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How should co-op and condo boards deal with an unclear trail of alterations in a sold unit?
AUTHORHoward Schechter, Armstrong Teasdale
Many people are surprised to learn that when they buy an apartment, they are responsible for the alterations previous owners have done. What happens when the alteration trail is unclear?
You end up with disputes over who’s responsible for the maintenance and repairs. We had a building where the penthouse apartment had an adjoining terrace that was for its use only. The living room had been expanded and fully enclosed some 20 years ago, and there was still a very nice terrace left. The problem arose when the terrace started to leak, and water was getting into the apartment below.
The building investigated and determined that the roofing needed to be replaced and that the extension itself was leaking in various locations. They told the shareholder that the previous owner signed an agreement saying that whoever they sold to would be responsible for the alterations. But the shareholder said they never signed something saying they assumed that obligation, or if they did, that piece of paper was lost. And, they said, they don’t have any responsibility for the maintenance or repair of what had been previously done.
What did the board do?
The board was looking at a quite substantial expense, but rather than fight with the shareholder they went ahead with the repairs, since the priority was to stabilize the situation. They figured they could recoup the costs later, using a provision in the proprietary lease that if a shareholder lessee has a responsibility to take some action and fails to do it, the board can give notice and after a certain period of time the board can charge the costs back to them. Which is exactly what happened. And then the shareholder sued, claiming they were the innocent party and that the charges were inappropriate.
All because of an alteration agreement that may or may not have been signed, and may or may not be missing?
Yes, which meant the building not faced not only the expense of doing the repair work but also the cost of litigating it. On top of that, we were in a fairly murky situation because we didn't have an assumption of the alteration agreement. The board understood that their position was not totally clear, so they were willing to compromise on the money, but they wanted to clarify the responsibility going forward so that this wouldn’t happen again. The shareholder wasn’t having any of it. They said, "I'll give you X dollars," which was a fraction of the total cost of the repairs.
That’s when you kicked it up a notch.
From the shareholder’s point of view, they didn’t have much to lose in the litigation, since the worst that could happen was that they would end up paying the cost of doing the work, which is what we were asking them to do anyway. So we had to look for a way where they stood to lose a lot more than they thought they would.
Did you find one?
We knew we did have an agreement that showed the previous shareholder had done the alterations and that it specifically said that if the person who buys the apartment doesn’t assume responsibility, we could restore it to the way it was before. Since the shareholder was claiming that they had no connection to or investment in the alterations, we made the counterclaim in court that we had to right to rip up the apartment and take the extension down.
That must have caught their attention.
It changed the whole balance of the litigation. What’s more, a member of the board heard that the shareholder was looking to sell the apartment. We knew that anybody who was considering buying and did even minimal due diligence would turn up the litigation. The shareholder did find a buyer, who wouldn’t move forward until the matter was resolved, because they didn’t want to risk losing the extension. So finally, the shareholder signed an agreement saying they accept responsibility for maintenance and repair. We also made our legal fees part of the deal and worked out a settlement that was acceptable to the board.
So in the end, the repair work was done and co-op was almost made whole?
The legal fees weren’t completely covered, but the corporation was made whole for the cost of the work and the responsibility going forward was clarified. And it's all attributable to the fact that the board went beyond the original legal positions of the parties and found a pressure point that would ultimately push the other side to reach a resolution.