Water Wars

The leak started in the third-floor of the West 29th Street co-op on Christmas Eve. The heat was off, and a pipe burst in the wall, sending a steady stream of water through the apartment. Somebody should have noticed, but no one did. The owners had died so the apartment, on the market at the time, was vacant.

The water eventually flooded the apartment below, swelling the sheetrock ceiling and walls and water-logging the wooden floors. The damage was extensive, recalls the board president. After discovering the leak, turning off the pipe, and cleaning up the mess, the next issue was who would pay for the damage?

In this instance, the fault lines were clear. The former owners had installed a washer/dryer and one of the machine pipes had burst. It was up to the owners' estate to make good. Thinking quickly, the building's attorney insisted that the executor put the cost of the repairs into an escrow account - just in case the insurance carrier for the second-floor apartment decided it wasn't responsible for the costs of repairing the damaged unit.

"Then the board got a letter from our lawyer indemnifying [us] from any responsibility. We basically said that the battle is between the insurance company for the apartment that was damaged and the estate of the previous owners," recalls the president. After that, the co-op bowed out.

Not every leak has such a neatly resolved ending, however. Often, battle lines are drawn and responsibility is not as obvious. Consequently, boards should set clear guideposts on what to do in case of a leak. "If you have a serious leak happening, you don't sit and argue over who is responsible," observes Theresa Racht, a partner in the law firm of Rosen & Livingston. "You fix a leak and figure out who is responsible."

Here are some possible policy guidelines:

(1) Schedule regular inspections. Some savvy buildings have started a policy of having the managing agent inspect all the apartments every year, telling shareholders what they need to do to maintain the unit. That way, says Racht, the co-op can minimize the risks of leaks by knowing potentially what can cause them.

(2) Explain the distinctions. Under Article 18 of the standard proprietary lease, "the lessor shall not be required to repair, replace, or cause to be repaired or replaced, equipment, fixtures, furniture, furnishings or decorations installed by the lessee of any of this predecessors in interest, nor shall the lessor be obligated to repaint or replace wallpaper or other decorations in the apartment or to refinish the floors located herein."

What this usually translates into, explains attorney Steve Wagner, a partner in Wagner, Davis & Gold, is that "typically, a co-op owner is responsible for what they can touch, and anything they themselves have installed. The co-op, on the other hand, is responsible for the exterior of the building, and the building's systems," such as its heat and hot water, and any other system integral to the operation and maintenance of the building.

For example, if the pipe that burst in the Chelsea apartment had not come from a washing machine but from a radiator, it would have been a different story. The co-op would have ended up bearing the brunt of the repair costs.

(3) Find out who pays and how much? There are further nuances. "The law says that the owner of a building is responsible for all repairs and maintenance of the building [and is] responsible to keep the building in good repair. And the owner of a co-op [building] is a co-op [corporation]," Wagner points out. But while the law makes the cooperative responsible for the repairs and maintenance, there is nothing to preclude the board from passing on the cost to the shareholder, as spelled out in the proprietary lease.

Where most of the trouble occurs, however, is not over who will pay, but how much the board will reimburse a co-op owner when something in the apartment is damaged, and the lease guidelines indicate the building bears responsibility.

"Co-ops will be well-advised to establish a policy that if there is a leak, they will plaster and prime, but will not paint." says Wagner. Otherwise, boards can find themselves digging deep into the building's operating budget to pay for replacing very expensive finishes - Italian marble in bathrooms, oriental rugs in the parlor, an expensive print on the wall.

Michael Wolfe, president of Midboro Management, says that most of the condominium and cooperative documents that he has seen "provide that all finish[ing] coats, meaning paint, wallpaper, are the responsibility of the owner of the apartment."

Additionally, says Wolfe, whatever renovations the homeowner has made after purchasing an apartment are considered "betterments" and, under the proprietary lease, become the responsibility of the homeowner to replace it if damaged. In the case of a leak that falls under the purview of the co-op, the co-op is only responsible for returning the apartment to the original condition, before any "betterment" had taken place.

In one particular case, a pipe broke behind the wall of a Manhattan bathroom, and significantly damaging the granite and marble tiles lovingly installed by the co-op owner. The owner was disappointed to learn that under its lease, the co-op was not responsible for the expensive artisan work in his bathroom. The area was plastered and primed, and made tile-ready. But if he wanted marble and granite slabs again, he had to do that himself.

(4) Check your insurance coverage. Boards would be wise to read over their proprietary leases and house rules to see what kind of coverage they have in case the building is at fault for a leak, urge co-op attorneys and management company executives. So, too, they should check their roof warranties: in case of leak into a homeowner's apartment, can they still file for damages?

Kent Vogel, president of the cooperative at 200 East End Avenue, says his board has to be particularly diligent in keeping the building in good repair: the co-op sits right next to Hellgate, a bridge which crosses the East River. Situated on the northeast shoulder of Manhattan, the property, Vogel says, has "had lots of experience with issues of waterproofing, issues with leaks."

In the end, it is important that you have clear lines of communication and clear-cut legal definitions of responsibilities. If you don't and if the board and a unit-owner lock horns over who is responsible, many times the courts will side in favor of the unit-owner. "Judges are inclined to give the tenant-shareholder full relief," observes Wagner, unless the negligence is clearly on the part of the tenant-shareholder. So be careful.