Past Precedents How Legal Cases Shape Board Policy

New York City real estate is governed by a number of things: available housing stock, the economy, state legislation, and quite often by major legal cases argued in the courts and then applied by proxy to building communities all over the city. The courts thus have the ability to greatly impact the way boards, managing agents, and shareholders/owners conduct business.

While every case affects the people directly involved, certain historic decisions have profoundly affected the world of NYC real estate. A sample of these noteworthy cases include Levandusky vs. One 5th Avenue Corp. (1990), which dealt with what's referred to as the "business judgement rule"; 40 W. 67th Street Corporation vs. Pullman (2003), which dealt with boards having the ability to eject so-called "objectionable tenants"; Biondi vs. Beekman Hill House Apartment Corp. (1997), which dealt both with discrimination and indemnification of board members from punitive damages in lawsuits; and the Jennifer Realty case (2001), which dealt with sponsors being legally obligated to sell units in converted co-op buildings.

Levandusky

Out of these recent cases, Levandusky vs. One 5th Avenue Corp. (1990) (Levandusky), is perhaps the single most important decision ever rendered in the field of co-op/condo law in New York, according to Stuart Saft, a partner at the law firm of Wolf Haldenstein Adler Freeman & Herz LLP in New York.

"Every major co-op or condo decision in the last 10 years has referred to Levandusky," reports Saft, who is chairman of the Council of New York Cooperatives and Condominiums (CNYC) and has written 10 books relating to commercial real estate.

The case revolved around Ronald Levandusky, a co-op shareholder at One Fifth Avenue who was in the process of renovating his kitchen when he realized that he needed to move a steam riser pipe by two inches to accommodate new cabinetry. After both he and the board of directors of his building hired independent engineers to look at the situation, the board decided not to let him move the pipe, figuring on the "leaving well enough alone" principle. Levandusky, however, failed to heed the order of the board and hired a contractor to move the pipe anyway. The board issued a stop-work order and Levandusky subsequently took them to court.

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Comments

  • Seems to be that the legislation protecting Board Members of Coop is written in a vacuum supposing that most board members are above reproach. This is often NOT the case and it is far too difficult for a shareholder with a meritorious cause of action to go against a board. Especially since attorney fees cannot be recouped even if the shareholder wins. When a breach of fiduciary duty exists, often, the board members and the coop attorney are acting as one. If the shareholder brings the board members to court, the coop attorney just keeps padding the case with unnecessary litigation, motions, adjournments, etc thereby making the costs impossible for a shareholder to sustain - so the board gets to continue even the most blatant illegal behavior.