HABITAT

CO-OP/CONDO BUYERS

Neighbor vs. Neighbor: When House Rules Slip from Institutional Memory

Ruth Ford in Co-op/Condo Buyers

Duplex 1B, built to serve as the office and home of a doctor in 1928, is a maisonette. It has no downstairs vestibule, only a front door that leads directly to the street. Over the decades, the doctor's family, and later an art gallery owner, reached a peaceful arrangement with the owners of duplex 2A. The doctor's family, and then the gallery owner, of 1B shared the tiny second-floor vestibule with the owners of 2A, receiving guests, mail and packages.

That informal agreement ended in 1998, when the Brauns moved into 1B. With the Brauns, the Moores and the 1998 board unaware of House Rule 28, which gave the Moores in 2A control of the second-floor vestibule, the Brauns began using the vestibule for receiving visitors, mail and package. The Moores protested and the battles began.

"There were daily fights, screaming matches, shoving matches, the works," recalls Bruce Cholst, a partner with Rosen & Livingston, which represents the board. The forgotten house rule wasn't rediscovered until a 1999 search through the house records.

Two Years of Trying, Two Trying Years

For two years, the board tried to mediate. First, letters were sent, reminding the Brauns that the Moores had control of the elevator vestibule through house tradition. The Brauns ignored the letters. The board invited the two families to meet, in an effort to mediate between them. Nothing was accomplished.

Matters escalated and got more personal until finally, after a series of meetings in 1999, the board drafted an amendment to House Rule 28: The Brauns of 1A would be allowed to receive guests at the second-floor vestibule if those guests were accompanied by a building employee. Packages and mail would be taken straight to the Brauns' kitchen via a service elevator. All decoration would be left up to the Moores of 2B.

Both families sued. Tough luck, ruled the state's supreme court in May 2003, saying that the House Rule 28 amendment stood. Under the Business Judgment Rule, declared Judge Walter Tolub, as long as the board's actions did not involve self-dealing and were in good faith, the acts were "lawful and legitimate."

"The courts simply looked at the house rules and decided that without evidence of self-dealing or favoring or punishing one family over another, the house rule was reasonable," explains Howard Brownstein co-op president, Howard Brownstein, who declares himself "very happy" that the lawsuit and the five-year fight were over.

Underlying the ruling, observes Arthur Weinstein, a co-op attorney, is the board's right to establish what the house policy is. The Business Judgment Rule, he says, "gives boards of co-op corporations broad discretion in handling the business of their cooperative. Certainly, a house rule governing the use of common space in the building in the manner of this case is well within the power of the board."

While an attorney for the Moores declined to comment, Randall Sims, a lawyer for the Brauns, says the judge's decision put his clients at a disadvantage. The Brauns had never received a copy of the 1983 rule, and the judge had overlooked the underlying failure of the co-op board and the managing agent to disclose all the rules before purchase.

"They didn't give fair notice to the prospective purchaser," complains Sims, who adds that if the Brauns had known before they bought that they were going to have diminished rights to the second-floor vestibule, they wouldn't have taken the apartment.

But the attorney for co-op maintains that the issue isn't one of full disclosure but of the power of the board to change the rules. Would-be owners should be forewarned: no purchaser can rely on house rules as a permanent set of rights, because they can always be modified. Concludes Cholst: "No house rule is forever."

 

Adapted from Habitat September 2003. For the complete article and more, join our Archive >>

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