Client Advisory - September, 2003 PDF
The Importance of Timely Response to Notices
A recent decision demonstrates the importance of a managing agent's timely delivery to the cooperative or condominium board of notices or other correspondence that require board action. The by-laws of the condominium in Board of Managers, Kingsley Condominium v. Villinvestment A.V.V., NYLJ August 27, 2003, p. 18, col. 6 (Sup. Ct. N.Y. Co.), required a unit owner who received a bona fide purchase offer that it intended to accept to give notice to the Board of Managers, which could then elect within twenty days after receipt of the notice to purchase the unit on the same terms. An owner that proposed to sell its unit (for a price later alleged to be substantially below its market value) delivered its Notice of Intention to Sell and its application package to the Board's managing agent on May 23, 2002 and provided additional information from the prospective buyer on May 31. Claiming that it received the package from the agent on July 3, the Board attempted to exercise its right of first refusal on July 22, but the owner rejected it as untimely. In the Board's action to enforce its right of first refusal, the Court held that (1) having given the managing agent the authority to accept the notice, the Board was bound to act within twenty days of his receipt of it, even if the Board received it later; (2) the Board could not apply the "business judgment rule" to redefine the "receipt" of notice in the by-laws to be the date it actually received the papers from the managing agent; (3) equity did not require a relaxation of the strict reading of the twenty-day deadline where the Board had no risk of losing any investment from the denial of its right of first refusal; (4) the right of first refusal did not "ripen" into an option; and (5) the owner's signature on a sale contract before its notice to the Board did not violate the by-laws, since the Board had required submission of a signed contract. The Court also noted that the purchase offer was bona fide because (1) there was no valid evidence that the offer was below market value, and (2) the Board's assertion of its right of first refusal, which pursuant to the by-laws only applied to bona fide offers, precluded it from now challenging the offer's bona fides. Constructive Eviction Due to Mold In 157 East 57th Street, LLC v. Birrenbach, NYLJ May 15, 2003, p. 22, col. 6 (Civ. Ct. N.Y. Co.), a leak in tenants' ceiling became a flood in May 2000 and produced a serious mold condition and a "foul stench" by October of that year. The tenants vacated the premises and did not live there again (or pay rent) for 28 months. Court proceedings commenced by the tenants resulted first in court orders requiring the landlord to correct the conditions, then civil penalties and a finding of contempt for the landlord's failure to perform a "Level IV" remediation, which requires sophisticated equipment and highly trained personnel. Although the parties' expert witnesses agreed that this remediation was finally performed in June 2002, a major issue at the trial of the landlord's separate proceeding to collect unpaid rent was whether the remediation had removed all the dangerous mold from the apartment. After hearing extensive expert testimony, the Court awarded the tenants a 21 month abatement of rent, from October 2000 through June 2002, finding that the unremediated mold condition had compelled the tenants to abandon the premises due to the landlord's wrongful acts and therefore constituted a "constructive eviction." It concluded that the apartment was no longer contaminated and could have been occupied by June 2002, however, and entered judgment against the tenants for the rent they had withheld from July onward. In an interesting postscript to the Court's decision, the parties were back in court a few weeks later, arguing, among other things, over reimbursement of legal fees, which their lease provided were recoverable by the prevailing party in litigation. Although the tenants had won on the constructive eviction claim and were awarded a substantial abatement with respect to 75% of the period covered by the litigation, they had lost on the issue of whether the mold condition had been remediated by June 2002. Accordingly, on May 28, 2003, the Court found that neither party had prevailed in the case and that each was therefore responsible for its own legal fees. Attempt to Remedy Shortage of Square Feet Fails Again Owners of cooperative apartments are sometimes distressed to learn that their home is not as big as they thought, or that they are paying as much in maintenance as owners who have more space. One such owner-tenant, who previously failed to win an adjustment of her allocation of shares because she did not assert her claim soon enough, has now failed again in her attempt to remedy the same problem under different legal theories. Twenty-four years after purchasing her apartment, the plaintiff in Kelly v. 2 Beekman Place Owners Corp., NYLJ July 23, 2003, p. 18, col. 1 (Sup. Ct. N.Y. Co.), discovered that her actual square footage was substantially less than that of the other apartments in her "line." The resulting reduction in size made her three room one bath apartment the smallest in that line and smaller than the studio apartments in the building. In its May 2002 decision on her first lawsuit against the cooperative, seeking to reallocate her shares and for damages, the Supreme Court dismissed her complaint, holding that she had waited too long to bring her claim under the applicable Statutes of Limitations for fraud, mistake and breach of fiduciary duty. The Court also held that her cause of action for "unjust enrichment" failed because such an action could not exist where there was a written agreement (here, the proprietary lease) setting forth the rights of the parties. In her second lawsuit, the plaintiff tried a new theory, based on the assertion that she had been sold an "illegal apartment." Although recognizing plaintiff's claims of illegality as novel, the Court now held that since they arose out of the same transactions as did the prior litigation, they could and should have been raised in the first lawsuit and were therefore barred by the doctrines of "res judicata" and "collateral estoppel," which generally prohibit the re-litigation of claims involving the same issues and the same parties. In addition, the Court held that even if the claims of illegality were not time-barred, they could be disposed of on the basis of the apartment's valid certificate of occupancy. IMPORTANT NOTE: The material in this newsletter is provided for information purposes only and should not be construed as legal advice. Because the particular facts and circumstances of every situation differs, you should not act or refrain from acting on the basis of this information without consulting an attorney. |
