New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Wall Law

It was the kind of nightmare every owner dreads: air bubbles were appearing on the ceiling with alarming frequency. After that, big chunks of plaster began crashing down. The shareholder at the Manhattan co-op phoned the managing agent and the board subsequently repaired the apartment, billing the work back to the owner.And then the tenant sued the board.

If you think that's a fine way to show gratitude, it gets worse: the board actually lost the 1979 case, Hauptman v. 222 East 80th Street Corp. A court determined that the problem was caused by either the improper application or the use of a defective bonding agent that attached the plaster to the beams and supports. It directed the co-op to reimburse the tenant.

Repairs can be a costly headache — and the problems will only grow worse if the board of a co-op or condo does not understand its rights and responsibilities. "Poorly delineated definitions of who's responsible for what are one of the most frequent causes of controversy in co-ops and condos," notes one attorney.

When allocating responsibility for maintenance and repairs in the gray area between public and private property in a co-op, condo, or HOA, what should a board know? In a hi-rise, it's clear who is responsible for the elevators, but where is the the borderline in dealing with walls, ceilings, windows, and terraces? The answer may mean the difference between peace and war in your property.

Contractual Principles
The broad principle that underlies most proprietary leases and bylaws in co-op/condo apartment buildings is that a resident is responsible for what he can touch and see in his unit, while the building is responsible for the structure of the building, its common property, and the parts of the unit walls, ceilings, and floors that are hidden from view.

"My buildings usually repair pipes within walls, and structural elements, including sheetrock, plaster, and a plain white finished coat of paint," says a management executive. "We'll paint damaged areas from corner to corner. Some buildings do plaster and sheetrock, but no painting."

Most boards take care of everything in the wall up to and including the plaster — pipes, beams, brick, and cement. Most pay for plaster, primer, and a simple coat of white paint, while the resident is responsible for any further painting, wallpaper, and custom tile, as well as any other improvements and alterations, and the furnishings and contents of his apartment.

"If the floors are altered or if marble is put in, that's the owner's responsibility," notes the executive. "We'll pay to replace standard tile, but if it's custom tile, they have to pay us the difference in the cost to buy and install it. When repairs are necessary, we say to residents, have your contractor take up the floor — you accrue responsibility for any renovation, like custom kitchen cabinets."

Although ceilings and plumbing risers are in the same "through the plaster" category, water fixtures protruding from the wall are the tenant's responsibility. For electrical systems, the building typically cares for conduits and everything up through the fuse box, while the resident handles switches and outlets.

There are exceptions. "Some boards feel that it's unreasonable to hold residents responsible for fixing shower bodies," observes a manager. "They're unusual in that they start behind the wall and protrude in front of it."

Within this general outline, these is considerable room to set policy. "Some buildings are very money-conscious and difficult, while others take more responsibility," says C. Jaye Berger, a Manhattan attorney whose practice focuses on both co-op/condo and construction issues. "In bigger buildings, it's easier for them to send someone to take care of the problem, where smaller buildings would have to hire a workman."

A managing agent's advice is crucial in setting such policies. "Most of my boards leave the determination of what to pay for to me," notes an agent. "They're not going to be involved in going to see what caused someone's ceiling to fall. It can be difficult for a board member to say to a neighbor, 'Sorry, I know it's not your fault, but it's your responsibility to repair the wallpaper.' The managing agent can be more objective."

Managing agents can also explain to residents why the building doesn't pay for repairs to custom installations. Notes a management executive: "We say to shareholders, 'This is in your interest, because if we don't control costs, your maintenance or common charges will go up. You don't want to be paying for other peoples' renovations.' "

Just for Co-ops
In a co-op, court rulings have given the board broad power to set policy on repairs. Such cases as Levandusky vs. One Fifth Avenue Apartment Corp. have reinforced the "business judgement rule" standard, which allows corporate directors wide latitude in their decision-making as long as they act in good faith.
That does not give them a clean slate, however. Because a co-op leases its apartments to shareholders, the courts have also said a landlord-tenant relationship exists that makes the properties subject to some of the same restrictions as rentals.

"Most landlord-tenant judges are used to dealing with rental buildings, and they are often very liberal in their interpretations of the law," says Stuart Saft, a partner of Wolf, Haldenstein, Adler, Freeman & Herz, and chairman of the Council of New York Cooperatives and Condominiums (CNYC).

Under the warranty of habitability portion of Section 235-b of the Real Property Law, the owner of an apartment building is responsible for maintaining the premises and ensuring that its occupants are not subject to dangerous conditions. If the co-op allows conditions to deteriorate seriously, or the tenant repeatedly brings the problem to the attention of the co-op and it does nothing to remedy the situation, the co-op could get into legal hot water.

Some feel that the warranty of habitability should not apply to co-ops. "Co-ops are not the same thing as rentals," claims Saft. "If the shareholders are unhappy, they can get together and replace the board."

The courts have not seen it that way, however, so if you feel there is a question about who should repair damages, make the repairs and then fight about who pays later. "Get the darn thing fixed, and then figure out who's responsible," advises Mary Ann Rothman, executive director of the CNYC.

Chiefly Condo Concerns
Condominiums have slightly different concerns. Because there is no landlord-tenant relationship between the board and the unit-owner, the warranty of habitability does not apply. The condo owner is solely responsible for correcting violations, although the bylaws may give the board additional responsibility.
In many condos, there is a whole class of limited common elements, such as stairwells, balconies, decks, and entrances, for which the association is responsible for maintenance and repair but for which it can still bill the unit-owner.

Attorney Richard Siegler, a partner in Stroock & Stroock & Lavan, sees relatively little difference in the policies applied by New York co-op and condo boards in paying for repairs, but Norman Himmelfarb, a partner at Rothschild, Himmelfarb, Sher, Pearl & Giacomo, says that "condos tend to be less generous."

Others point to examples of clear differences. Attorney Bruce Cholst, a partner at Rosen & Livingston, says when repairing water damage, a co-op might pay and a condo would not. Ron Gold, a partner at Wagner, David & Gold, notes that windows are usually a unit-owner's responsibility — but not a shareholder's.

The nature of a condo's policy, and its specific provisions, depend on the configuration of the complex. There are as many variations in the rules as there are different layouts — condos range from hi-rises to garden apartment developments, with toolsheds, backyards, and patios.

"Townhouse complexes are generally easier to understand," says an attorney, "because units usually have their own utility hook-ups, and everything within the party walls is the responsibility of the unit-owner. The chief common facilities that are the physical and financial responsibility of the condo association are the facade and the roof."

One of the most common areas of dispute involves skylights. "I usually advise that the condo take responsibility for the repair and charge the expense to the unit-owner," Flowers notes. "You don't want unit-owners climbing about on roofs."

The situation at garden apartment complexes that share common utility hookups can become more complicated. In one recent incident, a complex needed to restore electrical service to one co-op apartment. To do that, the board had to go through two other apartments. There was a question of where the board's obligation stopped and the shareholder's responsibility began.

Whatever an association's legal status or layout, it is important that boards be fair. For instance, in one 12-building complex, eight buildings had no elevators. When repairs were needed, the board imposed a limited common assessment on the unit-owners in the elevator buildings. It seemed right, since the those who had to walk shouldn't have to pay for those who could ride.

Be Specific
Lawyers agree that you probably should update and clarify your governing documents. Many were drafted by sponsors, who purposely kept them vague concerning repairs. The reason: they anticipated becoming a minority shareholder and wanted to be able to charge repair work to the board. In a court case, any ambiguity in those documents would probably weigh against the co-op.

"Proprietary leases from older buildings are often incredibly outdated," says Saft, whose firm is often asked to modernize them. "I advise boards to revise their document, so that it clearly delineates who is responsible for which repairs. But it's hard to get the modifications adopted by the necessary two-thirds vote of shareholders — even if the changes would benefit them, they tend to be suspicious of changes."

Although updating and clarifying will not save you time, it might save you money. The section dealing with repairs in a recent document may be six times the length of a similar section in a 40-year-old lease but its specificity should protect the property better.

Even as courts are moving in the opposite direction with regard to the warranty of habitability, the tendency is for boards to try to adopt more restrictive repair clauses that more narrowly define the co-op's responsibilities. "In general, co-ops are getting less liberal," notes Siegler.

Control Alterations
Co-ops and condos must require residents performing major renovation or repair work to sign an "alteration agreement" spelling out responsibilities during the construction process. A simple job like painting probably wouldn't require this document, Berger says, but anything more dangerous or involved, such as installing new windows (which could fall and cause damage or injury), requires board approval.

The board should be aware of what the proprietary lease or bylaws say about renovations — if the board is lax in getting the alteration agreement or insurance, they might be liable to claims of negligence.

In one case, the tenant above her client did repair work on a radiator, created a leak into the ceiling, and caused tremendous damage. "We went after that tenant and also the condo board," recalls Berger. "According to the declaration, [the board] had an obligation to make sure that repairs were done with their approval."

A lot of co-ops use a commercially printed alteration agreement, but for major repairs, that is not sufficiently detailed. Saft advises boards to get a more comprehensive version from their attorney.
Whatever they do, Cholst suggests boards have a strict policy against residents making their own repairs without letting the building inspect the site and the plans beforehand. If it doesn't do that, the board would be deprived of the ability to investigate the source of the damage. It would also lose the benefit of bulk purchasing of materials and services.

Be Sure to Insure
Another crucial element for boards is providing adequate insurance for homeowners and the building or association. "There has been a lack of communication between boards, residents, and the insurance industry," says an insurance consultant. A common problem, he notes, occurs when unit-owners redecorate, and afterwards sell the unit. The new buyer may think everything has always been there; but without an improvements and betterments clause in his insurance policy, the alterations may not be covered.

"Anything that you attach to the building, like tile, marble, and mirrors, becomes part of the structure, and is insured as such, rather than like personal possessions," he explains.

The improvements and betterments could also be insured under the building's policy, but the consultant suggests that this method could involve an unfair element, as some unit-owners add extravagant improvements that would be insured by a premium paid from communal funds, while others might have no improvements at all.

Uncovered unit-owners could cost plenty. "When someone finds out that their bathtub has leaked and ruined ceilings for five floors below, if they don't have insurance, they're terrified about who's going to pay for the damage," says a manager. "A lot of people don't realize how essential and inexpensive homeowners' insurance is."

If a homeowner does carry coverage and the association is damaged by negligence (in a kitchen fire, for example), the association will waive its right of "subrogation": that is, when payment is made by the association's insurance company, they can't proceed further against the homeowner. His only liability may be suits from other homeowners. If they have no insurance, however, homeowners can be sued by both the association and other residents.

Both co-ops and condos are usually covered for damage to common elements by a broad insurance policy with a deductible. The insurance consultant notes that if damage in condos occurs from pipes that serve only that unit, the cost of repairs must be borne by the homeowner and his insurance policy.

Controlling Controversy
No matter what the rules say, arguments can become heated. Unit-owners may be indignant that a situation that isn't their fault costs them money and inconvenience. But providing access for repairs is one of the tradeoffs of living in a common-interest community. What boards can do is try to make sure that work is done swiftly and well.

Cholst suggests that even when the repair is cosmetic, co-op boards may want to perform the work themselves and bill shareholders for the extras (such as yellow paint rather than white). To maintain good will, boards might even want to use their discretion to repair custom elements like floor tiles, figuring that it is not worth the trouble to fight angry shareholders about repairs that have to be made anyway.

Boards may go a long way in trying to appease shareholders. In one building on Manhattan's Upper West Side, an owner renovated his bathroom. A leak was then detected behind the wall. The building excavated, completed the repair and the owner restored the bathroom. When the leak recurred, workmen had to tear up the bathroom again.

"The owner is not happy, and I can understand why," says the property's manager. "I went to the board, and told them that this fellow has gone out of his way to accommodate us this time, and I think that the board in turn will be more accommodating about paying for the cosmetic part of the work."

In other cases, a board must stand firm against the demands of shareholders. For instance, when a terrace is repaired the shareholder in the adjoining unit may ask to be compensated for being deprived of its use. "As long as they are working as aggressively as possible to get the problem fixed, I wouldn't advise a board to pay for compensation in such cases," Saft notes. "The shareholder should have known in buying the apartment that this problem might arise."

If the resident is unable to use his bedroom during repairs, however, the board might consider abating maintenance or offer to put them up in an inexpensive hotel. In one case on Manhattan's Central Park West, extensive repairs to the roof required a huge hole to be cut in a shareholder's ceiling. The co-op abated his maintenance for four months (though he was responsible for paying the common assessment), paid for his living in an expensive hotel for a few weeks, and paid for all repairs.

"The generosity of the settlement seems relatively unusual," says Cholst. "I suspect the co-op feared a massive breach of warranty claim, and chose to settle amicably rather than risk acrimonious and expensive litigation."

For most boards, the key lies in striking a balance between such generosity and a self-defeating parsimony, minding the purse while soothing ruffled feathers.

"Some leases allow residents to take advantage and don't treat boards fairly, and others won't pay for even reasonable repairs," notes Saft. "Somewhere between these extremes is where the board's policy should lie."

 

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