engineers demonstrated reasoned and deliberate decision-making.
- External Delays: Evidence of permitting delays, contractor changes, and unforeseen circumstances justified the repair timeline.
Lessons for Property Management Companies
This case illustrates crucial lessons for managing cooperative properties:
- Lease Language Matters: Analyze in advance what proprietary leases and offering plans define as leased spaces, balconies, terraces, or other areas of potential confusion, to allow attorneys to raise the right defenses like standing in the lawsuit from the inception.
- Documentation is Essential: Maintain thorough records of board decisions, maintenance actions, resident communication, and any unforeseen project delays.
- You are Critical to Lawyers Building a Defense: Your efforts are the building blocks for attorneys defending your coop boards. Proactive legal guidance along the way will help minimizing dispute risks.
While strong proprietary lease language is the first line of defense, meticulous record-keeping is your best insurance against costly lawsuits. By prioritizing documentation, property managers can empower their cooperative clients to confidently defend their actions and protect the best interests of the community as a whole. The decision in Alford v. 72nd Tenants Corp. shows the myriad of claims that plaintiff lodged and the coop was able to get thrown out by stellar management of a difficult situation.
There are several reasons why property management companies in NY should want to have their condos equipped with electronic voting systems:
- Efficiency: Electronic voting systems streamline the voting process, making it quicker and easier for residents to cast their votes. This can save time and reduce the administrative burden on property management companies.
- Transparency: Electronic voting systems provide a secure and transparent voting platform that ensures accuracy and accountability in the voting process. This takes the management company out of the middle and can help prevent fraud and disputes over election results.
- Accessibility: Electronic voting systems make it easier for residents to participate in elections, as they can cast their votes from anywhere with an internet connection. This helps increase voter turnout and engagement in the community.
- Cost-effective: In the long run, electronic voting systems can be more cost-effective than traditional paper-based voting methods, as they reduce the need for printing and mailing paper ballots.
- Data analysis: Electronic voting systems can provide valuable data and insights into voting trends and patterns, which can help property management companies make more informed decisions and better serve their residents.
Overall, electronic voting systems offer numerous benefits for property management companies in NY, including increased efficiency, transparency, accessibility, cost-effectiveness, and data analysis capabilities. Take a look at www.ballotmanagement.com which was designed specifically for management companies and their boards.
The well established business judgment rule provides that a court should defer to a cooperative board’s determination “[s]o long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith”. Courts sometimes try to find ways around the rule in order to justify their decisions aimed at weakening the ability of coop boards to govern themselves without Court interference. Coop boards and management can battle against this loss of autonomy by considering proprietary lease, bylaw and rule amendments that address language issues that Courts and adversaries use against coops.
In the recent case of Christie v. Breezy Point Cooperative Inc. (Index No. 705938/23), a New York judge in Queens decided that a coop board could not require the shareholder/proprietary tenant to remove alterations to the apartment as a condition to the board’s consent to to a sale of the apartment. The tenant, Christie, made alterations to his coop unit in 2013 without obtaining consent from the coop board as required under the proprietary lease. Years later, when seeking to sell, the board demanded removal of these alterations as a condition of approval.
Christie sued for breach of contract, breach of fiduciary duty and reimbursement of his attorney fees.
The judge gave two reasons for allowing Christie to continue his suit and holding that the coop couldn’t condition its consent to assignment upon removal of the unauthorized alterations:
- Lease Language: The lease didn’t specifically give the board power to condition assignments on the correction of unauthorized alterations.
- Unreasonable Delay: It was deemed unreasonable to require the tenant to undo the alterations after such a long time.
The Judge’s decision ignores years of case law in this area and should be a cause for concern for coop boards and management. If Courts move in this direction and require precise language in a proprietary lease to afford the coop the ability to exercise its business judgment and condition assignment of leases on something like this, an unauthorized alteration that is not in the best interest of the cooperative, then coops will have to take steps to amend their leases or suffer similar Court decisions whittling away at coop autonomy.
In addition to a proprietary lease review and amendment proposals, coop boards and management may consider taking action regarding unauthorized alterations earlier than when a shareholder/proprietary tenant is about to sell. This is a difficult task at times because people hide their unauthorized work. Regular inspections may expose these rule violators like Christie and not give him the upper hand in a lawsuit.
Consider that Christie performed an unauthorized alteration which the coop board and management has presumably determined is not in the best interest of the coop and needs to be removed. Christie is selling his apartment and getting away with his unauthorized alteration. The coop is left with the problem and the Court has placed the coop in a position of defending itself and possibly being responsible for Christie’s attorneys’ fees and costs which are claimed in the case.
None of this is right and just and the Court should have dismissed the case and allowed the coop board to exercise its business judgment staying out of the coop’s business. The Court ignored well stabled appellate authority that governing documents like the proprietary lease there placed no express limitation on the board’s authority, and thus the coop board should have had “the absolute right for any reason or no reason to withhold its approval” of a proposed transfer. Rossi v. Simms, 119 A.D.2d 137, 140 (1st Dep’t 1986) (holding that the coop was allowed to condition approval of a sale on purchaser’s “acquiesce[nce] to a surcharge for professional use of [an] apartment”); Young v. 101 Old Mamaroneck Rd. Owners Corp., 211 A.D.3d 771, 773, 775 (2d Dep’t 2022) (complaint didn’t allege “facts [to] support a finding that [cooperative] acted without authority” in conditioning a sale on obtaining authorization for such transfer from court-appointed representative of deceased shareholder’s estate); Black v. Alexander House Residences, Inc., 226 A.D.2d 186, 186 (1st Dep’t 1996) (coop board’s “decision to condition its approval of [shareholder’s] sale of” apartment upon the payment of certain attorneys’ fees was permissible and protected by the business judgment rule).
Considering that Courts like this are chipping away at coop autonomy, coop boards should protect themselves with reviews of their governing documents and appropriate amendments.
Here is the Court decision.
Recent reports about social media trends encouraging individuals to exploit “squatter’s rights” laws are raising concerns for property owners. It’s crucial to understand this complex issue and proactive steps landlords and associations can take.
The reason is a legal loophole that gives would-be trespassers the right to stay in possession if they only stay in a property long enough to claim legal residency — otherwise known as “squatter’s rights.” In New York City, it’s only 30 days of living at a property.
So a homeless migrant just has to stay below the radar for 30 days and then the property owner has to take them to Court to have them legally removed. The process can be complicated and takes a long time. Unlike a known tenant, the squatters are anonymous in most cases and have to be served and then usually they won’t show up in Court. After multiple adjournments which the Courts routinely afford tenants who don’t appear, a property owner will get a default judgment of possession and eviction. Then, a lockout by a marshal has to be scheduled and occur. If the squatter shows up in Court and argues against the eviction, they might be able to steer the proceeding to a trial which adds time to the process. It is extremely frustrating to property owners and now influencers are trying to rally migrants to find abandoned property and squat to take advantage of our system which protects people who trespass and take possession of the property of others.
Proactive Steps for Property Owners
- Regular Monitoring: Frequent inspections of vacant properties help identify potential squatters early, before they establish strong legal claims. With all the news around this issue, if you have a property, get to it quickly now and make sure you aren’t already a victim of squatting.
- Secure the Property: Board up windows, keep utilities disconnected, install alarms, and maintain overall good condition to deter squatting.
- Documentation: Meticulous records of ownership, property upkeep, and lack of permission for occupancy strengthen your legal case.
- Time is of the Essence: The moment you suspect a squatter, consult with an attorney specializing in landlord-tenant law. Delays work in the squatter’s favor.
Challenges for Condos & HOAs
In the condominiums and homeowners associations that we represent, squatting happens to owners and because the association doesn’t own the property, it is difficult to address the squatting. Coops are a different form of ownership where the coop owns the building, so it can take action as the owner against squatters. There are tactics that experienced counsel can take for the boards.
What Condo & HOA Management and Owners Can Do:
- Check Governing Documents:
- Bylaws/Rules: Look for provisions on unit owner responsibilities for vacant units, security measures, or authority granted to the board in exceptional circumstances.
- Lien Authority: Investigate if the association has a lien for unpaid assessments that could form the basis for a foreclosure action, which might indirectly resolve a squatting issue.
- Consider amending the governing documents to give the association more rights in these squatting situations.
- Support the Owner:
- Notify & Advise: Alert the unit owner immediately and advise them to seek urgent legal counsel specializing in eviction proceedings.
- Enforce HOA Rules: If the squatter is causing disturbances violating HOA rules, fines or other sanctions against the unit owner may add pressure to act.
- Security: Consider enhancing association-wide security to deter squatting.
- Bring a Nuisance Injunction Action: The association usually has authority to bring lawsuits to abate nuisance conditions or rule violations. If so, the association may be able to commence suit to stop nuisances or violations by the squatters which may pressure them to leave.
A brand new Appellate Court decision underscores condo boards’ duty to act in good faith when residents report violations of building rules and regulations. In the case of Bacharach v. Board of Managers of the Brooks-Van Horn Condominium, the board faced legal action after years of alleged inaction regarding excessive noise complaints. The New York Court which oversees the trial courts in Manhattan and the Bronx, refused to dismiss the case against the board and clarified that property managers and condo boards cannot merely leave it to owners to address their own owner-to-owner complaints and the board has to act in good faith when receiving a complaint that an owner if violating the rules.
Case Summary
- Residents complained about unreasonable noise from a neighboring unit due to unapproved flooring installation.
- Despite repeated requests over several years, the board didn’t adequately investigate or enforce the Condo’s noise rules.
- Frustrated residents sued the board for breach of duty and sought an injunction to address the noise issue.
Court Ruling
- The court denied the board’s motion to dismiss, determining:
- The Condo’s bylaws are ambiguous as to whether the board has discretion to refrain from acting upon complaints of rule violations.
- The board’s inaction may not be covered by the well-established business judgment rule, which requires actions in good faith for the benefit of the community.
- “The alleged multiyear gap between plaintiffs’ first complaint and the board’s first action in response to the complaints suggests that the board may not have acted in good faith.”
Takeaways for Condo Boards & Property Managers
- “Discretion” Doesn’t Mean Inaction: While boards have flexibility in enforcement, ignoring legitimate complaints can be seen as a breach of duty.
- Document Clarity Matters: Review your bylaws and rules to ensure they clearly define the board’s authority and enforcement responsibilities.
- Good Faith Response Is KEY: Taking complaints seriously, even if your ultimate ruling favors the accused party, shows you’re fulfilling your role.
- Timely Action Builds Trust: Promptly addressing potential violations can prevent issues from escalating and damaging resident relations.
Proactive Steps
- Establish and Follow Complaint Procedures: Have a clear process for documenting, investigating, and responding to complaints.
- Regular Bylaw Review: Ensure your rules remain enforceable and fair.
- Seek Legal Guidance Early: Advice from an attorney specializing in condo law can help you navigate complex disputes.
Here is the decision.
Could your condo bylaws save you from a costly lawsuit? A recent Brooklyn court decision highlights the critical role bylaws play when unit owners and their Board of Managers clash.
Case Background
- Plaintiffs (unit owners) alleged negligence by the Condominium Board and individual members in addressing water damage within their unit.
- The Board argued that the condo’s bylaws provide personal liability protection to board members.
Key Legal Principles
- Business Judgment Rule: Courts generally defer to condo board decisions made within their authority and in good faith. Plaintiff must demonstrate fraud or self-dealing to overcome this protection.
- Condominium Bylaws: These form a contract between the board and unit owners. Bylaws often include provisions specifically limiting individual liability of board members for actions taken in their official capacity.
Court’s Ruling
- Negligence claims against individual board members were dismissed due to protections under the condominium bylaws.
- Board-level claims (breach of duty, negligence) remain pending.
- Additional rulings denied summary judgment for both sides, highlighting the factual issues still in dispute.
Takeaways for Boards & Property Managers
- Bylaws as Safeguards: Well-drafted bylaws offer substantial protection in lawsuits alleging negligence or breach of duty, provided board members acted within their authority and in good faith. Periodic review of bylaws is essential.
- Fiduciary Responsibility: The board still maintains a duty of care towards the condominium property and unit owners. Neglect or willful disregard of this duty may expose the board as a whole to liability.
- Proactive Maintenance: Address potential issues (e.g., water leaks) promptly to minimize damage and mitigate the risk of disputes escalating to legal action.
- Thorough Documentation: Maintain meticulous records of board actions, maintenance, and owner communications. This serves as evidence of responsible decision-making.
- Discovery Compliance: Non-compliance with discovery procedures can hinder your defense. Understand the obligations from counsel regarding the preservation and sharing of case-relevant information.
Here is the decision (Szymczyk v. Board of Managers of 363 16th Street Condominium).
The recent case of Levy v. 103-25 68th Ave. Owners, Inc. offers some valuable insights for property managers and board members within cooperative housing communities.
In June 2018, the Levys commenced this action against the co-op defendants and the occupants of the neighboring apartment, alleging, inter alia, that the co-op defendants exceeded the scope of their authority, discriminated against them for having children, and acted in bad faith.
The Business Judgement Rule
This rule affords a degree of protection to boards of directors when making decisions within the scope of their authority. Courts generally defer to board decisions if they are made:
- For the purposes of the cooperative community: Decisions should align with the overall well-being of the community.
- Within the board’s authority: Actions shouldn’t violate governing documents (e.g., bylaws, proprietary lease).
- In good faith: Board members must act without ulterior motives or personal gain.
Limits of Board Authority
The Levy case highlights that the Business Judgment Rule is not absolute but it can be used to insulate boards, along with their property manager agents, unless they
- Exceed their authority: Boards cannot take actions that contradict the cooperative’s governing documents.
- Act with discriminatory intent: Decisions cannot be based on factors like race, religion, familial status, or other protected characteristics.
- Show Bad faith: Self-interest, malice, or disregard for the community’s well-being can invalidate the protection of the Business Judgement Rule.
Best Practices
To avoid issues like management and the board did in the Levy case, it’s imperative that property managers and board members:
- Understand Governing Documents: Thoroughly familiarize yourselves with the cooperative’s bylaws, proprietary lease, and any other relevant rules and regulations.
- Document Decision-Making: Maintain clear records to demonstrate careful and informed processes behind decisions.
- Act Impartially: Treat residents fairly and avoid even the appearance of preferential treatment or discrimination.
- Prioritize Community Interests: Decisions should always prioritize the well-being of the cooperative community as a whole.
The Levy case underscores the importance of due diligence, fair treatment, and a commitment to serving the entire cooperative community. By being mindful of these principles, property managers and board members avoid liability for the entity and themselves personally. Here’s the decision.
A recent New York Appellate Division decision (Cortlandt Street Recovery Corp. v. Bonderman) underscores the significance of retaining experienced corporate counsel to protect both corporations and their board members from potential liability. The court rejected the plaintiff’s attempt to hold various related entities collectively liable for the actions of one, highlighting the complex challenges in navigating potential individual liability.
Understanding Alter Ego Liability
Attempts to “pierce the corporate veil,” or hold board members personally liable for corporate actions, require plaintiffs to prove two key elements:
- Complete Domination: The plaintiff must show that an individual or entity completely dominated the corporation’s decision-making.
- Fraud or Injustice: The plaintiff must demonstrate this domination was used to commit an act of fraud or perpetrate an injustice.
In considering domination, courts consider factors such as “the disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership; officers, directors and personnel; common office space or telephone numbers; the degree of discretion demonstrated by the alleged dominated corporation; whether the corporations are treated as independent profit centers; and the payment or guarantee of the corporation’s debts by the dominating entity” (Tap Holdings, LLC v Orix Fin. Corp., 109 AD3d 167, 174 [1st Dept 2013] [internal quotation marks omitted])
How Corporate Counsel Protects Board Members
- Proactive Guidance: Experienced corporate counsel can proactively advise board members on best practices to maintain corporate formalities, ensure adequate capitalization, and avoid actions that could blur the lines between personal and corporate interests.
- Risk Assessment: Counsel can identify potential risks and help boards implement procedures to mitigate those risks, protecting board members from personal exposure.
- Defense in Litigation: Should a lawsuit arise, corporate counsel provides a robust defense strategy, working to shield board members from individual liability.
Key Takeaways
This decision reinforces the need for board members to prioritize working with competent corporate counsel. This proactive step is crucial to protect not only the corporation but also individual board members from the potentially severe implications of alter ego liability claims and personal liability for them where their own assets are at risk.
