COMMUNITY ASSOCIATION SEMINAR
CASE LAW UPDATE
Significant Legal Decisions of 2016
April 4, 2017 – Holiday Inn Express, Centereach, N.Y.
April 6, 2017 – Holiday Inn Express, Centereach, N.Y.
- MISUSE OF COMMON AREA
Bluff Point Townhouse Owners Association, Inc. v. Kapsokefalos – Supreme Court, Clinton County
Defendants (husband and wife) are the owners of a townhouse within the Bluff Point Townhouse community. There is a long history of litigation between these parties, with two prior actions having been commenced against defendants as a result of their failure to comply with certain restrictive covenants and pay the monthly dues.
Defendants refused to pay monthly dues from January 2014 to June 2016. Additionally, in June of 2016 the defendants painted a sign on the garage door of their townhouse unit which reads “Property Rights Matter!!!” The sign was written in large letters and was spray painted with the visual appearance of graffiti. They also painted bright red the trim around the second story windows, garage door and front door of their townhouse when the color scheme approved by the Board called for white trim.
The HOA Board commenced an action a month later to recover the past due homeowners’ association fees, and to compel the defendants to restore the exterior of the front of their townhouse to its original condition.
Defendants submitted proof that they painted over the graffiti sign on the garage, which the Court had termed “extremely unsightly.” But given their history and to avoid any further similar actions, the Court enjoined defendants from any additional painting of signs or lettering on the exterior of their premises.
However, the Court declined to direct repainting of the exterior trim and doors, finding that while the bright red color created a “degree of dissonance” with the rest of the community, it was not as offensive as the garage. The Court did restrain the defendants from any further painting of the exterior premises not in compliance with colors approved by the Board.
Takeaway – Sometimes the Board has to take legal action to compel owners’ compliance, but even then, you may win some and you may lose some.
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- BOARD OBLIGATION TO DETERMINE PROPER USE OF COMMON AREA
Beach Point Partners v. Beachcomber, Ltd., Appellate Division, Second Department
The plaintiffs, shareholder-tenants of the defendant Beachcomber, Ltd. (a cooperative), commenced this action for a judgment declaring that the co-op’s Board of Directors (who were individually named as defendants), breached their fiduciary duty, acted in bad faith and discriminated against them by prohibiting parking on the grass behind the building where their cooperative apartment unit was located. The plaintiffs claimed that when they purchased their shares in the unit, they had been granted a right to park in that location since the only entry to the unit is in the rear of the building. They also claimed that since they are the only shareholders with a rear-facing unit, the Board’s action was specifically targeted at them. The Board moved for summary judgment dismissing the complaint and the Court granted the motion. While the plaintiffs had indeed been parking on the grass for some time, the Court found that the Board had been taking steps to improve the aesthetics of the community and prohibiting parking on the grass was consistent with this effort.
Takeaway – Past practice does not necessarily become “legal” with the passage of time.
- BUSINESS JUDGMENT RULE
Tsui v. Chou – Appellate Division, First Department
The plaintiffs were unit owners in Empire Condominium suing the Board on behalf of all unit owners in the condominium. The unit owners claimed that the Board members breached their fiduciary duties by failing to disclose certain lawsuits, failing to account for missing funds, commingling funds, denying access to information and documentation, and improperly renewing Chou Management’s management agreement. The Court found that there was nothing in the record to suggest that the Board had discussed these allegations. For this reason, the Court found the Board’s decision not to pursue these claims to be arbitrary and not protected by the business judgment rule.
Bottom line – Boards must consider allegations brought by homeowners in order for their decisions to be entitled to deference under the business judgment rule and these decisions must be ratified in the Board minutes.
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- DISCRIMINATION
Temple v. Hudson View Owners Corp. – U.S. District Court, Southern District of New York
Plaintiffs Hildred Temple and Diana Brown-Temple were owners of a unit in Hudson View Owners’ Corp. They were both disabled and over the age of sixty-five. The Board allowed them to pay for two parking spaces for approximately thirteen years. In January 2016, the Plaintiffs received a letter from the Board’s management company stating that they would have to surrender one of the parking spaces for use by another resident in the community. Ms. Brown-Temple sent a letter to the Board and management company in April 2016 requesting that they not take away her parking space because she was disabled. The Board requested medical documentation regarding Ms. Brown-Temple’s disability which was never provided. In May 2016, the Board denied Ms. Brown-Temple’s request to keep the parking space. Plaintiffs brought an action in federal court asserting a reasonable accommodation claim under the Americans with Disabilities Act and the Fair Housing Act. The Court found that while having only one parking space may be inconvenient to Plaintiff, there was no justification as to why Plaintiffs required two parking spaces.
Bottom line – Boards are not required to provide owners with their requested accommodation, only a reasonable accommodation.
- LATE FEES
The Board of Managers of Green Mansions Country Club Estates Section III – Building 11 v. Grimaldi – Supreme Court, Warren County
The Board of Managers brought a money judgment action to recover unpaid common charges, late fees and attorney fees from the Defendant Grimaldi. The Defendant claimed that the Board had failed to provide annual reports and so they should be able to withhold payment of the common charges. The Court found that although the governing documents require the Board to provide an annual statement, there were no provisions in the documents allowing for withholding of the payment of common charges for this reason or any other.
The Court also found that while the Board had a right to collect the common charges, it did not have a right under the governing documents to levy or collect late fees, only the right to collect interest on unpaid common charges. The Court further held that while the governing documents allowed for collection of attorney fees, the Court could not determine what percentage of the attorney fees were attributable to the collection of the late fees and which were attributable to the collection of the common charges and so the court left that determination open until the Plaintiff submitted further proof.
Takeaway-Read the governing documents because the Court will.
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- BUSINESS JUDGMENT RULE
Siller v. Third Brevoort Corp. – Appellate Division, Third Department
Cooperative unit owner brought a breach of contract lawsuit which claimed the Board violated the terms of the proprietary lease by requiring shareholders to choose from three brands of appliances for use in the units. Prior to this rule, Plaintiff had been given permission to install a washer and dryer and was now seeking to replace them with her appliances of her choice and claimed that because she had permission to install appliances of her choice before this rule, she could now disregard the new rule.
The Court found that the Board’s action was not a breach of the proprietary lease or house rules and that not only was the Board’s decision reasonable but that it also complied with the business judgment rule. Further, the Court found that the permission previously given in no way gave permission for future installations of her own choice.
Takeaway – Reasonable rules will be upheld, and reasonable changes to those rules will be upheld as well.
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- HANDICAPPED OWNER and BOARD RETALIATION
Matter of Delkap Management, Inc. v New York State Division of Human Rights – Appellate Division, Second Department
An administrative law judge initially found that a co-op Board discriminated against a Co-op shareholder and wrongfully retaliated against her, awarding: (a) $5,000 in compensatory damages (for mental anguish and humiliation); (b) $10,000 in punitive damages; (c) a $5,000 penalty upon each petitioner; and (d) directed the Board to implement procedures to evaluate requests for reasonable accommodations and to undergo training to prevent unlawful discrimination in the future.
The shareholder suffered from several disabilities. In mid-August 2010, in violation of the Co-op’s “no dogs” policy, she acquired a dog when her daughter (and her dog) moved into the complainant’s apartment. A few weeks later she requested that the Board provide her a reasonable accommodation by permitting her to keep the dog in her apartment due to her disability. The shareholder also has a disability certificate on her vehicle and the Board had provided the shareholder a parking space that was close to her apartment.
The shareholder’s physician sent a letter to the Board recommending that she keep the dog and her parking space near her apartment due to her disability. The Board subsequently refused to consider the shareholder’s request for a reasonable accommodation, directed her to remove the dog, and fined her for a dog fine and legal fees.
Thereafter the shareholdert filed a complaint with the NYS Division of Human Rights (DHR) charging that the Board had engaged in unlawful discriminatory practices. The Board responded by: (1) notifying the complainant that she would be evicted if the dog remained; (2) revoking the complainant’s parking privileges (which they reinstated nine days later); (c) refusing to accept the complainant’s maintenance check; (d) filing a petition in court commencing a holdover eviction proceeding to evict her; and (e) demanding she immediately remove her dog from her apartment, contending, falsely, that the DHR had issued a final order in the Board’s favor.
The complainant thereafter moved out of her apartment with the dog.
The court found that the complainant demonstrated she was disabled. She also submitted evidence that the dog helped her with her symptoms by easing her stress and causing her to be more active. Nonetheless, the complainant failed to present medical or psychological evidence sufficient to demonstrate that the dog was actually necessary in order for her to enjoy the apartment. Notably, the complainant had resided in the apartment for more than 20 years without the dog. Moreover, the complainant was diagnosed with her disability several years prior to the dog being brought to the apartment. Accordingly, the initial determination of discrimination based on her disability was not supported by substantial evidence.
However, the Appellate Court found that the Board had illegally retaliated against the shareholder for filing a complaint. Under the circumstances, the Court directed an award not to exceed $2,500 in compensatory damages, $2,500 in punitive damages, and $2,000 in civil penalties against each petitioner.
Takeaway – A lesson in how to snatch defeat from the jaws of victory.
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- DEFAMATION
Galanova v Safir, Appellate Division, Second Department
Galanova was a tenant-shareholder in a residential cooperative – and a member of the Co-op’s Board of Directors. She commenced this action against the Co-op and her fellow Board members, alleging that they had defamed her in two emails (sent to Board members, the Co-op’s managing agent and the Co-op’s general counsel), indicating that she was in arrears.
She also claimed that she had been defamed by a “Shareholders in Arrears” flyer posted in the lobby of the Co-op building (listing her apartment number and the amount of alleged arrears), and by the posting on her apartment door of a petition in a nonpayment eviction proceeding commenced against her in civil court.
The defendants moved for summary judgment dismissing the complaint. The Supreme Court denied summary judgment dismissing the complaint. The Appellate Court reversed, holding:
- the statements contained in the two emails were subjective characterizations of the plaintiff’s behavior and an evaluation of her performance as a member of the Board, and thus constituted expressions of opinion which cannot serve as a basis for defamation;
- the challenged statements in the “Shareholders In Arrears” flyers posted in the building lobby were protected by the qualified common-interest privilege [Note: although a qualified privilege may be lost by proof that the defendant acted out of malice, Galanova failed to show that the statements in the flyers were motivated solely by malice]; and
- the petition in the nonpayment proceeding was posted on the plaintiff’s apartment door in the course of properly effecting service upon her, and thus, the statements contained in the petition were protected by an absolute privilege because they were pertinent to an ongoing judicial action.
Takeaway – Board members can’t do whatever they want, but they also shouldn’t always say what they think.
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- DUTY TO MAINTAIN PREMISES
Coons v. Sorrentino – Appellate Division, Second Department
Coons was a UPS employee who was injured while delivering a package to Sorrentino’s home in Stone Hill at Muttontown Homeowners Association, Inc. He slipped and fell on the snow and ice in Sorrentino’s driveway and sued both Sorrentino and the Association for his injuries. Prior to the accident, the Association had suspended Sorrentino’s snow removal services due to her nonpayment of maintenance fees. The Court found that the Association failed to demonstrate that Sorrentino’s nonpayment of maintenance fees relieved the Association of its duty to perform snow removal services on Sorrentino’s property on the date of the accident as required by its Declaration. The Association argued that it should not be held liable under the “storm in progress rule.” The “storm in progress” rule provides that an owner will not be held responsible for accidents that occur as a result of the accumulation of snow and ice on its premises until adequate time has passed to allow the owner to ameliorate the hazards caused by the storm. Here, the Court found that the Association had not provided enough proof to determine whether adequate time had passed between the end of the storm and the morning the accident occurred to allow the Association to ameliorate the hazards of the storm.
Bottom line – Boards must continue providing essential services to delinquent homeowners.
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- RIGHT OF FIRST REFUSAL
Board of Managers of the Soundings Condominium v. Foerster – Appellate Division, First Dept.
Foerster entered into a contract on March 1, 2013 to purchase unit 1G at the Soundings Condominium. The contract provided the Board with a right of first refusal as required by the Condominium’s By-Laws. Around this same time, Foerster submitted a purchase application to the Board’s managing agent and indicated on the application that no “business or profession” would be conducted at the unit. Instead, she indicated that she was purchasing the unit for her nanny/nurse. However, on March 27, 2013, Foerster submitted an application to the New York State Office of Children and Family Services for a license to operate a day care center at unit 1G. Foerster took title to the unit on April 4, 2013 and on July 29, 2013, a license for Foerster’s day care was issued. The Board brought this action for rescission of the contract arguing that Foerster’s intentional misrepresentation of what she intended to do with the unit induced the Board to waive its right of first refusal. The Court found that there was a triable issue of fact as to whether the misrepresentations of Foerster’s purchase application induced the Board to waive its right of first refusal.
Bottom line – Contracts of sale may be rescinded if a Board’s waiver of their right of first refusal is based on misrepresentations of fact.
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- REFUSAL TO FOLLOW RULES
Loch Sheldrake Beach and Tennis Inc. v. Akulich – Appellate Division, Third Department
Defendant Cooperative unit owner extended the deck outside their unit three feet without seeking permission from the Board as required under the Proprietary Lease and House Rules. The Board requested that she remove the deck and after her refusal to do so, brought this lawsuit seeking a permanent injunction requiring removal of the deck. The Board also requested the Court grant a judgment for attorney fees expended in bringing the lawsuit.
The unit owner brought multiple counterclaims, including discrimination, intentional infliction of emotional distress, and defamation – stemming from her being called a 700 pound gorilla at a shareholder meeting.
The Court found irrefutable proof that the defendant extended her deck without permission and refused to remove same when requested by the Board to do so. Further, it found that the Board acted within its scope of authority and in furtherance of the Coop’s legitimate interests. As for the defamation claim, the Court found the statements made at the meeting constituted an opinion and not facts, nor would a reasonable person believe the statements were factual. The Court granted the Plaintiff a declaratory judgment requiring the deck to be removed and a judgment for the attorney fees as permitted under the Proprietary Lease.
Take away – Sometimes, legal action may be required to enforce the rules.
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- VOTING BY E-MAIL
19 Pond, Inc. v. Goldens Bridge Community Association, Inc. – Appellate Division, Second Dept.
Homeowner in Homeowners Association listed her unit for sale. After an offer was accepted and a contract was entered into, pursuant to the Governing Documents, the seller provided the Board with the opportunity to waive its right of first refusal. Instead of waiving its right, the Board exercised its right to purchase and then assigned the contract of sale to a third party.
The original purchaser brought suit claiming that the Board acted outside its scope of authority by improperly voting via email to exercise their right to purchase and assigning this right to a third party.
The Court found that while the e-mail vote was not valid, the Board did indeed ratify the e-mail vote during a subsequent duly-constituted meeting of the Board and further found that the Board acted in the interest of the community and pursuant to the governing documents in exercising their right to purchase and later assigning their interest to the third party.
Take away – Board voting by e-mail is improper and should be avoided. At the very least, any such vote should be confirmed at the next Board meeting.
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- INSURANCE
Lexington Village Condominium v. Scottsdale Insurance Company – Appellate Division, Second Dept.
Managing Agent, on behalf of the Condominium procured the blanket insurance policy covering the buildings as required. After a fire, the insurance company inspector found that the square footage of the units in one of the Condominium buildings was more than what was listed on the original policy. The insurance company denied the claim stating that the units could not be covered for full replacement value due to this inaccuracy.
The Condominium brought suit demanding the insurance company provide full replacement coverage. The court found that while it is ultimately the Board’s responsibility to make sure they have proper coverage, the inaccuracy was a mutual mistake made by both the insurance company, who had originally inspected the buildings before providing coverage, and the Condominium Board. Further the Court found that the insurance company would not have denied coverage if they originally had the correct information. Ultimately, the Condominium was responsible to pay to the insurance company the difference between what they paid for the insurance premium and what the premium should have been based upon the greater square footage, but was also covered for full replacement value under the policy.
Takeaway – Vendors, managing agents, etc. are there to assist the Board, but in the end, it is the Board’s responsibility to “insure” proper coverage is taken.
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- SURRENDER OF COMMON AREAS
Board of Managers of the Sunrise Manor Condominium Association v. Aksakalova Family Ltd. Partnership – Supreme Court, Queens County
Sunrise Manor Condominium consists of 22 residential units, parking spaces, and a commercial unit.
In 2009, the sponsor-controlled Board sold the commercial unit (located on the first floor) to two sponsor-related entities, who then leased the unit for use as a medical office. The Board then gave written approval to the tenant to install an HVAC unit and surrounding fence on the roof of the second floor of the Condominium. All necessary approvals and permits were then obtained, the unit and fence were installed and a completion certificate was obtained from the Town.
Two years later a new Board of Managers was elected and commenced this action alleging that the HVAC unit and fencing encroached upon the common area of the Condominium. The Board demanded that the sponsor, the owners of the commercial unit, and the tenant remove the roof top installations and restore the common area.
The court held that the prior sponsor-controlled Board of Managers did not act within the scope of its authority when it approved the plans to install the subject HVAC system and fence, as said installation effectively diminished the roof top space, a common element, and thereby diminished each units owner’s appurtenant right to recreational use of the rooftop area, in violation of Real Property Law (in order to alter each unit owner’s common interest in the second floor rooftop common element, designated as recreational space, the approval of each unit owner was required).
The court found that the sponsor-controlled Board owed a fiduciary duty to the condominium and the unit owners, and that they breached said duty when they approved the installation of the HVAC unit and fence on the common element roof, without obtaining the approval of all of the unit owners and amending the declaration and Offering Plan. In approving the installation of the HVAC system, the sponsors acted in a manner that benefitted the entities in which they had an interest, at the expense of the condominium and the unit owners.
Takeaway – Common Areas belong to all owners and cannot be taken without unanimous consent.
