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Boards and shareholders need to resolve conflict rationally.
AUTHORArthur I. Weinstein, Principal, Arthur I. Weinstein
PAGE #p. 8
Categorizing board/shareholder conflict can make resolution a bit easier.
There are so many potential situations in which the co-op and its shareholders become adversaries that I’ve tried to instruct my client buildings that there are five categories in which you can separate the complaints and try to deal with them in a rational way. The five categories are: the warranty of habitability under New York law; the proprietary lease, which defines the rights and obligations of the co-op as landlord and the shareholder as tenant; any contractual arrangements such as an alteration agreement or storage room agreement between the shareholder and the co-op; any negligence by the co-op, the complaining shareholder or another shareholder; and the various insurance coverages that may cover the losses incurred by the co-op, the shareholder, and or a negligent neighbor.
First, the co-op must determine in which of my five categories the issue lies. If an apartment is flooded, the cause of the flood must be determined. Under the proprietary lease, the co-op is responsible for maintaining the “skin” of the building and the structure of the apartment. If water is penetrating from the outside in a rainstorm into the building, the co-op may have responsibility under the proprietary lease to repair damaged walls and ceilings. If the flood is caused by the upstairs neighbor’s kid putting a teddy bear in the toilet, then there may have been negligence from the person above and that neighbor may have applicable homeowner’s insurance.
Under the proprietary lease, the shareholder is responsible for all his appliances, personal property, and cosmetic improvements to the apartment. The co-op may not be responsible for the ruined dishwasher, or the damaged Van Gogh painting on the wall, unless the co-op’s own negligence caused the problem. The responsibilities must be sorted out. The fact that there was damage to the apartment does not automatically mean that the co-op is responsible for everything within the apartment. Only after the issues are sorted out can a water-penetration complaint be resolved and the damages be appropriately allocated.
Damages resulting from a fire may also use this method of resolution. What was the cause of the fire? What property was damaged? Who has responsibility for what? Again, we start out with the proprietary lease. It requires, in almost all instances, that the co-op keep the building in good repair. If there are walls and ceilings that came down, the lease governs the co-op’s obligation to repair them. The proprietary lease does not automatically make the co-op responsible for the appliances, tiles or cosmetics, and personal property in the apartment. The shareholder’s property insurance should cover personal property. If the fire resulted from a neighboring shareholder negligently lighting a cigarette in bed, that shareholder’s liability insurance should be responsible for the other’s property damages. The entire episode must be analyzed in this framework of the five topics that govern.
One of the biggest problems facing co-ops is disputes between the co-op and its shareholders. These disputes involve a wide variety of issues and they’re never-ending. Putting them into the context of these five principles makes resolution far easier. The parties can sort out who’s responsible for what once they understand which principles are involved.