COMMUNITY ASSOCIATION LAW SEMINAR
SIGNIFICANT DECISIONS OF 2015
February 23, 2016 – Holiday Inn Express, South Setauket, NY
February 29, 2016 – Holiday Inn Express, South Setauket, NY
- STRAY CATS AND LATE FEES
Dorothy Lee v. Parkview Estates Condominium – New York City Civil Court, Richmond County
Owner of condominium unit invited her sister to live with her. While the sister was there, she began feeding stray cats on the front porch of the unit. The condominium fined the owner for breach of the rules and assessed late fees on the fines when the unit owner refused to pay the fines. Fines and late fees totaled $650. Unit owner continued to pay the monthly assessments and eventually paid the fines, but brought this lawsuit claiming that there is an affirmative duty under the NYS Agriculture and Markets Law to feed stray animals and the Condominium did not have the right under its governing documents or the agricultural law to assess fines and late fees.
The Court held that while the owner’s defense was novel, the relevant provision of the Agriculture and Markets Law was designed for the government to punish people who abuse animals, but did not create an affirmative obligation for a private citizen to feed stray cats. Further, the court noted that by moving into a condominium, a unit owner voluntarily agrees to abide by the rules, whether or not the unit owner agrees with those rules.
The court also found that the condominium’s imposition of late fees, which amounted to a sum greater than the original fine, was allowable if the fines were imposed appropriately. However, the Board used a late fee rate that was reserved for unpaid common charges only instead of a lower late fee rate for fines.
(Note that the judge’s decision included references to T.S. Eliot, Garfield, Sylvester, Felix, Yogi, BooBoo, Oliver Twist, Ratatouille and the Pied Piper of Hamelin.)
Bottom line: Judges may appreciate creativity, but creativity alone will rarely carry the day.
- ALTERATION AGREEMENTS
Nolasco v. Soho Plaza Corp, – Appellate Division, Second Department
The Birnbaums, NYC co-op shareholders, hired Diamond Era Construction, Inc., to perform alterations to their apartment and entered into an alteration agreement with the co-op. An employee of Diamond was allegedly injured while working in the apartment and commenced a personal injury action against the co-op. The co-op then filed a claim against the Birnbaums and Diamond, seeking contractual indemnification based on the provisions in the Proprietary Lease and the alteration agreement.
The Lease and agreement contained broad indemnification provisions that were not limited to the shareholder’s acts or omissions and that failed to make exceptions for the co-op’s own negligence. The Court, based on state statute and case law, found that the indemnification provisions were so broad as to be unenforceable.
Bottom line: Alteration Agreements can be useful tools, but an overly aggressive Agreement can be counter-productive.
- LIMITATION OF ACCESS TO COMMON AREAS
Oriogun v. Board of Managers of Hampton House Condominium – Supreme Court, New York County
Mr. Oriogun has used his NY City condominium’s Health Club facility (a common element shared by all residents) since purchasing his unit in 2006. The Board of Managers required all unit owners using the Health Club to sign a Membership Agreement and to be in good standing (e.g., no arrears, outstanding violations, etc.), and plaintiff apparently had no issues in this regard.
However, in 2012 the Board made certain renovations to the condo, including installing a new elevator system that required a special key fob in order to access the Health Club. It also amended the Membership Agreement to include a provision relieving the Board from any liability and holding it harmless in the event of injury or damages resulting from use of the Health Club. As a result, anyone refusing to sign the new agreement and liability release would be denied access to the Health Club, despite its being a Common Element of the condominium.
Mr. Oriogun refused to sign the new agreement, was denied a new key fob and access to the gym, and thereafter sued the Board in Supreme Court, claiming that: (a) the Board had acted outside the scope of its authority by improperly modifying his existing contract with the condominium; (b) it violated the section of NY’s Condominium Act addressing an owner’s right to use and access common areas; and (c) the required liability release was improper and violated both the General Obligations Law (GOL) and the Condominium Act, and thus his rights as a unit owner.
The court held that the Board was fully entitled to amend the Rules and Regulations pertaining to use of the Common Elements pursuant to both the Condominium Act and its By-Laws, and plaintiff knew when he purchased that these rules could be amended by the Board at any time, and thus is bound by them.
The court also found that, under the Condominium Act, unit owners are not granted unfettered right and absolute access to all Common Elements, the Board was vested with the ability to revise and amend residents’ use of the Common Areas, and was authorized to provide certain owners with substantially exclusive advantages in parts of the Common Elements (in this case access to the gym).
However, the court held that the hold harmless provision of the amended agreement violated §5-326 of the GOL, which provides that a gym owner’s attempt to demand such a hold harmless provision is void as against public policy and unenforceable, but allowed the Board to demand relief from liability for an owner’s negligence in the amended agreement.
Bottom line – Unit owners do not have an absolute right to access every portion of the common areas – and access may be restricted or denied upon failure to abide by the rules.
- LATE FEES
The Board of Managers of the Park Avenue Court Condominium v. Sandler – Supreme Court, New York County
The Board commenced an action to foreclose a lien for unpaid common charges, assessments, electric charges, late fees and attorney’s fees. The Board then moved for summary judgment striking Sandler’s affirmative defenses and the appointment of a referee. Sandler cross-moved for summary judgment dismissing the foreclosure action and striking all late fees and attorney’s fees from her account. The Court granted the Board’s motion and found that Sandler’s affirmative defenses were conclusory and boilerplate and were inadequately pled. Regarding the late fees, Sandler argued that the Board’s late fee of up to $800 per month was unreasonable and confiscatory. The Court found that a usury defense would not apply in this case since the late fees were not connected to a loan. However, the Court noted that the criminal usury rate of 25% provided a guideline for determining whether a late fee is excessive. Since some of the late fees exceeded the criminal usury rate, the Court found that the late fees were unreasonable and confiscatory and therefore, unenforceable. The Court directed that the referee limit the late fees to $0.04 per dollar which was the amount authorized by the Condominium By-Laws.
Bottom line – Excessive late fees will not be upheld by the courts.
- UNAUTHORIZED AMENDMENTS
Gabriel v Board of Mgrs. of the Gallery House Condominium – Appellate Division, First Department
Condominium unit owners sought declaratory judgment against the board of managers that amendments to the rules of the condominium were not authorized under the by-laws and declaration.
First, the Board’s authority to pass House Rules back in 2005 and 2007 could not be challenged in 2015 due to the expiration of the six-year statute of limitations.
Next, the Court found that the only restriction in the by-laws regarding an owner’s use of the apartment is that it cannot be used for transient tenancy. Thus, the February 2014 Board rule requiring that leases be limited to no more than one year does not constitute mere clarification of the by-laws, but an illegal amendment of the permitted use of plaintiffs’ units. The Board failed to offer any explanation as to how requiring leases not to exceed one year is in keeping with the prohibition on transient tenancies.
The court also found that, while the by-laws gave the Board the authority to fine for rule violations, the imposition of fines in the amount of $500 per day for violations of the guest policy was confiscatory in nature. This was distinguishable from the imposition of administrative fees and nominal fines for a resident’s non-compliance with certain rules.
Take Away: 1) Fines must be kept to a “reasonable” amount, and 2) House Rules cannot be used when a by-law amendment is required (unless, possibly, the rule is not challenged for six years!).
- ILLEGAL ALTERATIONS
Richstone v. The Board of Managers of Leighton House Condominium – Supreme Court, New York County
The Condominium Board needed access to the Richstone terrace in order to perform roof repairs. The repairs were not completed within the time demanded by Richstone, who then sued the Board for trespass. The Board counter claimed that the terrace was constructed without proper authority. The Court found that the deck was illegal and must be removed and awarded judgment for attorney’s fees to the Condominium.
Bottom line: Cooperation is sometimes better than confrontation.
- DISCRIMINATION AND THE BUSINESS JUDGMENT RULE
Berkowitz v. 29 Woodmere Blvd. Owners’ Inc. – Supreme Court, Nassau County
Berkowitz owned a co-op apartment and attempted to sell it to Mr. Lax. Mr. Lax, a single man, was rejected by the board. The Board reasoned that the sales price was insufficient. Mr. Lax offered to increase his offer. The Board ignored him and never replied to his higher offers. Mr. Lax brought suit against the Co-op Board in Federal Court claiming discrimination based upon marital status. That suit was settled out of court. After a second buyer was rejected by the Board, Berkowitz sued the individual Board members for breach of their fiduciary duty, the Co-op Corporation for breach of the Proprietary Lease, and the managing agent for breach of its fiduciary duty in the rejection of the two buyers.
The Court dismissed the claims against the one Board member who voted in favor of the first buyer, and against the managing agent, finding that the managing agent has a fiduciary obligation to the Co-op Corporation but not to individual shareholders.
The court found that a question of fact existed as to whether the Board members did, in fact, discriminate against the first buyer based upon his marital status. Curiously, there was no evidence submitted by the Board to support its decision that the price was too low, or that the Board ever met to discuss and decide upon the Lax application. If they did indeed discriminate against him, it would be a breach of their fiduciary obligations and they could be found individually liable as the business judgment rule does not protect board members for discriminatory acts.
The court also found that because the Proprietary Lease forbid unreasonable rejection of a buyer, the Co-op Corporation could be found liable for breach of the Lease if the facts show that the rejection of the buyer was discriminatory.
As for the claims against the Board and Co-op Corporation for their breach of fiduciary duty with respect to the rejection of the second buyer, the court found that the Board was protected under the business judgment rule and dismissed the claim. The business judgment rule protects Board members from liability when their actions are taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes. Here it was clear that the second buyer’s income was insufficient and could not promise payment of the monthly charges.
Bottom line: Boards should always follow proper procedure and should be wary of making decisions that create an appearance of impropriety.
- REPAIRS
Gottesman v The Graham Apts., Inc. – New York Civil Court, Kings County
Plaintiff owned a cooperative apartment and suffered a substantial flood inside of his unit that covered the entire floor with several inches of standing water, causing significant damage, including mold contamination and loss of personal items and property. His insurance carrier denied his claim, as did the co-op’s carrier.
The plaintiff opened windows and used ceiling fans in an effort to evaporate the standing water in the apartment, purchased three fans and “Damp-Rid” (a moisture absorbent product) to help evaporate/absorb the remaining water that was under the hardwood floors and the saturated carpeting, but did nothing else to remove the standing water or to otherwise remediate or repair the damages. Plaintiff then notified the management company of the water damage and conditions of mold/mildew odor in the subject premises. It was later discovered that the flooding had been caused by a broken sewage pipe and connection that had been previously brought to the Board’s attention but never fixed.
The co-op’s Board of Directors thereafter approved and authorized the remediate work that was required and agreed to pay for same, and in reliance upon the alleged agreement with the co-op, Plaintiff retained a moving and storage company to remove his property from the unit.
A month later the Board rescinded its agreement to correct the conditions, but later that year had the defective pipe repaired. Plaintiff moved out of the apartment to live with his wife and family in a larger home, but continued to pay maintenance and assessments imposed by the co-op. The plaintiff never returned to live in the unit, which remained vacant for almost six years, and none of the damage inside of the unit was repaired by either party.
The plaintiff then sued the Board, alleging negligence, breach of contract and breach of warranty, seeking damages for the costs to repair the unit, recovery of all payments made to the co-op, and $50,000 for lost property.
The court found that the co-op had a contractual duty to exercise reasonable care in the management and operation of the building, to protect all of the shareholder-tenants against the unreasonable risk of floods into the building and their respective apartments, and that it failed to do so, but also advised that the primary responsibility for the maintenance and repair of this apartment was on the Plaintiff and not the co-op.
The court also held that the Plaintiff had an absolute obligation to repair the apartment and not to allow the apartment to deteriorate like it did, and his decision not to use a wet vacuum and/or water removal company to properly remove the water immediately after his home remedy failed to remove the moisture constitutes permissive waste.
Moreover, the court found that both parties were negligent in their actions with regard to handling the flood in the subject apartment and building; the co-op was negligent in that it failed to use ordinary care to protect the Plaintiff and other building members from the unreasonable risk of harm from water damage (by the failure to correct the broken sewer pipes), and the Plaintiff was negligent in his failure to reasonably maintain the apartment and by allowing it to fall into disrepair. Having already determined that the Plaintiff’s failure to exercise reasonable care in the commencement of remedial work after the flood constitutes permissive waste, the court found that the Plaintiff’s permissive waste was negligence per se.
Finally, the Court found that the co-op had breached the warranty of habitability by the failure to correct the sewer pipes after due notice, holding the co-op 100% liable from the date of the flood (August 11, 2004 to March 30, 2005) and thus, the Plaintiff was entitled to a 100% abatement during that time (the date of the flood to the date the Plaintiff was informed the co-op would not correct the mold condition in the apartment). After the Plaintiff was notified that the Board would not pay for the mold remediation, the apportionment of liability and the percentage of the warranty of habitability, was 80% for the Plaintiff and 20% for the co-op.
Bottom line: Delay by the Board in performing its obligations may cause increased damages and costs down the road.
- ELECTIONS
Mishaan, et. al. v. 1035 Fifth Avenue Corporation, et. al. – Supreme Court, New York County
In a contested election for the co-op’s Board of Directors, the results of the election were announced at the end of the annual meeting after all the votes had been counted – or at least almost all of the votes. The day after the election, one shareholder asked to review the ballots and discovered that his proxy ballot had inadvertently been left out of the tally. When the ballot was included, one of the candidates who had been announced as a winner turned out to not have been elected to the Board. All shareholders were notified of the error and the changed result. The shareholder who was “removed” from the Board brought suit, asking the Court to reinstate him. The Court ruled that the co-op’s By-Laws, the Business Corporation Law and case law all support use of the original election results and not the re-count in determining the composition of the Board.
Bottom line: Not every mistake need be corrected.
- DEFAMATION
Trump Village Section 4 v. Bezvoleva – Supreme Court, Kings County
Plaintiffs Trump Village Section 4, Inc. and Igor Oberman, the president of the co-op, brought an action for libel against the defendants. The defendants, who are shareholders in the co-op, allegedly created a website called TV4News.org. The purpose of the website was to create a forum for Trump Village residents to discuss news and information in the community. Plaintiffs claimed that the defendants used this website to defame them by posting 19 different defamatory statements over a one year period. A number of these statements concerned whether the elections were being held fairly in the community. The defendants moved to dismiss the complaint claiming that the statements were protected by the common interest privilege. The Court found that the statements were not protected by the common interest privilege since the statements were not limited to Trump Village residents. Instead, the statements were published on a website which could be accessed by the general public. This constituted excessive publication which defeated the common interest privilege. Plaintiffs argued that there was a history of malicious conduct by the defendants against Oberman. While the Court did not address whether the defendants’ conduct constituted malice, a finding of malice would also defeat the common interest privilege. The Court dismissed defendants’ claim that the Board and Oberman were limited-purpose public figures which would have required a showing of actual malice by Plaintiffs. Defendants’ contention that the statements were non-actionable opinion was also dismissed by the Court since the statements were made on a website which purported to represent and provide information about Trump Village. Accordingly, the Court denied Defendants’ motion to dismiss.
Bottom line – Websites run by homeowners in the community can become a source of defamation against Boards.
- COLLECTION OF ASSESSMENTS
Baxter Street Condominium, etc., v. LPS Baxter Holding Co., LLC. – Appellate Division, First Department
The Condominium Board approved a large assessment to cover the cost of repairs to the common areas caused by construction defects which resulted in water infiltration. When the owner of three units refused to pay the assessment, the Board brought suit. The court found that the By-Laws allowed the Board to assess for necessary repairs without sponsor or unit owner approval. The court also found that a pending separate action by the condominium against the sponsor for construction defects had no bearing on the authority of the Board to declare the special assessment and the duty of the unit owners to pay the assessment.
Bottom line: To assess or not assess, that is the question. But once the Board decides to assess, all unit owners must pay their share.
- BUSINESS JUDGMENT RULE
Jacobs v. Grant – Appellate Division, Second Department
Plaintiff was a shareholder in Hawthorne Gardens Owners Corp., a cooperative apartment corporation located in Freeport. The plaintiff stored personal belongings in a storage room located in the basement of the building. The Board notified all shareholders that due to an asbestos abatement project, the shareholders were required to remove their belongings from the storage area. Plaintiff refused to remove his personal items from the storage area. The Board hired a moving company to remove the plaintiff’s personal belongings and store them until the asbestos abatement project was completed. Plaintiff then sued the Board for conversion, unjust enrichment, and negligence. The Court found that the Board’s decision to remove the plaintiff’s property from the storage area of the building was protected by the business judgment rule. There was no evidence submitted by the plaintiff that the Board acted outside the scope of their authority, in a way that did not further the corporate purpose, or in bad faith.
Bottom line – The Board’s need to complete important projects for the community will outweigh an individual’s rights in some instances.
