Ann Farmer in Board Operations on May 2, 2019
The board at a white-glove Upper East Side co-op recently refurbished the backyard and purchased outdoor furniture. It also laid down rules: children who are 16 and older are allowed to sit in the garden during appropriate hours and enjoy it in a quiet manner. Children under the age of 16 are prohibited from setting foot in the backyard, even if accompanied by an adult. An alarmed shareholder wrote to the Ask Real Estate column in the New York Times, wondering if co-op boards are allowed to treat residents “differently.”
The Times article quoted Lisa Smith, a partner at the law firm Smith, Gambrell & Russell, as saying the rule legitimately protected the co-op and its shareholders from liability issues.
“I agree with Lisa’s answer,” says Bruce Cholst, a shareholder at the law firm Anderson Kill, who is often asked to draft rules for his co-op clients. “But my personal opinion is that this rule went too far.” Instead, he says, he would have drafted the rule allowing children accompanied by adults to use the back yard, while also reserving the right to restrict anyone who doesn’t abide by a code of conduct. In other words, Cholst worried that the rule, as contrived, could be interpreted as age-discriminatory. “When it comes to discrimination,” says Cholst, “nothing is black and white.”
Creating a co-op rule is easy to do. But it must have legal legs to stand on. The regulation known as the Business Judgment Rule gives broad power to boards to make rules as long as they are done in good faith, in a non-discriminatory manner, and in compliance with the law.
“You should have some reason for the restriction being imposed,” says attorney David L. Berkey, a partner at Gallet Dreyer & Berkey. “And if it’s a reasonable restriction, the Business Judgement Rule should protect the board when they adopt it.” He says the backyard scenario is not much different from the concerns that arise when rules are put in place to ensure the safety of children and others using a co-op’s swimming pool. “In most cases,” Berkey says, “if the board has a legitimate reason for the ban, it will be upheld.”
What about a rule that requires persons operating baby strollers to use the freight elevator? The cumbersome size – and the abundance – of today’s strollers might justify such a rule in the eyes of a co-op board. Again, says Berkey, you have to gauge whether or not the request is reasonable. “We are always concerned about fairness,” says Berkey, who often counsels boards on how far they can go with respect to restrictions they wish to adopt. If a rule directs everything on wheels to the freight elevator – strollers, bicycles, rollerblades, skateboards – Berkey says he might give the proposed rule a thumbs-up. However, if it’s only strollers that are banished to the freight elevator, he adds, “I think you’d have a problem.”
Tara Snow, a partner at the law firm Novitt, Sahr & Snow, thinks the backyard rule at the Upper East Side co-op is doomed. “You can’t even have children in there with a parent? How is that safety?” she says, noting that similar rules have been found discriminatory in other states.
Cholst says there’s a way to sidestep the issue of age-discrimination when creating such rules. When one of his clients wanted to prohibit young people from using the gym because of liability concerns, Cholst applied the rule to anyone under 5’-3” tall. He included an addendum that permitted the board to “consider” allowing short adults to use the gym.
“It went fine,” he says. “No one complained.”
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