More Power to Condo Boards Recent Decision May Set Precedent

Historically, co-op buildings have had the market cornered on board-mandated restrictions, strict bylaws, and procedural red tape, while condos have been more black-and-white: co-op shareholders own shares, and condo owners own real estate. Co-op residents wishing to sell their shares faced the greater possibility of board interference in the sale process than condo owners, whose boards typically exert only the right of first refusal when it comes to who buys into the building. If exclusivity and "building character" is a priority for you, a co-op is probably the way to go. If liquidity and minimal board involvement is what you're after, you're likely a condo customer.

Thanks to a recent court decision, however, that sharp dividing line between co-op and condo may not be quite so sharp--and condo owners may find themselves pondering new powers and the consequences of using them. In a surprise decision rendered on May 31, 2005, the Appellate Division, First Department (which covers both Manhattan and the Bronx) ruled unanimously in favor of a Manhattan condo's right to restrict how units within the building can be sold and leased.

Demchick vs. 90 East End Avenue

The case in question involved a 43-unit condo building on Manhattan's Upper East Side. According to Attorney Scott Greenspun of the Manhattan law firm of Braverman & Associates, who represented the condo during the proceedings, "90 East End Avenue was a new construction condominium with 38 multi-bedroom units. Prices for the multi-bedroom units ranged from approximately $600,000 into the millions. In addition to those 38 residences, there were five studio apartments on the building's second floor. In the initial offering materials, the sponsor marketed the studios essentially as maid's rooms, and reserved the right to purchase those units for the people who were already purchasing the largest and most expensive apartments. Every person who bought a studio was also simultaneously buying a multi-bedroom unit. In our case, it was pursuant to one contract of sale--both units were in one contract. The studios became a very, very popular amenity."

Questions arose, however, because despite the developer's intention that the five studios be reserved specifically for unit owners, nowhere was that intention laid out as an official rule. There was no specific prohibition against a unit owner with a studio selling or renting out that studio to an outsider--an oversight that one unit owner brought to the board's attention when he wished to sell his studio unit, but keep his multi-bedroom unit.

With the demand for studio units far outstripping the building's modest supply, it was no problem finding another unit owner happy to purchase the seller's studio--the seller got rid of his studio, and the buyer gained a much sought-after amenity. But the unofficial nature of the "studios for residents only" rule prompted the board to present the unit owners with a proposal: to draft a new bylaw specifically stipulating that studio units be sold or leased only to current unit owners.

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3 Comments

  • Please comment on the changing of the exterior portions of the condomium, i.e. walls, doors, windows and air conditioners. What is the responsibility of the management company and the owner. Can an owner be sued for installing a new air conditioner, provided by a company with a license and who is insured? is there any basis for fining an owner for this?
  • Wonder if you have any contact info for Jules Demchick or JD Carlisle Development? Can't find any online. Thanks!
  • Election question. We have 4 bldg ours being the smallest 11 units. 2 bldg 17 units and the other 28 units. We can never get enough votes to get on the board due to the imbalance in the bldgs. The board currently has 3 members on the board from one building while our building has no representation. our declaration states that the board is to be made up of one member from each building. Our building being the smallest has been deprived of representation for over 15 years. Can we challenge this during election or have a cause to protest this?