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Coop and Condo Boards Must Pay Careful Attention to Building Documents

12/08/2014 | Winter 2014 Newsletter
Several recently decided cases continue to demonstrate that Boards must pay careful attention to the terms of documents that are commonly utilized in managing cooperatives and condominiums. Failure to abide by the terms of the documents, or to have documents spell out relevant details, may result in adverse or unintended consequences.

A recent New York County Civil Court decision, 170 West End Avenue Owners Corp. v. Turchin, involved a summary nonpayment proceeding based on the failure to pay maintenance. The cooperative included in the amount of arrears charges for the use of a storage bin. The court found that the charges for the storage bin were not rent, because the charges were not pursuant to the proprietary lease between the parties but rather a separate license agreement, and therefore the claim was severed from the proceeding and dismissed without prejudice. As a result, the cooperative had to bring a separate civil court action just to collect the storage fees — which as a practical matter meant it may not be cost effective to try to collect them.

For buildings faced with this problem, the solution is either to amend the proprietary lease, or adopt the new form of proprietary lease promulgated by the Council of New York Cooperatives & Condominiums, to include all storage charges and other user fees as additional rent, or alternatively to specifically provide in the storage license agreement that the shareholder agrees that the fees are to be deemed additional rent and the failure to pay will be a default under the proprietary lease.

In Cohan v. Board Of Directors Of 700 Shore Road Waters Edge, Inc., the Board assessed a sublet fee of $3,000 because the apartment was allegedly sublet, and the occupant was making excessive noise. The court held that the board was without authority under its governing documents to assess a fee against the shareholder for alleged illegal subletting. The proprietary lease, by-laws, shareholder handbook, and “house rules” adopted by the board failed to substantiate the board’s claim that the “sublet policy” recited in the shareholder handbook was an enforceable “house rule” incorporated and made binding on the petitioner under the proprietary lease. Therefore, the court held that the board had acted outside the scope of its authority in assessing the $3,000 sublet fee, and ordered the board to pay attorney’s fees to the shareholder.

The lesson of this case is that Board policies must be carefully documented in the minutes of meetings, and must be specifically incorporated into the house rules so that they are enforceable against shareholders. Particularly with respect to the imposition of fines, the rules must spell out the circumstances under which the fines may be imposed, the amount of fine that is authorized, and a procedure for imposing the fine.

Another case involving the house rules was 165 East 72nd Apartment Corp. v. McEvoy, in which the shareholders were interfering with a hallway renovation. The shareholders told the project foreman not to perform any work on their floor, sat in the middle of the hallway outside of the apartment and refused to move, impeding work on the project, contacted the Department of Buildings claiming false code violations in an effort to further interfere with the project, and physically appeared in the hallway and prevented the contractor from working there. The Court granted a preliminary injunction enjoining the shareholders from physically interfering with the project but did not award attorney’s fees because the conduct interfering with hallway construction did not rise to a level sufficient to constitute a breach of the proprietary lease. The rules relating to hallway use were intended to keep hallways and stairways free from obstructions for fire safety purposes. Defendants’ conduct did not constitute a fire safety hazard or obstruct any resident (as opposed to the contractor) from passing through the hallway. While defendants’ use of the hallway may have been an annoyance with respect to the project, the court did not find that such conduct breached the proprietary lease. In order to recover legal fees for breach of the proprietary lease as a result of a nuisance, the court held the lease should have expressly included nuisance.

House rules frequently do not deal with the possibility that a shareholder may intentionally act maliciously, and often do not prohibit intentional harm, including conduct directed at employees and visitors as well as residents, and often do not prohibit vandalism against property of the cooperative or the residents.

The bottom line is that Boards need to review their documents and have them updated as necessary.

About the author: Marc J. Luxemburg is a partner at Gallet Dreyer & Berkey LLP. His practice focuses on real estate transactions, cooperative and condominium law, and real estate litigation. Mr. Luxemburg represents numerous buildings and sponsors in the New York City area. He is the President of the Council of New York Cooperatives and Condominiums, a non-profit membership organization with more than 2300 cooperative and condominium members, which provides educational activities and monitors legislation which affect its members. He has taught numerous seminars on the legal aspects of operating cooperatives and on the role of the Board of Directors. Mr. Luxemburg can be reached at mjl@gdblaw.com.