Laws Limit Co-op Boards' Need to Disclose Problems to Buyers

During the pre-sale due-diligence process, a Manhattan co-op board assured a potential apartment buyer and her attorney that there were no noise issues or noise complaints relating to the unit. After the sale went through, however, it turned out that the upstairs neighbors have children who play ball and run around constantly, which causes quite a disturbance in the buyer's apartment. It also turns out that other residents filed numerous noise complaints against this neighbor and that the board was actively involved — which was never disclosed to the buyer or her attorney. What are a board's disclosure obligations during apartment sales? And what are the unhappy buyer's options now?

Holding the board accountable in this situation could be difficult, because New York’s disclosure laws are working against the buyer, replies the Ask Real Estate column in The New York Times.

Standard co-op sale contracts typically include a clause stating that the buyer is not relying on any statement, representation or agreement not specifically included in the contract with the seller, including any statements by third parties, such as the co-op board.

Co-op boards in New York generally have no duty to disclose problems unless they are asked specific questions. “Unless the board or seller made a specific false statement, legal recourse for nondisclosure is limited,” says Ruta Behrend, a partner at the law firm Tane Waterman & Wurtzel.

It depends on the facts. Did you ask if the seller specifically had made noise complaints? Or if any shareholder had? If the complaints exist, they should have been logged in the board’s meeting minutes, which are available for the buyer’s attorney to examine before a sale. Did your attorney read the minutes?

Which brings us to the elephant in the room: the business judgment rule, which legally protects many board actions, making your case even more difficult. The rule shields boards from lawsuits, provided the board acted in good faith and for the benefit of the corporation. It's a nearly impenetrable shield.

And it raises a rhetorical question about the wisdom of pursuing a lawsuit against a co-op board, according to Stuart Saft, a partner at the lawn firm Holland & Knight: “How many years of litigation would result, and what would the ultimate recovery be even if successful?”

Noise complaints can be difficult to pursue legally, but you should document what you hear so you can make a case to the board to enforce its house rules. If your lease contains the common provision that apartment floors must be 80% carpeted, ask the board to enforce that clause. If you get no response, you can bring a private nuisance claim against your neighbor, but your success would depend upon how well you documented the disturbances and if the neighbor's actions are persistent and unreasonable.

The moral of this story? Caveat emptor. And do all due-diligence digging before you sign a contract.