READ DOCUMENTS, ASK QUESTIONS! P.2

 

 

As for Messner wanting the co-op to repair the leaks, an engineering report prepared by a neutral and independent expert retained by all the parties attributed those leaks not to the building but, rather, to the terrace's defective existing conditions. Finally, as to requiring the coop to obtain a certificate of occupancy for the enclosed terrace, the court agreed that under the Business Judgment Rule, the co-op had reasonably determined that doing so would have doubled the habitable space and square footage of Messner's apartment without providing any additional shares or maintenance, and would have made the co-op potentially responsible for the terrace area.

"Show" Time

Now Messner pulled a potential rabbit out of her hat: A written solicitation, a.k.a. a "show sheet," given to her by the real estate broker, Bellmarc East, prior to her buying the apartment. The show sheet advertised a 48 x 14-foot glass-enclosed terrace with quarry-tiled floor with heat and air-conditioning that would make "a huge living room or an additional bedroom." Relying on the fact that the co-op's managing agent, Bellmarc Property Management, is related to the broker, Messner argued that the managing agent should be bound by these representations.

The problem with this argument, the court held, was that Messner hadn't provided evidence that the managing agent had approved of or even knew about the show sheet. On the contrary, Marilyn Fleming, the Bellmarc East employee who prepared the sheet, had submitted an affidavit in which she stated that the information contained in it was based on representations made to her by the apartment's previous owner, and that Bellmarc neither saw nor approved the language therein.

In addition, John Janangelo, the president of Bellmarc, had submitted an affidavit stating Bellmarc Management and Bellmarc East are two separately run companies that do not share information with each other. Finally, Jay Lisnow, the co-op's president, had submitted an affidavit stating the co-op had no knowledge of the contents of the show sheet. Messner offered no evidence that contradicted these affidavits.

Cover-up?

The only option Messner had left was to argue that Business Judgment Rule did not apply because of the cover-up involving the board and the seller — a former member of the board.

The board, Messner said, knew before she'd bought the apartment that the terrace had lacked a certificate of occupancy, and attempted to conceal this from Messner in order to close the sale. She claimed the co-op was aware that she would not have purchased the apartment if the terrace could not be legally used as habitable space. Why? Aside from any other motivation, because the seller was a former board member and long-time resident.

In the court's view, however, this was not only pure speculative but in fact contradicted by documentary evidence. That evidence including two engineering reports that Messner had reviewed before buying the apartment, and which had adequately advised her that the legality of the greenhouse was subject to question.

Was fraud involved? The court said no — that fraud acts of concealment only where the co-op had a duty to disclose material information. The co-op was under no duty to disclose the lack of a certificate of occupancy since it was not the seller of the apartment. Moreover, there was no evidence that the c-op in any way prevented Messner from ascertaining both the condition and the legal status of the enclosed terrace.

This situation happens fairly frequently in Manhattan. An apartment is purchased with an existing greenhouse, which was not part of the original building construction. Somehow the purchaser fails to learn for some time, at least until there are leaks, that this structure is one for which the co-op has no responsibility to repair. Then, a dispute with the co-op ensues over the repair responsibility.

In most cases, as here, the co-op will prevail, but sometimes there are extenuating circumstances. The best solution : Really read and understand what the building documents say, don't rely on oral representations, and ask specific questions like, "Does this enclosed terrace have a certificate of occupancy?" — and get answers in writing. If the seller or board balk, you can walk — there's always another apartment.

Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan.

Adapted from Habitat October 2006. For the complete article and more, join our Archive >>