HABITAT

LEGAL/FINANCIAL

Board Changes Its Mind – and Winds Up in Court

Richard Siegler and Dale J. Degenshein in Legal/Financial on September 12, 2017

Lower East Side, Manhattan

Change of Mind

A co-op board approved a terrace enclosure (top right), then changed its mind (image via Google Maps)

Sept. 12, 2017 — Follow governing documents when considering alterations.

What happens when a co-op board approves an alteration project and then changes its mind? What usually happens is a lawsuit. Consider the case of Salvatore Moltisanti

In 2012, Moltisanti purchased an apartment in the four-building 1,672-unit Co-op Village on Manhattan’s Lower East Side. Many of the apartments had enclosed balconies, and Moltisanti wanted one too. He asserted that he was told by the board that no permits were necessary, and that after the payment of certain fees and the retention of an approved contractor, the enclosure could be built. It took more than two years to install the framework for the enclosure. 

Then in early 2016, the board changed its mind. It forbade Moltisanti from completing the work and demanded that he remove the framework. Moltisanti sued. The lower court granted a preliminary injunction that required the co-op to permit completion of the work, since it had been previously approved.

The appellate court reversed this decision, arguing that a preliminary injunction should not, in the guise of granting “preliminary” relief, grant the ultimate relief – in this case, the ability to complete the enclosure. The appellate court also denied Co-op Village’s demand for an injunction prohibiting completion of the enclosure. The appellate court acknowledged that the proprietary lease provided that written consent was needed before any terrace or balcony structure could be constructed – and that none had been obtained here. The lower court had dealt with this argument by finding that the enclosure was approved not only orally, but by the building’s “actively permitting work to be performed in accordance with the defendant’s own specifications/requirements.”

The appellate court, however, determined that the following were all issues of fact to be decided at trial: whether a written statement was necessary; whether the board could waive the requirements of the lease; or whether allowing a partial performance of the work could stop the board from arguing that a written statement was required. 

Finally, Moltisanti complained that he was treated differently from other shareholders because he – and no one else – was required to obtain written permission to build an enclosure, while everyone else was allowed to add enclosures simply by talking with the board. He asserted that these actions violated the Business Corporation Law, which provides that all shares be treated equally. The lower court did not address this argument, and the appellate court quickly disposed of it, finding that this was not the type of unequal treatment the statute addressed.

An important issue in this case was whether either party was likely to succeed on the merits – a necessary element for the granting of a preliminary injunction. The lower court determined that Moltisanti would probably prevail because of the actions taken by the board. The appellate court disagreed, finding instead that the board’s actions created issues of fact, meaning that the case had to go to trial for resolution.

Although this case will not be the final word on this subject, we cannot stress often enough that boards need to comply with governing documents and procedures. As the board at Co-op Village learned, failure to do so is likely to land you in court.

Richard Siegler is counsel and Dale J. Degenshein is special counsel at Stroock & Stroock & Lavan. The authors thank Julia Casteleiro for her assistance in preparing this article.

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