HABITAT

BOARD OPERATIONS

When Making Rules, Boards Need to Know Their Limits

Victor M. Metsch in Board Operations on May 31, 2018

Queens

Rule Making
May 31, 2018

House rules and building regulations are usually the domain of co-op and condo boards. However, boards must make sure they don’t go off the rails in promulgating rules and fines that are either disproportionate to the targeted offenses or not expressly permitted by the co-op’s proprietary lease or the condo’s bylaws. Those governing documents form a contract, which can usually be amended only by the vote of a supermajority of shareholders or unit-owners – not by board decree. So while a board’s right to adopt rules and regulations is important, it is not unlimited. Rules and regulations typically contain provisions regarding objectionable or anti-social behavior, noise, the use of elevators, the use of public areas and the like. The board cannot, by enacting a rule or regulation, alter the basic terms of the contract that the owners entered into when they purchased their apartments.

A recent lawsuit at a Queens condominium illustrates this point. The condo board adopted a smorgasbord of new rules that imposed a $750 interview and application fee for all new tenants; a $1,500 new-tenant fee; a $2,500 rental application fee; an $850 application fee and $1,500 management fee for all sales and purchases; and, with respect to sales, a $5,000 processing/service fee, a $1,500 application fee, and a $2,500 management fee. 

The board didn’t stop there. The new house rules also required that prospective board members must reside in their unit for one year prior to election; restricted rentals to a one-year term; made renewal leases subject to a right of first refusal; and imposed other surcharges and fees. The plaintiffs, owners of two units on different floors, alleged that the board’s actions were not authorized by the bylaws. They sued both the condominium association and the individual board members.

The board members moved to dismiss the complaint against them, claiming that they were not individually liable for the actions of the board absent allegations that they committed separate improper acts. The court agreed, dismissing the claims against the individual board members. The remainder of the claims, against the board as a whole, survived. 

The bylaws of the condominium authorized the board to adopt rules and impose fines for violations of those rules, but the bylaws did not authorize the board to adopt rules that conflicted with the bylaws. Such changes could be made only by amending the bylaws, with the approval of a supermajority of unit-owners. Therefore, the court ruled, the board may adopt reasonable rules provided such rules do not conflict with or impair a right expressly granted to the individual homeowners. 

A section of the bylaws allowed unit-owners to lease their units. Accordingly, the court stated, “any rule adopted by the board that impairs the ability to rent the unit is improper and can only be done by amending the bylaws.” The court sustained the unit-owners’ right to challenge the new fees and charges because the amended house rules impaired the right to lease that was expressly granted to individual unit-owners in the bylaws. 

The unit-owners also challenged new house rules that required buyers or renters to submit copies of passports or residency cards, driver’s licenses or ID cards, social security cards, criminal background checks, credit reports, and three years of tax returns. The court dismissed these claims because the rules concerned matters within the board’s authority, and plaintiffs failed to prove any bad faith, fraud, self-dealing or other misconduct on the part of the board. 

This case is a reminder that boards should review their governing documents and consult with their attorney before adopting house rules. The goal is to stay on the rails and avoid costly – and unnecessary – lawsuits.

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