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Council of New York Cooperatives & Condominiums
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Legal Issues

Published: Summer 2002

CNYC president Marc J. Luxemburg, Esq. is an attorney specializing in cooperative and condominium law. In each issue of the CNYC Newsletter, he reviews recent court cases that have the potential to answer questions commonly faced by boards of directors as part of their responsibilities. At last year's CNYC Housing Conference, Mr. Luxemburg presented his annual review of the year's significant legal decisions. The following article features highlighted cases from his workshop.


Alteration Penalties
Charging a “penalty” for exceeding the time allowed by the board for completing an alteration of an apartment continues to generate controversy. In Behler v. Ten Eighty Apartment Corp., NYLJ, 4/11/01 p. 18, c. 4 (Sup. Ct. NY Co.), the alteration agreement provided for a charge of $100 per day until the authorized time limit, and $500 for each day after. The Behlers exceeded the limit, and they claimed that in calculating the $32,000 of overtime alteration fees, the cooperative did not consider factors such as whether the delays were beyond the Behlers' control, that work could not be performed during most of the period, and that there was no relationship between the delay and any costs or expenses borne by the cooperative. The court reviewed the law relating to "liquidated damages" (in which a fixed amount is set as damages rather than an amount based on actual provable expenses), and found that unless the fee is reasonable in relation to possible costs resulting from the breach, it becomes a prohibited "penalty." The court found that while the $100 per day fee during the authorized period was a reasonable out-of-pocket estimate of the damage to the cooperative, the $500 per day overtime rate was disproportionate. Thus, the cooperative was not able to the prove the actual damages because of the way the alteration agreement was written.

Condo Alterations
In O'Dell v. 704 Broadway Condominium, 728 NYS2d 464 (1st Dept. 7/26/01), the unit owner wanted to create an exterior balcony – a process involving the creation of an alcove via drastic demolition and reconstruction of the exterior wall approximately eight feet in from its previous location – and build a terrace extending out five feet. The owner submitted a proposal before buying the unit, and got the president's approval. The board president signed a letter, agreeing to the alteration. After the unit owner bought the unit, he again submitted his plans to the president, who signed them. Later, the unit owner wrote another letter to the board outlining his various submissions and asking the president to indicate that the submitted work had been reviewed and approved; the president signed that letter, too. However, once work started, the other board members were shocked at what was being done. The unit owner then presented what he was in the process of doing at a board meeting, only to have the full board reject it.

The unit owner decided to continue with the alterations notwithstanding what the board said, and brought an action against the board saying he had a right to proceed based on the approvals by the president. The court said that as far as the condo itself was concerned, the unit owner had a right to proceed because the project had the approval of the president, who, as chief executive, had the power to perform any act which the directors could authorize or ratify. The test is whether he was engaged in the discharge of the general duties of his office; the question of whether he actually had authority to sign what he signed is irrelevant.

The court found that this general proposition applied, notwithstanding a statement in the bylaws that all "agreements," contracts, deeds, leases, checks or other instruments of the condo shall be executed by two officers, or such persons as may be designated by the board. Approval of the application to the Buildings Department and signing of these letters did not constitute an "agreement," notwithstanding that the condo was bound by it. And, said the court, approval of the alteration, be it on a common area or a unit, was not an "agreement" requiring two signatures.

It was also argued that under New York Condominium Law, the consent of the owner of the unit underneath the proposed alcove/ balcony was needed. The court decided to hold a trial to determine if this particular owner's consent was in fact needed. This case was still ongoing at the time of Mr. Luxemburg's presentation; a trial is required as to whether creation of the balcony was a "material alteration" that required the neighbor's consent.

Ladders
Labor Law §240 continues to cause headaches for cooperatives. In Pastrana v. 300 Central Park West Apartments Corp., NYLJ 12/21/00, p. 30, c. 3 (Civ. Ct. NY Co.), an apartment owner hired a contractor to do renovations, who hired an employee to do the work. This employee fell off a ladder while stripping molding off the ceiling inside the apartment. Although the renovation was only on a single apartment, and the cooperative had no connection with the employee, the cooperative is liable to the employee for his injuries under Labor Law §240. The apartment owner is exempt from liability, despite having hired the contractor whose employee was up on the ladder. The contractor is not liable either, due to workers’ compensation. As only the cooperative was liable, this case demonstrates that cooperatives should be insured for incidents such as this. In addition, an alteration agreement with an indemnity clause is important, so that the liability can be transferred back to the owner. In this case, the employee's suit against the owner was dismissed but the cooperative's claim against the owner under the alteration agreement survived. Thus, this case shows the need for an alteration agreement even for very minor work.

SPONSORS: Right To Sell -- Paikoff Revisited
General Business Law §353-eeee (2)(c)(ii) says a tenant entitled to possession who has not purchased under the offering plan, or a person to whom a dwelling unit is rented subsequent to the effective date of the plan, is protected against eviction by the unit owner so long as the unit owner is not a “purchaser under the plan.

In the following two cases, the respective plaintiffs had each rented an apartment from a sponsor after the plan closed and the sponsor sought to end their tenancies. However, these two similar cases had two completely different outcomes.

In Park West Village v. Nishoika, 721 NYS2d 459 (Sup. Ct. App. T. 1st Dept. 10/26/00), the plaintiff leased an apartment from a sponsor five years after the plan closed, but while there were still unsold shares outstanding. The plaintiff signed a two-year lease. The question this case poses is whether the sponsor can evict the tenant (whose apartment is neither rent controlled nor rent stabilized) when the lease is up. At this point, seven years have passed since the plan closed.

According to the Appellate Term 1st Department covering Manhattan and the Bronx, the statute does not protect a person who rents from a purchaser after the conversion has closed. The court found that a sponsor who was holding unsold shares is a “purchaser” under the plan. The court said that the statute was only intended to protect people who were in place at the time the plan was put into effect – existing tenants who opted not to purchase. Since this will facilitate sales of apartments by the sponsor and accurately reflects the law's history, it seems to be the better approach.

The Appellate Term 2nd Department, in Geyser v. Maran, NYLJ 7/18/01, p. 21 c. 4 (Sup. Ct. App. T 2nd Dept.), faced a very similar situation but came to the opposite decision: that the sponsor, as a holder of unsold shares, is not a purchaser under the plan, reasoning that it makes no sense to say that an apartment has been purchased when it is by definition “unsold.” Therefore, if the statute is read literally, anyone who rents an unsold unit is protected, and has a guaranteed right to perpetual lease renewals.

The 2nd Department case very pointedly criticized the 1st Department for not strictly reading the statute the way it was written, and said the tenant is entitled to perpetual protection. However, this tenant actually lost its case, because the court noted that the particular offering plan had been declared effective before the statute was amended; it therefore determined that the statute did not apply to this plan and thus this tenant was not entitled to those protections.

 
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