Setting Condominium Assessments: Limits on Board Power

When a condominium incurs costs for repairs of common areas, how much discretion does the condominium board have in allocating those costs? In Board of Managers of Bayside Plaza Condominium v. Mittman, Queens County Supreme Court held that the condominium bylaws imposed significant constraints on the board's power, rejecting the board's argument that the validity of its decision should be measured against the business judgment rule.

The Bayside Plaza Case

Bayside Plaza Condominium consists of a nine-story building with 47 residential units, five street-level commercial units, 16 commercial parking space units, and 34 residential garage units. When it appeared that the parking deck (on which the commercial parking space units were located) needed renovation work to maintain its structural integrity, the condominium board entered into a contract to do the necessary work at a cost of about $400,000. The question, then, was how to apportion the costs of the project. The board, dominated by the residential unit owners, decided not to impose an across-the board assessment, but instead to impose a special assessment that varied with the type of unit.

The board allocated 60% of the cost to a single owner, Mittman, who owned all 16 commercial parking space units and the five commercial units ' an assessment of $15,000 per parking space ' even though Mittman held only an 8% interest in the condominium's common elements. The board reasoned that renovation of the parking deck would be of particular value to Mittman because the commercial parking units were located atop the deck. The board allocated another 20% of the cost to the owners of the residential garage units, many of which were located underneath the parking deck.

When Mittman challenged the assessment, the condominium board invoked the business judgment rule, which generally insulates condominium board decisions from searching judicial scrutiny. The court, however, concluded that the business judgment rule applies only when the board acts within the scope of its authority. To determine whether the board had exceeded that scope, the court consulted the condominium bylaws, which authorized the board to increase monthly assessments and to impose a special assessment, but which also provided that “said increases can only be assessed among the Unit Owners pro rata according to their respective common interests.” In light of that provision, the court concluded that the board had exceeded its authority, precluding application of the business judgment rule. (The court also concluded that the 60% assessment was unjustified, leaving one to wonder whether the court would have sustained the assessment if the board had allocated a smaller percentage of costs to the commercial parking units.)

Relevant Case Law

The court's holding that the board may not invoke the business judgment rule when its imposition of financial costs on some unit owners exceeds the authority conferred on the board by the bylaws finds support in other cases as well. For instance, in Board of Managers of the Onyx Chelsea Condominium v. 261 West LLC , 2012 WL 10007525, the court struck down an increased assessment on commercial unit owners in violation of a bylaw provision requiring consent of a majority of commercial owners to such increases.

Statutory Constraints

Apart from explicit provisions in the bylaws, Real Property Law section 339-m imposes its own constraints on condominium boards. The statute permits a board to make special allocations “based on special or exclusive use or availability of or exclusive control of particular units or common areas by particular unit owners,” but it does so only “if so authorized by the declaration and bylaws.” If the bylaws and declaration do not authorize special allocations, expenses must be allocated according to common interests. As a result, the allocation in Bayside Plaza might have been not merely in excess of the board's authority under the condominium bylaws, but also in excess of the board's statutory authority.

The basic message, then, is that if a condominium board wants to vote assessments not in accordance with the common interests of the unit owners, the board must make sure that it has both statutory authority and authority under the condominium's declaration and bylaws.

Stewart E. Sterk , Mack Professor of Law at Benjamin N. Cardozo School of Law, is Editor-in-Chief of this newsletter.

When a condominium incurs costs for repairs of common areas, how much discretion does the condominium board have in allocating those costs? In Board of Managers of Bayside Plaza Condominium v. Mittman, Queens County Supreme Court held that the condominium bylaws imposed significant constraints on the board's power, rejecting the board's argument that the validity of its decision should be measured against the business judgment rule.

The Bayside Plaza Case

Bayside Plaza Condominium consists of a nine-story building with 47 residential units, five street-level commercial units, 16 commercial parking space units, and 34 residential garage units. When it appeared that the parking deck (on which the commercial parking space units were located) needed renovation work to maintain its structural integrity, the condominium board entered into a contract to do the necessary work at a cost of about $400,000. The question, then, was how to apportion the costs of the project. The board, dominated by the residential unit owners, decided not to impose an across-the board assessment, but instead to impose a special assessment that varied with the type of unit.

The board allocated 60% of the cost to a single owner, Mittman, who owned all 16 commercial parking space units and the five commercial units ' an assessment of $15,000 per parking space ' even though Mittman held only an 8% interest in the condominium's common elements. The board reasoned that renovation of the parking deck would be of particular value to Mittman because the commercial parking units were located atop the deck. The board allocated another 20% of the cost to the owners of the residential garage units, many of which were located underneath the parking deck.

When Mittman challenged the assessment, the condominium board invoked the business judgment rule, which generally insulates condominium board decisions from searching judicial scrutiny. The court, however, concluded that the business judgment rule applies only when the board acts within the scope of its authority. To determine whether the board had exceeded that scope, the court consulted the condominium bylaws, which authorized the board to increase monthly assessments and to impose a special assessment, but which also provided that “said increases can only be assessed among the Unit Owners pro rata according to their respective common interests.” In light of that provision, the court concluded that the board had exceeded its authority, precluding application of the business judgment rule. (The court also concluded that the 60% assessment was unjustified, leaving one to wonder whether the court would have sustained the assessment if the board had allocated a smaller percentage of costs to the commercial parking units.)

Relevant Case Law

The court's holding that the board may not invoke the business judgment rule when its imposition of financial costs on some unit owners exceeds the authority conferred on the board by the bylaws finds support in other cases as well. For instance, in Board of Managers of the Onyx Chelsea Condominium v. 261 West LLC , 2012 WL 10007525, the court struck down an increased assessment on commercial unit owners in violation of a bylaw provision requiring consent of a majority of commercial owners to such increases.

Statutory Constraints

Apart from explicit provisions in the bylaws, Real Property Law section 339-m imposes its own constraints on condominium boards. The statute permits a board to make special allocations “based on special or exclusive use or availability of or exclusive control of particular units or common areas by particular unit owners,” but it does so only “if so authorized by the declaration and bylaws.” If the bylaws and declaration do not authorize special allocations, expenses must be allocated according to common interests. As a result, the allocation in Bayside Plaza might have been not merely in excess of the board's authority under the condominium bylaws, but also in excess of the board's statutory authority.

The basic message, then, is that if a condominium board wants to vote assessments not in accordance with the common interests of the unit owners, the board must make sure that it has both statutory authority and authority under the condominium's declaration and bylaws.

Stewart E. Sterk , Mack Professor of Law at Benjamin N. Cardozo School of Law, is Editor-in-Chief of this newsletter.