From the Court to the Board Lessons from Recent Decisions

Several interesting court decisions regarding co-ops and condos were made during the latter part of 2005. The decisions received some commentary, but perhaps not the attention that they deserve. In a condo case, the Appellate Court that oversees the trial courts in Manhattan and the Bronx made a decision that clarifies when a condo unit owner may be subject to liability in connection with the condo’s common elements. And New York’s highest court issued a decision changing how one determines whether a co-op shareholder is a holder of unsold shares (i.e., a shareholder who typically has special privileges, such as being able to transfer and sublease without board approval). Some other notable decisions provide valuable lessons.

Ira Pekelnaya, as Guardian Ad Litem for Michael Taratuta v. Jerri Allyn. Lesson: Condo unit owners are not liable individually for injury or damages that result from common elements, which they do not control.

This Appellate Division, First Department, decision may be one of the most significant court decisions regarding condos in recent years. The question was whether condo unit owners could be held individually liable for injury caused by a defect in a common element. In this case, a common element chain link fence on a parapet-wall fell and struck plaintiffs. The plaintiffs sought money from the condo unit owners who they argued were liable for the condo board’s decisions with respect to the fence. In a well-reasoned decision by Judge Tom, the court held that there is no liability imposed upon individual unit owners based solely upon their ownership in the common elements.

According to the court, it is control, not common interest that is the operative criterion upon which liability is predicated. “In the absence of such control by the individual unit owners over the common elements alleged to be defective, this court concludes that the individual defendants cannot be held answerable in damages.”

The court found that the condo form of ownership was a creature of statute and subject to strict construction. There is no provision in the law governing condos that imposes liability on unit owners for injury caused by a defect in the common elements. The court was impressed with plaintiffs’ point that a condo is not required to maintain liability insurance which may cover damages. The court went so far as to “urge legislation to require a condominium to obtain a minimum amount of liability insurance coverage in such amount as may be deemed adequate to protect the public.”

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3 Comments

  • I would still like to know if the Board of Managers can be sued individually because they instituted major projects without the approval of a majority of the unit owners. Also, the president of the Board is an employee of the management company. Can she be sued individually for conflict of interest in her capacity as fiduciary oversight of the mangement company. She also had two trees planted on the sidewalk in front of her unit at condo expense and did not apply for a permit to do so. Also, without approval or even knowledge of the planting until the Dept. of Forestry in Queens was called and asked about it. Patios were enlarged onto common area and imported tile was installed without the approval of the majority of owners. These patios are restricted to half of the owners. The other owners have terraces and had to pay for the installation of floors on their terraces.
  • @Jan: In a normal situation, when you elect your Board of Managers, you are doing so on the understanding that they can make decisions on behalf of the unit owners and for the unit owners without the prior approval of a majority of the unit owners. In order for you to sue them individually, and for their D&O coverage not to kick in, you would have to show that they did something so against the health and well being and completely out of better business judgement. It is probably a bad idea that the President of the Board is an employee of the managing agent, although if such a conflict is addressed in meetings with her being recused from items that have to deal with sensitive subjects, such as the discussions on the management company, it could be construed as ok. She is (I'll assume) an owner in the building, and she should be able to serve the Board freely with regards to items that are not dealing with her conflicts. You have a case against the common area being used, since this would need the approval of the owners at large, but you don't have any wiggle room on the tile, albeit expensive tile. It's part of the joys of living in a building with a Board. They do have leeway in making those types of decisions.
  • One of the most important questions about Co-ops is that of the Sponsor. I see very little comment in your magazine about making a Co-op a "True Co-op' or a 'Viable Co-op'. I know it is tricky, but to important not to be commented on in every issue in one way or another.