Cooperatives & Condominiums

Supreme Ct., Westchester Cty

(Donovan, J.)

Condominium unit owner sought to enjoin the condominium board and its lessee from building a cell phone antenna on portions of the building's roof and basement storage area. The court dismissed the complaint, concluding that an individual unit owner lacks standing to sue individually for injury to the common elements, and rejecting unit owner's argument that a condominium board may not enter into a lease of the common elements without the consent of all unit owners.

The condominium board entered into a lease authorizing of portions of the roof and basement storage area permitting Omnipoint, as lessee, to install an undescribed cell phone apparatus on the building's roof and basement storage area. Unit owner brought this action against individual members of the condominium board, and against Omnipoint, seeking both a preliminary and permanent injunction against construction of the antenna. In resisting injunctive relief, the condominium board relied on a provision of the condominium bylaws permitting alterations costing less than $25,000 without the approval of the unit owners, and on a provision of the building's rules and regulations permitting curtailing and relocation of any portion of the common elements devoted to storage or service purposes.

In dismissing the complaint, the court first concluded that preliminary injunctive relief was not warranted because unit owner had not demonstrated a likelihood of success on the merits. The court noted that the unit owner had relied on section 339-i(2) of the Real Property Law, which prohibits the alteration of the common interest appurtenant to each unit 'without the consent of all unit owners affected.' The court held that a unit owner 'affected' within the meaning of the statute is a unit owner whose unit is physically appurtenant to the common element to be altered. The court noted that neither plaintiff unit owner nor other unit owners who submitted affidavits in support of plaintiff's position had provided any factual statement sufficient for a court to find them to be 'affected' unit owners. Moreover, the court concluded that the complaint had to be dismissed because an individual unit owner lacks standing to sue individually for injury to the common elements of a condominium, and because plaintiff unit owner had incorrectly named the individual condominium board members, and not the condominium or the condominium board, as defendants in the action.

COMMENT

While condo unit owners may not bring an individual action for damages to the common elements, unit owners have standing to bring a derivative action on behalf of the condominium. Thus, in Caprer v. Nussbaum, 36 A.D.3d 176, condo unit owners brought an action against the condo board and other defendants for a variety of violations including injury to the common elements. The Second Department held, for the first time, that unit owners do not have standing to sue individually for damage to the common elements, but that unit owners instead could maintain a derivative action on behalf of the condominium itself. In holding that unit owners could not bring individual claims in their own name, the court emphasized the difficulty in assessing damages suffered by each individual owner, an issue that would not arise in the context of a derivative action.

Courts have permitted condo unit owners to enjoin a condo board from partitioning the common elements to allow exclusive use by some unit owners when that exclusive use affected other unit owners' use of the common elements. In Ronaldson v. Countryside Manor Condominium Bd. of Managers, 189 A.D.2d 808, lv. dismissed 82 N.Y.2d 706, the condo board had given permission to unit owners to close off the property in the back of their respective units by building six-foot fences. The court granted injunctive relief to other unit owners who claimed to be deprived of their use of the common elements. The court cited Real Property Law 339-i(3), which states 'the common elements shall remain undivided and no right shall exist to partition or divide any thereof . . .' and 339-i(4), which states that common elements shall be used 'without hindering the exercise or encroaching upon the rights of the other unit owners.'

Courts have upheld a condo board's decision to alter the common elements when there is no impact on an individual unit owner's use of the common elements. In Cohen v. Board of Managers of 22 Perry Street Condominium, 278 A.D.2d 147, the court upheld the board's decision to grant two unit owners a revocable license to enclose a portion of the hallway and create a common entrance. In Cohen, while the board's decision conferred exclusive use of a portion of the common elements to two unit owners, the court reasoned that the common entrance 'did not affect or in any way compromise [the other unit owners'] use of the subject hallway.' In Ronaldson, by contrast, the court stated that the fenced enclosures would deprive other unit owners of use of the common elements. In Merolo v. Board of Managers of Hills at Grasmere Condominium II, 3 A.D.3d 520, the court denied injunctive relief to a unit owner when the condo board built a shed in a common area of the condo building. In Merolo, the shed did not deprive any individual unit owners of use of the common elements to the exclusion of other unit owners, unlike the fences in Ronaldson. Moreover, the shed was not to be used by any individual owners, but by the condo as an entity. Perhaps that explains why, in Merolo, the court invoked the business judgment rule; it might be within the board's discretion to determine whether the condo's use of the common elements hindered the exercise of other unit owners (RPL 339-i(4)). The business judgment rule, however, would appear to be inapplicable in any case where the condo board attempted to partition the common elements, because section 339-i(3) includes an absolute prohibition on partition.

Co-Op Unit Owner Successfully Invokes Homestead Exemption To Obtain Injunction Against Enforcement of Co-Op's Lien

Travis v. 29-33 Convent Avenue HDFC

NYLJ 2/27/08, p. 26, col. 1

Supreme Ct., N.Y. Cty

(Schlesinger, J.)

In an action by co-op unit owner against the co-op corporation to stay an auction sale and vacate a lien for attorney's fees, tenant sought a permanent injunction against enforcement of the lien. Co-op corporation cross-moved to dismiss the complaint. The court enjoined sale of the shares to satisfy a lien for a $3,500 attorney's fee, invoking the homestead exemption of CPLR section 5206. Along with her former companion, unit owner owns the shares associated with the co-op apartment she currently occupies with the couple's daughter. The companion left the apartment 10 years ago and ceased contributing to monthly maintenance. In 2005, the co-op corporation and unit owner entered into a stipulation of settlement resolving a nonpayment proceeding brought by co-op corporation. The stipulation resulted in an award of money judgment to the co-op corporation for $3,500 in attorneys fees incurred by the corporation, and included a schedule of monthly payments. Unit owner represented herself in that proceeding. When unit owner failed to make the monthly payments, the co-op corporation commenced a non-judicial foreclosure proceeding by sending unit owner and her former companion notice of sale. Unit owner then sought to vacate the stipulation of settlement in Civil Court, but that court concluded that the stipulation was not inherently unsound. Unit owner then brought this proceeding to enjoin the sale of the apartment.

In granting the injunction, the Supreme Court relied upon CPLR section 5206, which exempts specified property 'owned and occupied as a principal residence' from creditor claims. The statute exempts shares of stock in a co-op apartment corporation (along with other types of homes) if the property does not exceed 'fifty thousand dollars in value above liens and encumbrances.' The court noted that the co-op corporation had never established that unit owner's equity in her apartment exceeds $50,000, and noted that the value was unlikely to exceed $50,000 in light of the income requirements of the Private Housing Finance Law and the fact that the corporate bylaws limit the amount unit owner is entitled to receive as profit upon sale of her shares.

COMMENT

The statutory homestead exemption protects the first $50,000 of equity in a debtor's principal residence (including co-operative or condominium residences) from all money judgments, but it does not insulate the residence from mortgages and other liens on the property. NY CPLR 5206(a). Mortgage foreclosure proceedings are not deemed money judgments under the statute, and thus are not subject to the homestead exemption. Thus, in Wyoming County Bank v. Raymond. 75 A.D.2d 477, the court held that a mortgagee whose mortgage loan was not used to finance purchaser of a home was not subject to the statutory homestead exemption. The court drew a distinction between an equitable foreclosures on a mortgage and a legal action on a debt, and held that since the foreclosure proceeding does not result in a money judgment, it is not subject to the statute. Thus secondary mortgage liens on the property, such as home equity loans, may be foreclosed despite the statutory exemption.

Other secured liens receive the same treatment as mortgages. NY Real Property Law '339-z grants a condominium board a lien on each unit for the collection of unpaid common charges and section 339-aa gives the board the right to foreclose that lien 'in like manner as a mortgage of real property.' As a result, the board's lien may be foreclosed without the constraints of the statutory exemption. Cooperative corporations do not enjoy the benefit of a parallel statute, but cooperative boards can create liens on a tenant's shares in the corporation by including appropriate provisions in the proprietary lease or offering plan. The board can then enforce these liens in non-judicial proceedings authorized by UCC 9-607. Article 9 requires the existence of a security agreement for creation of a lien, and courts are hesitant to imply security interests from the standard proprietary lease form. For instance, in McMillan v. Towers Owners Corp., the Second Department held that a right to terminate a proprietary lease, without a showing that the parties intended to create a security agreement, did not meet the Article 9 requirement. 225 A.D.2d 742 (1996). If, however, the co-op corporation reserves the right to cancel and reissue the tenant's shares, at least one court has been willing to imply the existence of a security agreement between the parties. See 160 Bleecker Street Associates v. 160 Bleecker Street Owners Inc., 8/22/90 N.Y.L.J. at 22, (col. 3) (NY Sup Ct. 1990). Nevertheless, a co-op corporation would be well-advised to create security interests explicitly to ensure its ability to bring an Article 9 proceeding and avoid the homestead exemption.

Condo Unit Owner Lacks Standing to Challenge Lease Of Common Elements

DiFabio v. Omnipoint Communications, Inc.

NYLJ 2/7/08, p. 32, col. 1

Supreme Ct., Westchester Cty

(Donovan, J.)

Condominium unit owner sought to enjoin the condominium board and its lessee from building a cell phone antenna on portions of the building's roof and basement storage area. The court dismissed the complaint, concluding that an individual unit owner lacks standing to sue individually for injury to the common elements, and rejecting unit owner's argument that a condominium board may not enter into a lease of the common elements without the consent of all unit owners.

The condominium board entered into a lease authorizing of portions of the roof and basement storage area permitting Omnipoint, as lessee, to install an undescribed cell phone apparatus on the building's roof and basement storage area. Unit owner brought this action against individual members of the condominium board, and against Omnipoint, seeking both a preliminary and permanent injunction against construction of the antenna. In resisting injunctive relief, the condominium board relied on a provision of the condominium bylaws permitting alterations costing less than $25,000 without the approval of the unit owners, and on a provision of the building's rules and regulations permitting curtailing and relocation of any portion of the common elements devoted to storage or service purposes.

In dismissing the complaint, the court first concluded that preliminary injunctive relief was not warranted because unit owner had not demonstrated a likelihood of success on the merits. The court noted that the unit owner had relied on section 339-i(2) of the Real Property Law, which prohibits the alteration of the common interest appurtenant to each unit 'without the consent of all unit owners affected.' The court held that a unit owner 'affected' within the meaning of the statute is a unit owner whose unit is physically appurtenant to the common element to be altered. The court noted that neither plaintiff unit owner nor other unit owners who submitted affidavits in support of plaintiff's position had provided any factual statement sufficient for a court to find them to be 'affected' unit owners. Moreover, the court concluded that the complaint had to be dismissed because an individual unit owner lacks standing to sue individually for injury to the common elements of a condominium, and because plaintiff unit owner had incorrectly named the individual condominium board members, and not the condominium or the condominium board, as defendants in the action.

COMMENT

While condo unit owners may not bring an individual action for damages to the common elements, unit owners have standing to bring a derivative action on behalf of the condominium. Thus, in Caprer v. Nussbaum, 36 A.D.3d 176, condo unit owners brought an action against the condo board and other defendants for a variety of violations including injury to the common elements. The Second Department held, for the first time, that unit owners do not have standing to sue individually for damage to the common elements, but that unit owners instead could maintain a derivative action on behalf of the condominium itself. In holding that unit owners could not bring individual claims in their own name, the court emphasized the difficulty in assessing damages suffered by each individual owner, an issue that would not arise in the context of a derivative action.

Courts have permitted condo unit owners to enjoin a condo board from partitioning the common elements to allow exclusive use by some unit owners when that exclusive use affected other unit owners' use of the common elements. In Ronaldson v. Countryside Manor Condominium Bd. of Managers, 189 A.D.2d 808, lv. dismissed 82 N.Y.2d 706, the condo board had given permission to unit owners to close off the property in the back of their respective units by building six-foot fences. The court granted injunctive relief to other unit owners who claimed to be deprived of their use of the common elements. The court cited Real Property Law 339-i(3), which states 'the common elements shall remain undivided and no right shall exist to partition or divide any thereof . . .' and 339-i(4), which states that common elements shall be used 'without hindering the exercise or encroaching upon the rights of the other unit owners.'

Courts have upheld a condo board's decision to alter the common elements when there is no impact on an individual unit owner's use of the common elements. In Cohen v. Board of Managers of 22 Perry Street Condominium, 278 A.D.2d 147, the court upheld the board's decision to grant two unit owners a revocable license to enclose a portion of the hallway and create a common entrance. In Cohen, while the board's decision conferred exclusive use of a portion of the common elements to two unit owners, the court reasoned that the common entrance 'did not affect or in any way compromise [the other unit owners'] use of the subject hallway.' In Ronaldson, by contrast, the court stated that the fenced enclosures would deprive other unit owners of use of the common elements. In Merolo v. Board of Managers of Hills at Grasmere Condominium II, 3 A.D.3d 520, the court denied injunctive relief to a unit owner when the condo board built a shed in a common area of the condo building. In Merolo, the shed did not deprive any individual unit owners of use of the common elements to the exclusion of other unit owners, unlike the fences in Ronaldson. Moreover, the shed was not to be used by any individual owners, but by the condo as an entity. Perhaps that explains why, in Merolo, the court invoked the business judgment rule; it might be within the board's discretion to determine whether the condo's use of the common elements hindered the exercise of other unit owners (RPL 339-i(4)). The business judgment rule, however, would appear to be inapplicable in any case where the condo board attempted to partition the common elements, because section 339-i(3) includes an absolute prohibition on partition.

Co-Op Unit Owner Successfully Invokes Homestead Exemption To Obtain Injunction Against Enforcement of Co-Op's Lien

Travis v. 29-33 Convent Avenue HDFC

NYLJ 2/27/08, p. 26, col. 1

Supreme Ct., N.Y. Cty

(Schlesinger, J.)

In an action by co-op unit owner against the co-op corporation to stay an auction sale and vacate a lien for attorney's fees, tenant sought a permanent injunction against enforcement of the lien. Co-op corporation cross-moved to dismiss the complaint. The court enjoined sale of the shares to satisfy a lien for a $3,500 attorney's fee, invoking the homestead exemption of CPLR section 5206. Along with her former companion, unit owner owns the shares associated with the co-op apartment she currently occupies with the couple's daughter. The companion left the apartment 10 years ago and ceased contributing to monthly maintenance. In 2005, the co-op corporation and unit owner entered into a stipulation of settlement resolving a nonpayment proceeding brought by co-op corporation. The stipulation resulted in an award of money judgment to the co-op corporation for $3,500 in attorneys fees incurred by the corporation, and included a schedule of monthly payments. Unit owner represented herself in that proceeding. When unit owner failed to make the monthly payments, the co-op corporation commenced a non-judicial foreclosure proceeding by sending unit owner and her former companion notice of sale. Unit owner then sought to vacate the stipulation of settlement in Civil Court, but that court concluded that the stipulation was not inherently unsound. Unit owner then brought this proceeding to enjoin the sale of the apartment.

In granting the injunction, the Supreme Court relied upon CPLR section 5206, which exempts specified property 'owned and occupied as a principal residence' from creditor claims. The statute exempts shares of stock in a co-op apartment corporation (along with other types of homes) if the property does not exceed 'fifty thousand dollars in value above liens and encumbrances.' The court noted that the co-op corporation had never established that unit owner's equity in her apartment exceeds $50,000, and noted that the value was unlikely to exceed $50,000 in light of the income requirements of the Private Housing Finance Law and the fact that the corporate bylaws limit the amount unit owner is entitled to receive as profit upon sale of her shares.

COMMENT

The statutory homestead exemption protects the first $50,000 of equity in a debtor's principal residence (including co-operative or condominium residences) from all money judgments, but it does not insulate the residence from mortgages and other liens on the property. NY CPLR 5206(a). Mortgage foreclosure proceedings are not deemed money judgments under the statute, and thus are not subject to the homestead exemption. Thus, in Wyoming County Bank v. Raymond. 75 A.D.2d 477, the court held that a mortgagee whose mortgage loan was not used to finance purchaser of a home was not subject to the statutory homestead exemption. The court drew a distinction between an equitable foreclosures on a mortgage and a legal action on a debt, and held that since the foreclosure proceeding does not result in a money judgment, it is not subject to the statute. Thus secondary mortgage liens on the property, such as home equity loans, may be foreclosed despite the statutory exemption.

Other secured liens receive the same treatment as mortgages. NY Real Property Law '339-z grants a condominium board a lien on each unit for the collection of unpaid common charges and section 339-aa gives the board the right to foreclose that lien 'in like manner as a mortgage of real property.' As a result, the board's lien may be foreclosed without the constraints of the statutory exemption. Cooperative corporations do not enjoy the benefit of a parallel statute, but cooperative boards can create liens on a tenant's shares in the corporation by including appropriate provisions in the proprietary lease or offering plan. The board can then enforce these liens in non-judicial proceedings authorized by UCC 9-607. Article 9 requires the existence of a security agreement for creation of a lien, and courts are hesitant to imply security interests from the standard proprietary lease form. For instance, in McMillan v. Towers Owners Corp., the Second Department held that a right to terminate a proprietary lease, without a showing that the parties intended to create a security agreement, did not meet the Article 9 requirement. 225 A.D.2d 742 (1996). If, however, the co-op corporation reserves the right to cancel and reissue the tenant's shares, at least one court has been willing to imply the existence of a security agreement between the parties. See 160 Bleecker Street Associates v. 160 Bleecker Street Owners Inc., 8/22/90 N.Y.L.J. at 22, (col. 3) (NY Sup Ct. 1990). Nevertheless, a co-op corporation would be well-advised to create security interests explicitly to ensure its ability to bring an Article 9 proceeding and avoid the homestead exemption.