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Arthur I. Weinstein, Principal, Law Offices of Arthur I. Weinstein.
What does a board do when a simple shareholder problem spirals out of control?
BACKSTORY While it can be fun to describe complex $50 million co-op mortgage refinancings or the reorganization of an 1,800-unit complex from government-backed status into a “free market” co-op, it is amazing how the simplest incident can cause multiple crises involving numerous apartments and a wide range of legal issues.
An example: a toilet in Ann’s apartment in a 400-unit co-op building overflowed. Water flooded Ann’s unit. The water flowed to Bea’s apartment below and damaged the ceiling and Bea’s valuable artwork and wallpaper and continued to Charley’s apartment below with the same results. Bea and Charley immediately called the building super, who rushed to Ann’s apartment to stop the leak. The super reported that something stuffed in the toilet caused the flood. Ann’s unit no longer had a working toilet, and the super repaired it. Bea and Charley demanded that the co-op repair their walls and that they be compensated for the damages to their possessions.
Three days after the flood, all of the apartment owners on Ann’s floor complained of nauseating, sickening smells permeating their apartments, apparently coming from Ann’s apartment. Once again the super checked Ann’s apartment and found that the wet wall-to-wall carpet had become mildewed and did in fact have a truly awful, disgusting smell.
Management asked Ann to immediately have the carpet professionally cleaned. Ann replied that the carpet would dry out by itself in a few days. The neighbors’ complaints became somewhat hysterical. The building’s attorney was asked to intervene, and sent a letter to Ann advising her that unless the carpet was immediately cleaned the co-op would have a carpet-cleaning company enter the apartment, remove the carpet, and have it cleaned, all at Ann’s expense.
Ann refused to have the carpet cleaned, so the co-op removed the carpet and sent it out for cleaning. Ann then filed a small claims action against the co-op alleging that her floors were damaged when the carpet was removed. Bea and Charley threatened legal action against the co-op for the damages to their possessions. The co-op’s lawyer was asked to sort out the legal issues.
COMMENT The relationship between co-ops and their shareholders falls into four general categories:
1. The landlord-tenant relationship set forth in the proprietary lease between the co-op and shareholder;
2. Statutory provisions that govern all landlord-tenant relationships;
3. Common law concepts of negligence; and
4. Any contractual relationship that may exist between the co-op and shareholder, such as an alteration agreement or recognition agreement.
The co-op’s attorney must sort out the various issues intertwined in this scenario. Ann’s proprietary lease provides that she is responsible for all plumbing outside of the walls of her unit. Therefore, the co-op may charge her for the cost of repairs to her toilet.
Ann’s proprietary lease also provides that she may not cause “noxious odors” to escape from her unit. The smell of her mildewed carpet falls within this category. In addition, under the statutory “warranty of habitability” applicable to all rental units as well as co-ops, the co-op has an obligation to protect unit-owners from nauseating smells permeating their apartments.
Ann’s proprietary lease provides that the co-op may take necessary action to cure defaults if the shareholder fails to do so. With Ann now properly notified of her obligation to cure the problem, the proprietary lease authorizes the co-op to do so, at Ann’s expense. Ann could argue that the co-op was negligent in the manner in which it had the carpet removed from her apartment; but to do so she must show that the co-op failed to exercise the standard of care that a reasonably prudent person would exercise in a similar circumstance. Since the co-op hired a responsible carpet-cleaning company to do the work, it is unlikely that Ann would succeed with that argument and her lawsuit against the co-op should be dismissed.
Bea and Charley are entitled to have their ceiling fixed by the cooperative. Under the terms of the proprietary lease, and under the statutory warranty of habitability, the co-op is obligated to maintain the structural integrity of the apartments in the building. Neither the proprietary lease nor the warranty of habitability provides for the landlord (co-op) to be responsible for “consequential damages,” a term that means, in general, losses that arise indirectly from the incident.
Accordingly, Bea and Charley should not be able to require the co-op to pay for the damages to their possessions or wallpaper, unless they are able to show that the co-op was negligent. Since the cause of the flood was Ann’s toilet, which was her responsibility, it would be hard to find that the co-op was negligent. Bea and Charley may try to claim that Ann should pay for the damages to their possessions. While it is clear that the leak from her apartment caused their losses, “causation” is not enough: they must show that she was negligent. To do so, they must show that a reasonably prudent person would not have placed whatever Ann put in her toilet to cause the flood. Ann, Bea, and Charley are likely carrying property, flood, and liability insurance and the insurers will fight out whether Ann’s actions were in fact negligent. The good news for the co-op is that the co-op will not be a part of that fight. The co-op may, however, join in the fight against Ann, since if she was negligent, the co-op’s cost of structural repairs in Bea’s and Charley’s apartments could be passed on to Ann or her liability insurance company.
From the Desk of AIW:
A shareholder threatened to sue when the board refused to allow her to convert a window to a door so that her dog could go out on the neighboring building’s roof to exercise and use it as a toilet. The dispute never went to trial, but there was a lot of barking back and forth before the resolution.