HABITAT

ALTERATION AGREEMENTS: WHEN CO-OP BOARDS TRY TO RENEGE

Alteration Agreements: When Co-op Boards Try to Renege

Once a co-op board consents to an apartment alteration, it cannot withdraw that permission without subjecting the co-op to liability for breach of contract.

The case Arnold v. No 24 Gramercy Park Inc. is a reminder. In late 1997, Rome Arnold and his wife purchased apartment 10A in the above-named Manhattan co-op. Before doing so, they informed the co-op's board of directors that they wished to perform substantial renovations in the apartment, including the installation of a central air-conditioning unit.

Arnold retained architect David Hottenroth, who on January 15, 1998, sent a copy of his plans and specifications to Marie Costello, the appropriate employee of co-op's management company, ETC Management. Costello, acting as liaison, forwarded those documents to the co-op's architect, Elliott Glass, and to the then-president of the board, Alexandra Howard. At Glass' request, Hottenroth submitted an additional sketch with expanded details.

On March 5, 1998, the board president signed the necessary New York City Department of Buildings (DOB) and Landmarks Preservation Commission forms. Two months later, managing agent Costello signed a written alteration agreement on behalf of the board. At the bottom of the agreement, just above Costello's signature, was the phrase "Permission Granted."

Arnold thereupon requested and received from the board a start date for the planned construction, and in late May 1998, construction in the apartment began. On June 24, 1998, however, board-president Howard ordered Arnold's contractor to halt work on the central air conditioning and ventilation system. Following a meeting the next day in the apartment — at which, Costello testified, the only subject discussed was the noise and vibration that the A/C would produce — the board's architect recommended to the board that Arnold have a licensed asbestos inspector look at the crawl space above the apartment, and that Arnold be required to remove and reinstall any of the system ductwork, if the co-op needed access to the space. Arnold agreed to comply with these new conditions.

Nonetheless, at a formal meeting of the board on June 29, 1998 — a meeting that president Howard's husband, who was not a board member, attended — the board unanimously voted to block Arnold's construction of the A/C system, on the ground that "for numerous and varied considerations, the crawl space should be left unencumbered by the Arnolds' central air conditioning units and ductwork."

Arnold and his wife, in a letter sent the next day, requested that the board to reconsider. The letter pointed out that the board had approved the installation months earlier, and that considerable construction work had been performed based on that approval. Soon thereafter, board-president Howard had board-member Barry Rice suggest to Arnold that Arnold agree to pay for several projects that would benefit the building, and to pay the co-op for his use of the crawl space. In a letter hand-delivered to the board on July 8, 1998, Arnold agreed to all of Rice's suggestions.

Two days later, Howard left a message on Arnold's voice mail stating that he needed to substantially revise his plans for the A/C, and to do so before to the next board meeting, scheduled for five days hence. Howard also stated that, thereafter, the board would not again meet for several months.

However, at about this very time —as Howard later acknowledged at her deposition — Howard requested that Glass write a letter, in time for that meeting, that would support a rejection of Arnold's plans.

And indeed, the board at that July 15 meeting denied Arnold's request for reconsideration. By letter dated that same day, Howard informed Arnold: "The board again decided against your proposal … the problems that have arisen have become even more complex and difficult to resolve … The board will not reopen this matter and asks that you remove your equipment from the crawl space and close up the ceiling."

At this point, Arnold took the co-op to court.

The co-op did not argue that president Howard was unauthorized to sign the DOB and landmarks forms on behalf of the board, or that managing Costello was unauthorized to sign the agreement on behalf of the board. Nor did the co-op argue that the board had rejected Arnold's proposed construction plan on the ground that such construction would have violated any requirement imposed by law.

Rather, the co-op argued that its decision was insulated by the business judgment rule (see next page) ; that, under Arnold's proprietary lease, the agreement was revocable at the board's discretion; and that the agreement was expressly conditioned on further board approval.

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