Dale J. Degenshein in Legal/Financial on February 21, 2020
Russell Kling bought a condo apartment in Lower Manhattan in 2007, then moved to Canada a few years later. He retained the condo unit, and in 2014 he decided to sublease it according to the bylaws. His tenant, Michael Stratton, went through the board’s subletting process, submitting an application to the management company and the board. The board approved his application and he settled in for a three-year lease term, ending in 2017. Stratton also agreed to pay his rent in a lump sum at the beginning of each year, instead of monthly.
After an uneventful first year, Kling was made aware by a friend that Stratton was illegally listing the apartment on Airbnb. Kling planned to wait until Stratton made his second year’s payment to discuss the listing, but in October of 2015, Stratton alerted Kling that he would not be able to make the lump payment. Stratton offered to make monthly payments, but Kling refused, and the two agreed to dissolve the lease and that Stratton would move out in November.
Throughout November, however, Stratton refused to allow prospective tenants to see the apartment, and still had not vacated the apartment by December 1. That was when things got ugly.
Kling reached out to the condo’s legal representatives to let them know what was going on. When Stratton left his keys with the condo’s doormen, Kling told them not to give them back. (Stratton called the police and got the keys back; he also changed the locks on the unit.)
Kling finally began an eviction proceeding against Stratton, and the two settled. Under the settlement, Stratton agreed to be out of the apartment by March 2016 and pay Kling a $100,000 judgment and back rent totaling $64,000.
Kling then filed complaints against the condo board, the board president and the property manager. He claimed that the condo board had breached its fiduciary duty in not screening Stratton, and that it was negligent in supervising the staff, among other complaints.
Kling believed that the building’s staff should have taken action against Stratton’s misbehavior. However, there’s nothing to indicate that the staff did anything other than what they were supposed to do. No staff members were aware of Stratton’s illegal listing until they were informed of it in December of 2015; when they became aware, they tried to stop renters from entering. Stratton in turn informed the staff that these people were his guests, meaning that the staff no longer had any authority to remove them. Staffers also cooperated with the police during the key incident. Kling’s complaint seemed to be less about negligent supervision that about how the staff followed directions. His claim was dismissed.
The court discussed whether the board’s decision to approve Stratton as a subletter was covered under the Business Judgment Rule. It was. The condo’s bylaws imposed no obligations on the board to perform any due diligence on subletters, so the court decided that the board was acting within the scope of its authority. Therefore, there was no breach of duty.
It can be difficult for condo boards to know who is going to be a problematic subletter, even if the board – as some do – requires an application package with references. A board has a right of first refusal, and most boards are not in the business of being a landlord, nor should they be. The onus is properly on the unit-owner to determine whether the subtenant is likely to comply with the rules. If the subtenant fails to comply, it is the unit-owner who is responsible for the tenant’s behavior. Nonetheless, condo boards should review their rules and bylaws to see if there is a way to amend them to effectively discourage bad behavior.
Dale J. Degenshein is a partner at the law firm Armstrong Teasdale. The statements and views in this article are her own and not necessarily those of the firm.
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