In this case, the condo unit-owners sent a letter to the board of managers of Imperial Towers Condominium on Staten Island in February 2006 requesting that an independent audit be conducted. After months of discussion over the breadth and scope of documents to be provided, the audit was held on June 21, 2006. As a result of the board's alleged failure to provide all requested documentation, the audit was unable to be completed.

In March 2007, the owners began an action against the board members, seeking an order to require full disclosure of all requested documents in order to complete the independent audit. The board members contended that they had provided petitioners with all reasonable and available documents as required by law.

Under New York Real Property Law Section 339-w, the condominium's board of managers is obligated to "keep detailed, accurate records, in chronological order, of the receipts and expenditures arising from the operation of the property" and to ensure that the records are available to unit-owners on weekdays at a convenient time.

In analyzing the case, the court said that when an individual owner challenges the actions of a condominium's board of managers, the Business Judgment Rule applies. That rule demands that unless there were "claims of fraud, self-dealing, unconscionability or other misconduct, the court ... should limit its inquiry to whether the action was authorized and whether it was taken in good faith and in furtherance of the legitimate interests of the condominium."

In applying this rule, the court concluded that the board's determination that all reasonable and available documents were provided was was within its authority and not made in bad faith. Furthermore, the court ruled, the owners failed to allege or prove any claims of fraud, self-dealing, unconscionability or other misconduct on the part of the board. Therefore, the court would not substitute its judgment for that of the board members', and the owners' request for further disclosure was denied.

The Business Judgment Rule remains the controlling precedent for judicial review of unit-owner challenges to a condominium board action. Under the rule, judicial deference is given to board determinations so long as the board acts within the scope of its authority, in good faith and in the lawful and legitimate furtherance of the condominium's purpose.
This is another in a long line of cases that makes the challenge of a board's action very difficult.

Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan and a member of the Committee on Condominiums and Cooperatives of the Real Property Section of the New York State Bar Association. He is also an adjunct professor at New York Law School, where he teaches a course on cooperative and condominium law.

Adapted from Habitat September 2007. For the complete article and more, join our Archive >>