In the high-stakes world of New York commercial real estate, the “Good Guy Guaranty” is often viewed as a tenant’s ultimate safety net. However, a recent decision by the New York Supreme Court, 387 Park S. L.L.C. v. Schulman (Feb 11, 2026), serves as a critical reminder that even the strongest guarantees can be limited by bankruptcy proceedings and the specific mechanics of a “vacate date.”
Landlords need to ensure their protections are ironclad and tenants need to understand the limitations of these provisions.
The Case at a Glance
The landlord (387 Park S. L.L.C.) sought over $8.8 million in unpaid rent and damages from two individual guarantors after the tenant, a restaurant group, defaulted on a lease with annual rent exceeding $2 million.
The landlord argued that because the tenant failed to provide a required 120-day notice of its intention to vacate, the guarantors should be on the hook for the remainder of the lease term. The court, however, ruled that liability was limited only to the date the premises were actually surrendered—largely because a bankruptcy judge had terminated the lease by operation of law.
Key Takeaways for Landlords and Property Managers
1. Bankruptcy Can “Clip” Your Guaranty
One of the most significant aspects of this ruling is the court’s deference to the bankruptcy stay and subsequent lease termination. Even though the “Good Guy” requirements (like the 120-day notice) weren’t met, the court held that the landlord could not recover for the entire lease term against the guarantors once the bankruptcy judge terminated the lease.
Management Tip: When a tenant enters bankruptcy, don’t assume your guaranty covers the full term of the lease. You must move quickly within the bankruptcy proceedings to establish the “Vacate Date” as early as possible to quantify your claim.
2. The “Defenses Waived” Clause is Your Best Friend
The landlord won on the issue of liability because the guaranty included a clause stating the defendants “waive all defenses other than payment in full.” This prevented the guarantors from blaming the landlord for construction delays or delivery issues to avoid paying.
Management Tip: Guaranties should be reviewed to see if they contain a broad waiver of defenses. As seen in this case, it allows the court to grant summary judgment on liability quickly, moving the fight straight to the “how much” phase rather than “if” they owe.
3. Signature Verification Still Matters
One defendant tried to claim her signature on a lease amendment was a forgery. While the court dismissed this (noting she had verified the signature in a previous lawsuit), it highlights a common delay tactic.
Management Tip: For high-value commercial leases, notarized signatures can turn a “forgery” defense from a potential headache into a non-starter.
4. The “Vacate Date” Ambiguity Trap
The court ordered a trial specifically to determine the exact date the tenant left (the “Vacate Date”). The parties were arguing over a window of just a few days/weeks, but at $2 million a year, every day matters.
Management Tip: When a tenant vacates—especially under a court order or bankruptcy—management should document the surrender immediately. Take photos, change the locks, and issue a formal “Notice of Re-entry” to cement the vacate date in the record.
How Experience Real Estate Counsel Can Protect Your Portfolio
The Schulman case proves that even with a multi-million dollar lease, a landlord’s recovery can be limited by the intersection of bankruptcy law and the specific language of a guaranty. To protect yourself, your management team must be disciplined in its documentation and aggressive in its legal positioning.
Here’s the case if your interested in an all the details ()
A recent decision from the Supreme Court of New York, Appellate Division, Second Department, in Board of Managers of Mountainside Hills Condominium II v. Pantaleone, provides important guidance and reassurance for condominium boards in New York seeking to enforce settlement agreements against delinquent unit owners. The Appellate Division affirmed the Supreme Court’s denial of the defendants’ motion to vacate a clerk’s judgment, ultimately upholding the condo board’s successful enforcement of a settlement stipulation for unpaid common charges. This case highlights the importance of strict adherence to contract terms and clarifies the application of the New York CPLR regarding service by mail.
Key Facts of the Case
The case began with the Board of Managers suing the unit owners (the defendants) to recover unpaid common charges and related fees.
The Stipulation: The parties entered into a so-ordered stipulation of settlement that required the unit owners to make installment payments to satisfy the agreed-upon amount.
The Default Provision: The stipulation specifically provided that if the owners failed to make any payment, the Board had the right to seek the entry of a judgment.
The Cure Requirement: Crucially, before seeking judgment, the stipulation required the Board to first serve the owners with a notice to cure. This notice had to be sent via:
Email to the owners’ attorney.
First-class mail directly to the owners.
The Board could seek judgment only after seven days elapsed following delivery of the notice through both means of service.
The Failure to Pay: The unit owners failed to make an installment payment due on November 1, 2019.
The Board’s Action: On November 7, 2019, the Board sent the required notice to cure via email to the owners’attorney and via first-class mail to the owners.
The Judgment: After the owners failed to cure the default, the Board submitted a proposed judgment, and a clerk’s judgment of $78,111.02 was entered on November 20, 2019.
The Court’s Ruling and Key Takeaways
The unit owners later moved to vacate the judgment, claiming they did not receive the notice to cure. However, theAppellate Division rejected their argument, basing its decision on well-established legal principles regarding proof of mailing and contract enforcement.
1. The Rebuttable Presumption of Receipt by Mail
The Court reinforced the powerful legal presumption regarding service by mail under New York law:
Proof of Mailing: Under New York law, submitting a properly executed affidavit of service creates a rebuttable presumption that the item was received by the addressee.
CPLR 2103(b)(2) Extension: The Appellate Division specifically applied the five-day extension provided by CPLR 2103(b)(2). Because the Board’s affidavit of service established the notice was mailed on November 7, 2019, the owners were presumed to have received it on November 12, 2019 (five days after mailing).
Denial is Not Enough: The Court held that the owners’“mere denial of receipt was insufficient to rebut that presumption.”
2. Strict Adherence to the Contract
The Court treated the stipulation of settlement as a contract, enforceable according to its terms.
The stipulation required the Board to wait seven days after delivery before seeking judgment.
Since the presumed date of receipt was November 12, 2019, the Board was permitted to seek judgment seven days later, on November 19, 2019.
By submitting the proposed judgment on November 19, 2019, the Board complied with the terms of the stipulation, and the judgment was correctly entered.
Actionable Advice for Condo Boards
This case serves as a vital blueprint for New York condominium boards when negotiating and enforcing settlement agreements for common charge arrears.
1. Be Meticulous in Drafting Stipulations
Define “Service”: Ensure your stipulations clearly and unambiguously define the method and date of service for a notice to cure. Include multiple, verifiable methods such as both certified and first-class mail, or email to a specific address, as the Mountainside Hills Board did.
Specify the “Cure Period”: Clearly state the exact cure period (e.g., seven days) and, critically, when that period begins (e.g., “seven days after delivery” or “seven days after the presumed date of receipt”). If you can omit a cure period, it is better to do so.
2. Follow Service Requirements Exactly
Affidavits are Essential: Always obtain and retain a properly executed affidavit of service when mailing a notice to cure. This is the evidence needed to create the powerful legal presumption of receipt, as a simple denial by the owner will not defeat it.
Account for the 5-Day Extension: When calculating the deadline to seek judgment, remember that New York’s CPLR 2103(b)(2) adds five days to the mailing time for court-mandated periods. The Board in this case correctly calculated the date of presumed receipt.
3. Enforce Judgments Promptly
A stipulation of settlement is a contract, and when the unit owner breaches, the Board is entitled to enforce the agreed-upon remedy.
As long as the Board can prove it strictly followed all notice and timing requirements in the stipulation, a court is likely to enforce the judgment and uphold the collection efforts against the delinquent unit owner.
Condominium boards should work closely with experienced legal counsel to draft ironclad settlement agreements and meticulously document every step of the notice process to ensure they can swiftly and successfully enforce them in the event of a default. Here’s the Court’s decision.
Community association boards, whether governing condominiums or cooperatives, bear the responsibility of maintaining community harmony, enforcing governing documents, and safeguarding both the financial stability and reputation of their associations. This duty faces its greatest test when a single, highly disruptive unit owner threatens the community’s well-being. The recent New York case, Board of Managers of Two Waterline Square Condominium v. Botach, exemplifies the difficult choices facing condominium boards when dealing with allegedly egregious owner conduct—and illustrates how aggressive legal action, while sometimes necessary, can expose associations to significant public scrutiny and legal risk.
The Two Waterline Square Conflict: A Case Study in Condominium Management
The lawsuit filed by the Board of Managers of Two Waterline Square Condominium against Jacob Botach (aka Rabbi Shmuley Boteach) and Deborah Botach originated from a dispute over $1,420 in rental and cleaning fees, plus late charges, for the unauthorized use of a common room in May and September 2024.
The conflict escalated dramatically when Defendant Botach refused to pay the fees, claiming the Board’s enforcement constituted anti-Semitism because one unauthorized use was for a memorial service honoring a victim of the October 7, 2023 Hamas attack. According to the Board’s allegations, Botach subsequently launched a public campaign against the association, utilizing emails to unit owners and social media posts (reaching his over 900,000 followers) that contained what the Board characterizes as “hyperbolic, defamatory, and frankly offensive” content. The complaint details three primary legal claims:
Defamation: Botach allegedly likened the $710 fee to historical persecution, including the Holocaust and Nazi Germany forbidding Jewish funerals, and called the Board “corrupt” and “antisemitic”.
Harassment/Nuisance: The complaint details Botach’s alleged harassment of Board members and building staff, including shouting at staff in the lobby, accusing them of “illegal activity and corruption,” and threatening “we are coming after you big time”.
Breach of Contract: Failure to pay the common room fees and associated late fees, which constitutes a material breach of the Condominium Documents.
The Board seeks not only the unpaid fees but also a Permanent Injunction to stop Botach from continuing his disruptive behaviors and publishing allegations of religious animus, as well as Exemplary Damages for defamation.
The Critical Distinction: Condominiums vs. Cooperatives
Understanding the fundamental differences between condominium and cooperative governance structures is crucial for boards contemplating litigation. These structural distinctions significantly impact both available remedies and strategic considerations.
Feature
Cooperative (Co-op)
Condominium (Condo)
Ownership
Shareholder in a corporation; holds a proprietary lease.
Owner of the unit (real property); holds a deed.
Relationship
Landlord-Tenant
Owner-Association
Primary Remedy
Eviction. The proprietary lease allows the board, in extreme cases, to terminate the tenancy of a disruptive shareholder.
Injunction & Foreclosure. The board must rely on remedies of property owners, such as filing a lien for unpaid charges and pursuing foreclosure or seeking injunctive relief for nuisance.
This fundamental difference in ownership structure creates distinct challenges for condominium boards. Unlike cooperative boards, which can leverage the landlord-tenant relationship to pursue eviction as an ultimate remedy, condominium boards must rely on remedies available to property owners dealing with other property owners. This limitation typically requires pursuing more expensive, time-consuming, and publicly visible litigation—including foreclosure actions for unpaid assessments or, as demonstrated in the Botach case, claims for private nuisance, defamation, and injunctive relief.
The Double-Edged Sword: Legal Action and Liability Exposure
While a board must act to stop an owner whose conduct interferes with the quiet enjoyment of other residents, pursuing a high-profile case like Two Waterline Square v. Botach comes with serious risks:
1. Public Scrutiny and Damage to Property Values
High-profile litigation, particularly cases involving public figures and inflammatory allegations such as discrimination claims, can severely damage a community’s reputation and market appeal. Properties in communities perceived as contentious, financially unstable, or poorly managed typically experience decreased buyer interest and reduced market values.
Financial Impact: Litigation can result in high legal fees, which may require special assessments or increases in common charges, making units less attractive to buyers. A protracted legal battle creates financial uncertainty, which can make it difficult for buyers to obtain financing, further reducing the pool of potential purchasers and decreasing property values.
2. Risk of Counterclaims and Board Liability
An aggressive lawsuit often invites counterclaims from the defendant, which can expose the board and individual directors to liability, even if they acted in good faith. Directors and Officers (D&O) insurance is critical here, as it typically covers the legal defense costs associated with defending against harassment and defamation allegations.
In consideration of the defamation claims asserted by the Board against Defendant Botach, it was crucial for the board to have considered the potential for Strategic Lawsuit Against Public Participation (SLAPP) counterclaims by Botach against the Board. Given Botach’s public figure status and his substantial following, the Board’s defamation claims may be perceived as an attempt to stifle his exercise of free speech. This raises the risk of SLAPP counterclaims, which, if successful, could lead to the dismissal of the Board’s defamation claims and the imposition of significant legal fees and penalties against the Board. Therefore, the Board should have carefully evaluated the merits of its defamation claims before asserting them and considered the potential ramifications of SLAPP statutes, which are designed to protect individuals from legal actions intended to chill their First Amendment rights.
Conclusion
The Two Waterline Square case illustrates the challenging position condominium boards face when traditional enforcement mechanisms prove insufficient to address disruptive owner behavior. Unlike cooperative boards with eviction remedies, condominium boards must carefully weigh the costs and risks of public litigation against the imperative to protect community interests. Before pursuing aggressive legal action, boards should conduct thorough cost-benefit analyses that consider not only the immediate dispute but also potential reputational damage, financial exposure, and the precedent such action may set within the community. The board’s attorney should take the board through this evaluation in advance of such aggressive and expensive and consequential legal action.
Effective community governance requires boards to maintain consistent, transparent, and legally compliant enforcement practices while fully understanding their structural limitations. When confronting egregious owner conduct, boards must develop comprehensive strategies that address immediate concerns while minimizing long-term risks to the community. This includes ensuring adequate Directors and Officers insurance coverage, consulting with experienced counsel, and carefully documenting all enforcement decisions. While taking a principled stand may sometimes be necessary to fulfill fiduciary duties, the strategy must be carefully calibrated to protect—rather than inadvertently harm—the community the board serves.
New York City’s skyline is dotted with condominiums, each housing a unique community with its own set of rules and challenges. Disputes often arise between condo owners and the boards of managers tasked with overseeing the building’s operations. These disputes can range from breach of contract claims to allegations of fraud and misrepresentation. This blog post examines a series of recent court decisions addressing a variety of legal issues arising in the context of New York City condominiums.
Breach of Contract and Construction Defects:
Several cases involved claims related to construction defects and alleged breaches of contract. In these instances, the courts analyzed the offering plans, purchase agreements, and other governing documents to determine the sponsor’s obligations and the unit owners’ rights.
In Board of Managers of 45 East 22nd Street Condominium v. 45 East 22nd Street Property LLC, the court considered claims of breach of contract and fraud in connection with the sale of a unit. The court ultimately denied the defendants’ motions to dismiss, allowing the case to proceed to discovery.
In Board of Managers of the Aston Condominium v. Building 389 LLC, the Appellate Division, First Department, addressed a case involving alleged construction defects and insufficient water heater warranties. The court partially dismissed the breach of contract claim related to construction defects due to a notice requirement in the offering plan. However, the court allowed the breach of contract claim based on the water heater warranties and the fraudulent conveyance causes of action to proceed.
In Board of Managers of the Blackfriars Condominium v. AG Ebenezer LLC, the court addressed a variety of claims, including significant construction defects, failure to preserve tax-exempt status for the church, and failure to honor financial commitments. The court dismissed several claims but allowed others to proceed, highlighting the complexity of legal issues that can arise in condominium development and management.
Piercing the Corporate Veil:
In Board of Managers of 135 West 52nd Street Condominium v. 135 West 52nd Street Owner LLC, the court addressed the issue of piercing the corporate veil to hold the sponsor’s principals personally liable for alleged construction defects. The court found the allegations insufficient to pierce the corporate veil, emphasizing the need for detailed and specific claims to hold individuals liable for the actions of a corporate entity.
Common Charges and Liens:
In Board of Managers of 25 Prince Street Condominium v. NYC Prince Holdings LLC, the Appellate Division, First Department, dealt with a dispute over unpaid common charges and a lien on a commercial unit. The court granted summary judgment to the board of managers on its claims for foreclosure on the lien, breach of contract, and attorneys’ fees. The court also declared that the roof was a general common element for which the defendant was responsible.
These cases provide a glimpse into the diverse legal issues that can arise in condominium disputes. They underscore the importance of carefully drafted offering plans, purchase agreements, and other governing documents. The decisions also highlight the need for boards of managers and unit owners to be aware of their rights and obligations under New York law.
In the case of HCJV 115 & 135 Hoyt Avenue Owner LLC v. Project Veritas, the Supreme Court of New York examined the legal principles of contract formation, part performance, and the parol evidence rule. The case involved a lease agreement between the plaintiff (landlord) and the defendant (tenant). The plaintiff alleged that the defendant breached the lease by failing to pay rent on time, while the defendant claimed that the parties had orally agreed to terminate the lease. The court, however, found that the defendant failed to provide enough evidence to prove the existence of an oral agreement to terminate the lease. If you reach an agreement, a handshake is just not enough. A well drafted agreement is worth its weight in gold (Bitcoin).
The court’s decision in this case highlights the importance of written agreements, especially in the context of real estate transactions. While oral agreements can be enforceable in some cases, they are often difficult to prove, especially when the terms of the agreement are disputed by the parties. In this case, the court emphasized that the lease agreement required any modifications to be in writing and signed by both parties.
Lessons to be Learned
The case of HCJV 115 & 135 Hoyt Avenue Owner LLC v. Project Veritas offers several lessons for parties to a lease agreement:
Put it in Writing and Sign it: Ensure that all lease agreements, and any subsequent modifications, are in writing and signed by all parties involved. This helps to avoid any disputes about the terms of the agreement.
Be Careful What You Say and Do: Avoid making any oral promises or representations about the lease agreement that are not reflected in the written document. Such promises can be difficult to enforce and can lead to misunderstandings and disputes.
Detailed Records: Keep detailed records of all communications and transactions related to the lease agreement, including emails, letters, and payment records. This can help to establish the terms of the agreement and the parties’ understanding of those terms.
Be Aware of the Risks: Understand that relying on oral agreements or part performance to modify a written lease agreement can be risky. If a dispute arises, the court may not enforce the modification if it is not in writing and signed by both parties.
Seek Legal Advice: If there is any doubt about the terms of a lease agreement, or if the parties wish to modify the agreement, it is important to seek legal advice from a qualified attorney. An attorney can help to ensure that the agreement is properly documented and that the parties’ rights are protected.
The case of HCJV 115 & 135 Hoyt Avenue Owner LLC v. Project Veritas serves as a reminder of the importance of written agreements and the risks of relying on oral modifications or part performance. By following the lessons from this case, parties to a lease agreement can help to avoid costly and time-consuming disputes.
District Judge Amos L. Mazzant of the Eastern District of Texas issued a preliminary injunction ordering that the entire Corporate Transparency Act (CTA) is enjoined nationwide and that the US government in enjoined from enforcing the BOI Reporting Rule (the final rule implementing the CTA and providing definitions and guidance for the statute) and the Jan. 1, 2025, compliance deadline. Judge Mazzant decided yesterday to reject the government’s motion to reverse himself. It’s difficult to cause a Judge to reverse himself, so the government moved the Fifth Circuit Court of Appeals to take emergency action and reverse Judge Mazzant.
The government’s motion to the Fifth Circuit is pending with a briefing schedule that could result in a decision around Christmas. The government asked the Court to render a decision by December 27th, but it’ll be up to the Court. The government asked for a complete reversal on the nationwide injunction by Judge Mazzant, or at least an order limiting the injunction to the parties involved in that case, or just the members of the organization involved in the case.
If the injunction is lifted by the Fifth Circuit, organizations will have to go back to complying with the CTA and its looming January 1, 2025 deadline. FinCEN has not indicated whether it will extend the deadline if the injunction is lifted.
We will keep you posted of developments. For now, although the nationwide preliminary injunction relieves the immediate obligation – i.e., right now – to file beneficial ownership reports with FinCEN, it would be prudent for non-exempt reporting entities that haven’t yet filed to continue to prepare for their report filing by continuing to gather all information and documents that the CTA requires. If it turns out that compliance is not required, then they don’t have to submit their report to FinCEN, but if they do and FinCEN does not give a reasonable time thereafter for compliance, then reporting companies don’t have to scramble at the last minute to comply before the hefty $591 a day fines kick in.
Here Judge Mazzant’s decision refusing to reverse himself and the government’s motion to the Fifth Circuit.
A Guide for Boards of Managers and Property Managers
As a board member or property manager of a newly constructed condominium in New York, you have a responsibility to protect the interests of your unit owners. This includes taking action if there are construction defects in the building.
Understanding Your Rights and Options
Sponsors are legally obligated to deliver a building that is free of material defects and constructed according to the offering plan. When they fail to meet these obligations, you have several legal avenues to pursue:
Breach of Warranty:
Buildings with five stories or less have an implied warranty under New York law covering material defects for six years, plumbing and electrical issues for two years, and construction-related defects for one year.
Larger buildings may have limited warranties provided by the sponsor, often with strict notice requirements.
Breach of Contract: You can sue the sponsor for breaching the offering plan or purchase agreements, which often detail construction standards and materials.
Fraud: If the sponsor intentionally misrepresented or concealed material conditions in the offering plan, you may have a fraud claim.
Breach of Fiduciary Duty: Sponsor-appointed board members owe a fiduciary duty to the condominium, even during the sponsor’s control period.
Negligence: You can sue the sponsor for negligence if they breached duties beyond their contractual obligations.
Don’t Forget the Sponsor Members: It’s always better to seek relief from the Sponsor or Sponsor-appointed board members before they sell out of your condo. If they still own unsold assets there, you’re in luck. If not, you can try to claw back distributions by the Sponsor to its members.
Time is of the Essence
It is crucial to act quickly when pursuing these claims, as New York law enforces strict statutes of limitations (even though there are arguments that can be raised to extend the time periods or as to when the time periods begin):
Breach of Warranty: Six years from substantial completion or occupancy.
Breach of Contract: Six years from the date of the breach.
Fraud: Six years from the date of the wrongdoing or two years from its discovery.
Negligence: Three years from the date of injury.
Taking Action
If you suspect construction defects, take the following steps immediately:
Document Everything: Engage a licensed engineer or architect to thoroughly inspect the building and document all defects with a detailed report, including photos and videos. Do this through your attorney to preserve the attorney-client work product privilege. This can be a critical step that condo boards overlook sometimes. Experienced counsel know better and can fix the issue in some instances retroactively.
Consult an Attorney: Seek legal counsel experienced in construction defect litigation to discuss your options and ensure you meet all deadlines and procedural requirements.
Consider Collective Action: If a non-sponsor board is not yet in place, unit owners may need to pool resources to pursue claims collectively.
Common Elements vs. Units: The common elements are for the Board to seek legal redress but the units themselves are the individual unit owner’s responsibility to pursue if there are issues. Some issues are so pervasive in the entire community that the Board takes on the fight for its unit owners’ unit issues. Experienced counsel can guide you through this process.
Conclusion
Construction defect cases are complex and time-sensitive. By understanding your rights, acting swiftly, and seeking expert advice, you can protect the interests of your unit owners and hold the Sponsor, Sponsor-appointed board members and Sponsor members accountable. It’s a lot better to fix your problems with their money than with your own. Another consideration that seasoned counsel can walk you through.
A new court decision highlights the critical importance of meticulous record-keeping and proactive due diligence for condominium boards, especially when it comes to insurance coverage.
In the case of Wong v. Board of Managers of One Sunset Park Condominium, a New York court denied the Condominium Board’s motion for summary judgment due to insufficient evidence demonstrating that the Board acted within its authority and in good faith when procuring and renewing its fire insurance policy. This case serves as a stark reminder for property managers and boards about the potential pitfalls of inadequate insurance coverage and the legal ramifications that can ensue.
Key Takeaways for Property Managers and Boards:
Meticulous Record-Keeping is Paramount: The Board’s failure to provide adequate documentation of their decision-making process regarding insurance coverage was a crucial factor in the court’s decision. Boards must maintain comprehensive records of all discussions, consultations, and decisions related to insurance policies. This includes:
Meeting minutes detailing insurance discussions and decisions.
Copies of all insurance policies, renewals, and amendments.
Documentation of consultations with insurance brokers and legal counsel.
Records of any appraisals or assessments used to determine replacement cost.
Regularly Review and Update Insurance Coverage: The case highlights the danger of complacency when it comes to insurance. The Board renewed the same policy for several years without reassessing the coverage amount, potentially leaving the building underinsured. Boards should:
Conduct periodic reviews of their insurance policies, ideally annually.
Obtain updated appraisals of the building’s replacement cost regularly.
Consult with insurance professionals to ensure coverage remains adequate.
Reassess insurance needs after any significant changes to the building or its surroundings.
Understand and Adhere to Bylaws: The court emphasized the importance of the Board acting within the scope of its authority as defined in the bylaws. Boards must be intimately familiar with their bylaws, especially those sections pertaining to insurance requirements.
Prioritize the Interests of the Condominium: The court’s decision to allow the addition of a breach of fiduciary duty claim underscores the importance of board members acting in the best interests of the condominium and its unit owners. Avoid any actions that could be perceived as self-dealing or prioritizing personal interests over those of the condominium.
Seek Expert Advice: Consult with insurance brokers, legal counsel, and other relevant professionals when making decisions about insurance coverage. Document these consultations and maintain records of the advice received.
Failure to heed these lessons can lead to serious consequences, including:
Financial Liability: As seen in this case, inadequate insurance coverage can leave the condominium and its unit owners financially vulnerable in the event of a major incident.
Legal Disputes: Disputes with unit owners over insurance coverage can be costly and time-consuming.
Damage to Reputation: A failure to adequately protect the condominium’s assets can damage the Board’s reputation and erode trust among unit owners.
By proactively addressing insurance needs, maintaining thorough records, and acting transparently, property managers and boards can minimize risks and ensure the long-term financial health and stability of their condominiums. Here is the Court’s decision.
In New York, the legal landscape governing construction defect disputes between condominium boards and developers is complex and often contentious. Three recent cases highlight the nuances of such litigation, shedding light on the causes of action, procedural considerations, and the scope of damages that can be pursued.
Breach of Contract and Fraudulent Conveyances:
In Board of Managers of the 51 Jay Street Condominium v. 201 Water Street LLC, the board sued the sponsor and developer for alleged construction defects. The court dismissed claims for breach of fiduciary duty and fraudulent conveyances against the sponsor’s individual board members, emphasizing that the board’s primary recourse was through breach of contract claims against the developer. This case underscores the importance of focusing on contractual obligations and the developer’s direct responsibility for defective work in some cases where breach of fiduciary duty and fraudulent conveyance claims cannot be stated and supported.
Consequential Damages and Implied Warranties:
Board of Managers of the 37, 39 Madison Street Condominium v. 31 Madison Development, LLC involved a dispute over defective common areas. The court limited the board’s ability to claim consequential damages, relying on a limited warranty clause in the purchase agreements. Additionally, claims for unjust enrichment, breach of implied warranty, and negligence were dismissed as precluded by the contract and warranty. This is not the case for many condominiums and experienced counsel can advise how to state and support these claims in many cases. This decision highlights the impact of contractual limitations on available remedies and the need for boards to carefully review and negotiate warranty provisions.
Fraud in the Inducement and Sponsor Board’s Fiduciary Duty:
In Board of Managers of 570 Broome Condominium v. Soho Broome Condos LLC, the board successfully alleged fraud in the inducement against individual sponsor representatives who made misrepresentations in the offering plan. The court also upheld claims for breach of fiduciary duty against sponsor-appointed board members who engaged in self-dealing and mismanaged the budget. This case demonstrates that while contractual claims are essential, boards can also pursue actions based on fraudulent conduct and breaches of fiduciary duties by sponsor representatives.
Key takeaways for Condo Boards and Management:
These cases illustrate the multifaceted nature of construction defect litigation in New York. Condominium boards must carefully assess the specific facts of their situation, consult with experienced legal counsel, and strategically pursue the most appropriate causes of action to protect the interests of unit owners.
A New York Supreme Court decision by Justice Lebovits in Board of Managers of The Promenade Condominium v. Eshaghour could significantly impact the condominium community, highlighting the potential for individual board members and their management companies to face personal liability for their actions. This ruling serves as a stark reminder that board members must act in good faith and within the scope of their authority, or risk facing serious legal repercussions. We expect that there may be an appeal of the decision and not withstanding an appeal, that the condo, its board members and management company will vigorously defend against the owners’ claims against them.
The Case: Beyond Unpaid Common Charges
While the initial lawsuit was filed by the condominium board to recover unpaid common charges, the defendants countersued with a litany of allegations against individual board members, the management company, and others. The defendants accused them of breach of fiduciary duty, private nuisance, intentional infliction of emotional distress, and sought permanent injunctions against several parties.
Key Takeaways for Condo Boards and Management
Individual Liability is Real: The court’s decision to allow several claims to proceed against individual board members underscores that they can be held personally accountable for their actions, even when acting in their official capacity.
Breach of Fiduciary Duty: The court emphasized that board members have a fiduciary duty to act in the best interests of the condominium and its unit owners. Allegations of unequal treatment, harassment, and intimidation can pierce the business judgment rule, potentially exposing board members to liability. Specific allegations: Preventing the defendants from fixing hot-water problems, hiring management and security companies that allegedly harassed the defendants, issuing notices of breach of settlement agreement, prohibiting the defendants’ child from using the gym for therapy, forcing the defendants to pay for violations caused by others, and amending bylaws to target the defendants.
Private Nuisance: Actions that substantially interfere with a unit owner’s right to use and enjoy their unit or the common areas can lead to a private nuisance claim. Specific allegations: Intimidating the defendants as they entered the building, making threats in the lobby, glaring at their children, yelling at their child to leave the laundry room, and trying to block access to the premises.
Intentional Infliction of Emotional Distress: While difficult to prove, a pattern of extreme and outrageous conduct can result in an IIED claim. Specific allegations: A board member threatening a “brawl” with the defendant, screaming at the defendant’s child, physically blocking the defendant from entering the building, repeatedly mocking the defendant, and giving threatening looks.
Permanent Injunctions: The court clarified that permanent injunctions can be granted against individual board members and their management companies if they are found liable for underlying claims.
Considerations
Board Member Education: Boards should invest in training for their members, ensuring they understand their fiduciary duties and the potential consequences of breaching them.
Transparent Communication: Open and honest communication with unit owners can help prevent misunderstandings and potential disputes.
Experienced Management and Counsel: Engaging an experienced management company and general counsel can help ensure that the condominium is run professionally and in compliance with applicable laws and regulations.
Conflict Resolution: Implement procedures for addressing disputes early on, potentially avoiding costly litigation.
Conclusion
The Eshaghour case serves as a powerful reminder that condo board members and their management companies must act responsibly and ethically. Failure to do so can lead to significant personal liability and damage the reputation of the condominium community. By prioritizing good governance and open communication, boards can protect themselves and foster a positive living environment for all residents.
