Q. I purchased my condo unit in 2005 with amenities, including 24-hour security, two pools, a parking lot, and a children’s playground. This past summer, our board destroyed the children’s playground and made their additional parking space for rent. None of the homeowners were informed about that. When I asked about that, I got an answer that the playground was in bad shape and costs board extra money for insurance, and that the kids can use any of the parks for playing. Is this action by the board legal?
A. “The short answer to your question is yes, the board’s ‘destruction’ of the playground and conversion of the parking lot is almost certainly legal,” says shareholder Bruce A. Cholst of the Manhattan law firm of Anderson Kill P.C.
“Boards’ management decisions, such as the use of common areas and facilities of a development or modification of a preexisting use thereof, are governed by the Business Judgment Rule. As applied to condos and coops, the Business Judgment Rule states that when a board’s action is (i) consistent with the association’s bylaws; (ii) otherwise legal; (iii) not in breach of board members’ fiduciary duty to shareholders or unit owners (i.e. there is no bad faith, self dealing or selective enforcement involved); and (iv) fulfills a legitimate corporate purpose, courts will not interfere with the board’s judgment, irrespective of how arbitrary, capricious or unwise that decision may appear.
“Based upon my experience with co-op and condo governing documents, I very strongly doubt that the letter writer’s condo bylaws would preclude ‘destruction’ of a private playground and conversion of a parking lot situated in the development’s common areas to another use. I also cannot imagine there being any other form of legal restriction upon such activity by a board. Certainly, the objectives of minimizing risk of liability and insurance premium costs fulfill valid corporate purposes. Therefore, absent any bad faith, self dealing or selective enforcement by the board, its conduct in this case would appear to be legal under the Business Judgment Rule.
“The board’s decision not to inform unit owners of its unilateral action in advance, however deplorable, is not illegal as there is no legal obligation by boards in New York State to afford such advance notice.
“The aggrieved letter writer may, however, have a political remedy. His condo bylaws most likely contain a provision enabling him to petition for a unit owners meeting at which the board can be called to task for and required to justify its decision and its failure to seek input from unit owners. The letter writer of course can also organize an opposition slate to challenge the board’s re-election at the next annual meeting and, upon taking control of the board, resurrect the playground and restore the parking lot.”