The Fine Line Between Reasonable and Confiscatory Fines

Copyright by, and republished with permission of, Habitat Magazine.

The Business Judgment Rule is a powerful shield for co-op and condo boards. It precludes the courts from reviewing board actions so long as the board has acted in good faith, within the scope of its authority, and in the best interest of the co-op corporation or the condo association. That’s a broad protection, but it is not a license for boards to do as they please. That lesson came home in a Manhattan condominium where a dispute arose over a fine for a sublet.

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The “business judgment rule” is the “guiding light” for the boards of residential cooperatives and condominiums.  While easy to state, application of the rule is a source of constant fact-based/specific litigation.  Our examination of the rule begins with the decisions of our Court of Appeals in Levandusky in 1990 and in Pullman in 2003.  And almost all subsequent litigation about the business judgment rule stems from arguments about the application of the law as set forth in those two cases.

Levandusky v. One Fifth Ave. Apartment Corp., 554 N.Y.S.2d (Court of Appeals April 5, 1990) Continue reading

The Gray Area of Liability When Building Systems Fail

Copyright by, and republished with permission of, Habitat Magazine.

A pipe bursts. An apartment floods. The resident files a damage claim against the co-op or condo board, contending that the flood was caused by the board’s failure to provide necessary maintenance of building systems.

The board should not simply write a check for the damages. Instead, it should check the declarationoffering plan or other governing documents to determine if the pipe is located in the so-called “common area,” for which the board is responsible. If it is not, the shareholder or unit-owner must deal with the problem on her own. Continue reading