LEGAL/FINANCIAL

When people slip on ice and snow, co-op and condo boards face potential liability. They can avoid such woes by hiring an outside contractor to remove ice and snow from the property – and take on liability for any mishaps. So it makes sense to hire the work out, right? Not necessarily.

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During January, Habitat Weekly will advise boards on how to deal with a quartet of natural-born killers. This week: asbestos.

It's a busy time in your co-op. The couple in apartment 4B is knocking out a wall to open up their kitchen. Meanwhile, crews are replacing the floor tiles in all of your prewar building's hallways. And finally, your boiler is being removed. Warning bell time: your co-op or condo board should be prepared for the possibility that such demolition and renovation projects could unleash lethal asbestos, both inside apartments and in common areas. Failure to do so can lead to any number of unhappy endings, including sickness, lawsuits, even death.

If ever there was a time to be prepared, this is it.

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The city has filed a lawsuit against a glossy Tribeca condo tower, claiming its shoddy construction is causing sinkholes in a public school playground and adjacent dog run.

The builders and owners of 200 Chambers Street are at fault for sinkholes caused by “defective pile driving and sheet piling” during construction of the building, according to the suit filed in Manhattan Civil Court, as reported by DNAinfo. 

The city sold the property behind P.S. 234 to developer Jack Resnick & Sons in 2005. Sinkholes began appearing during construction, from 2005 to 2007. Repairs were made, but the problem recurred after Hurricane Sandy hit. The city says in its suit that it has made “repeated demands on the condo and the board” to fix the problem, without success. As for damages, the city is asking for “an amount to be determined at trial.”

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Two seemingly similar buildings flank 123rd Street on Madison Avenue in upper Manhattan. They were both built in the late 1990s, and they both started life as affordable co-op housing under the umbrella of the city’s Housing Development Corporation (HDC) and department of Housing Preservation and Development (HPD). They even have similar names: Maple Plaza and Maple Court.

But these two co-ops have taken sharply different paths. Maple Court recently refinanced its HDC mortgage and continues to live by the restrictions and protections that come with it.

Across 123rd Street, Maple Plaza decided to break away from its affordable-housing origins and pursue life as a conventional co-op. Here’s why.

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While building owners in New York City – including many co-ops and condos – get more than $1 billion in annual tax breaks under the 421-a program, hundreds of workers in those buildings are being illegally underpaid, according to a new investigation by ProPublica.

A 2007 state law said that no tax benefits would be granted to 421-a buildings that fail to pay “prevailing” wages to their non-union employees – a rate set by the city comptroller and pegged to union contracts. The law covers buildings of 50 or more units that started construction after December 2007.

Since then, according to city estimates, up to 400 buildings have fallen under the requirement to pay “prevailing” wages, but in 2013 the 32BJ labor union found that nearly half of the buildings it surveyed had underpaid employees. Last summer the state legislature transferred oversight of the wage requirement from the city’s department of Housing Preservation and Development (HPD) to the city comptroller.

One victim of the lax oversight is Francis Alphonse, the super at 341 Eastern Parkway in Brooklyn. By law he should be paid $24.83 an hour plus $10.38 in benefits; in reality he’s paid $15.63 an hour with no benefits.

“When you know the government is giving out these big tax breaks and they do nothing for workers,” Alphonse said, “it’s like you want to cry.”

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Philip Eng still remembers when the lights went out.

It was a Saturday afternoon in the summer of 2005. Eng had been living at the 318-unit Regent’s Park Gardens condominium in Queens for just three months, and at first he thought there had been a short circuit in his building. But then he found that the power was off in the development’s 13 other buildings as well. It stayed off for half a day.

Eventually Eng found out why: the condo’s Con Ed bills had not been paid for months. Further investigation revealed that the condo was basically broke.

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The most expensive neighborhood in Brooklyn to buy a home is DUMBO, with a median price of $1.4 million, according to a new report by real estate software provider YARDI.

In 2015, 71 homes – co-ops, condos and single-family dwellings – changed hands in the neighborhood located Down Under the Manhattan Bridge Overpass, with 31 of them selling for $1.5 million or more, as reported by DNAinfo. Water Street was the priciest address, with four homes selling between $4.1 and $4.8 million. The data was collected between Jan. 1 and Dec. 5.

Take a guess which Brooklyn neighborhood was the second most expensive. Brooklyn Heights? Park Slope? Nah. It was another waterfront neighborhood, Vinegar Hill, located just east of DUMBO, where the median price was just under $1.3 million. Sales prices across Brooklyn reached an all-time high in 2015.

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Cooperative buildings often become embroiled in litigation involving leaks in apartments caused by defects in roofs, exterior façades, or other common areas that are the responsibility of the co-op corporation to maintain. The warranty of habitability is duty that is continuous, cannot be delegated, and cannot be waived. It requires that the landlord maintain the apartment in a habitable condition, free of health and safety issues and providing all the basic and necessary services expected of a residence. Damages for breach of the warranty of habitability are generally in the form of a full or partial abatement of maintenance. In addition, the co-op will be required to repair an apartment so that it is in habitable condition. Repair obligations under warranty require only that the co-op restore to the basic requirements.

In addition, the proprietary lease may provide that in the event of a casualty loss, the cooperative will be required to repair or replace walls, floors, ceilings, pipes, wiring, and conduits within the apartment with materials customary in buildings of the type involved.

We interpret this language to mean that the co-op corporation is required to repair or replace with materials customary in the building at the time of the loss. This may be a higher standard than that required by the warranty of habitability. For example, the warranty only requires that a damaged floor be replaced with a usable floor. It does not mandate any particular type of material. However, it does not obligate the co-op to replace higher-end finishes that may have been originally installed by the tenant, typically defined by insurance companies as “betterments and improvements.”

Where the leaks and damages have been outstanding for an extended period of time, the tenant may also seek to recover for breach of fiduciary duty from the individual board members for failing to take sufficient action to resolve the conditions causing the leaks. While board members may be held personally liable for willful or bad faith concerning the corporation’s repair obligations, courts are generally loath to find directors personally liable and often dismiss such claims.

Takeaway

The board should take prompt action to investigate the source of leaks and to promptly make the necessary repairs to curtail further water infiltration and mitigate a claim by the tenant-shareholder for damages in the form of a maintenance abatement and out-of-pocket repair costs. The corporation’s insurer is typically obligated to indemnify the co-op for its repair obligations, usually found in paragraph 4(a) of the lease. When notified of leaks and water damage, boards should promptly notify their insurers and negotiate the highest possible indemnity for the repair costs.

Co-ops also often attempt to fulfill their habitability obligations by performing the repairs and then charging the tenant-shareholder back for those costs on the theory that the proprietary lease makes the tenant-shareholder ultimately responsible for maintenance and repair of those components. However, this “charge-back” practice is not supported by controlling case law and may violate the warranty of habitability’s protections.

There is authority for the proposition that a co-op’s obligation to make habitability repairs should include the duty to bear the costs. The law suggests that the payment of rent (maintenance) entitles the shareholder to the benefit of the bargain, which includes the warranty’s protections. Thus, when contemplating a “charge-back,” the board should be mindful that the practice is susceptible to legal challenge.

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Douglas Steiner of Brooklyn’s Steiner Studios has secured a $130 million construction loan from Bank of America Merrill Lynch to erect an 82-unit luxury condo building in the once-crusty, ever-glitzier East Village.

Steiner, who lives in the East Village, told Commercial Observer  that luxury condos in the neighborhood are “not the oxymoron people might have thought it was 15 or 20 years ago. We’ve seen a huge pent-up demand for luxury services in the East Village, and only a few have been done.”

Steiner acquired the property at 438 E. 12th St. for $41 million in 2012 from Mary Help of Christians Church. The site, which housed a church, rectory and private school, was originally intended as a 158-unit rental building with 22 of the units set aside as affordable under the Department of Housing Preservation and Development’s Inclusionary Housing Program.

Score another one for luxury over affordability.

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Attorney James Samson, a partner at Samson Fink & Dubow, offered some advice about how cases go off the rails. A potential client came to him with serious-sounding charges against the board. Although her charges were serious-sounding, on closer inspection, there was less here than meets the ear. The supposed “poisoning” of her dog occurred when the animal came into contact with some boric acid that had been put out to kill vermin. Other charges were equally questionable: she said the board had changed the locks on her. But, as she admitted after probing by Samson, the board had actually changed locks because it was switching over to a more sophisticated lock system. Everyone was given an expensive, electronic key fob, and additional keys cost $50 each. She wanted more fobs, and she gave them a check, but for some reason, it had been rejected. Banking problems, perhaps. But harassment? Not likely.
“She has a tendency to overstate her case,” Samson said. “I told her she had a motor mouth. ‘Listen to what you’re saying.’ I said. ‘If you can’t state your claim in three sentences or less, you’ve got a problem. Judges aren’t going to listen to you for the whole afternoon.” Her most serious charge – a lack of annual meetings – could be cleared up if she sought out the votes for a special meeting, which he explained to her how to do. “But she has to take an active role. I told her, ‘If you really think you’re being harassed, then go to the Human Rights Commission (HRC).’”
From the board’s point of view, how should they deal with a disgruntled shareholder like her? “The last thing the board wants is for it to go to the Human Rights Commission,” Samson observed, switching perspectives. “The people over there are zealots, true believers, and they can create a lot of trouble. The board should try to stay as far away from harassment claims as possible. The board should be very careful. They shouldn’t play games.”
What games had this woman’s board played? Apparently, they had allowed some shareholders to easily buy two or three additional keys, and if that is true, the HRC will probably ask, “Did you play games with her? Did you make it more difficult for her because she’s always complaining?”
 
Everyone should be treated in the same way, asserts Samson. The board doesn’t want to get itself involved in a discrimination case. Boards should be especially wary of shareholders and unit-owners, he says, who are “looking to find an offense.” Even when a board thinks a claim is bogus, it needs to treat all shareholders the same way to avoid finding itself in litigation.

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