Cooperatives & Condominiums

Bylaws Did Not Authorize Fine for Violation of Guest Policy

Gabriel v. Board of Managers of the Gallery House Condominium

NYLJ 7/13/15, p. 18, col. 6

AppDiv, First Dept.

(memorandum opinion)

'

In an action by condominium tenants against the condominium board to invalidate an amendment to the condominium's house rules, and to invalidate a $500 per day fine for violation of the condominium's guest policy, tenants appealed from Supreme Court's grant of summary judgment to the condominium board upholding the amendment. The Appellate Division modified to invalidate the amendment, holding that the condominium's bylaws did not authorize the house rule.

'

In 2005, the condominium board adopted house rules prohibiting subletting, and in 2007 it adopted a rental and guest policy. Then in 2014, it adopted a new house rule requiring that leases be limited to no more than one year. In this action, the tenants sought a declaratory judgment invalidating those rules, and the $500 a day fine the board imposed for violations of the guest policy. Supreme Court held that the challenges to the 2005 and 2007 rules were barred by the statute of limitations, and held that the 2014 rules were valid as a mere clarification of the bylaws. Supreme Court did, however, declare the $500 per day fine invalid.

'

In modifying, the Appellate Division agreed that the challenges to the 2005 and 2007 rules were barred by CPLR 213(1)'s six-year statute of limitations for declaratory judgment actions. But the court held that the 2014 house rules could not quality as a “clarification” of the bylaw provision prohibiting use of apartments for “transient tenancy.” The court held that the board had failed to explain how requiring leases not to exceed one year was in keeping with the prohibition on transient tenancies. As a result, the court declared the house rule invalid. The court also held that the $500 a day fine was invalid as confiscatory, even though the general power to impose fines was within the board's authority to implement rules and bylaws.

COMMENT

Courts generally uphold sanctions imposed by condominium or homeowner association boards when the organization's bylaws grant the board the authority, in general terms, to impose sanctions. For instance, in Gillman v. Pebble Cove Home Owners Assn., 154 A.D.2d 508, the court upheld a $25 fine for each violation of the homeowners association's prohibition on parking on private streets within the 48-unit townhouse development. The court emphasized that the bylaws granted the board authority to enact reasonable rules and regulations, and noted that there was no evidence that the regulations, or the fines, were unreasonable or enacted in bad faith.

In seeking judicial enforcement of fines, the condominium board must introduce into the record proof of the alleged violation that gave rise to the liability; introducing proof that fines were assessed and remain unpaid may not suffice. In Board of Directors of the Old Yorktown Village Corp. v. Hitt, 2003 WL 22038417 the court dismissed fines levied against shareholder for violations of house rules and the proprietary lease holding that evidence did not support assessment of fines. The trial court had awarded plaintiff corporation $25 for each of three parking violations, but the Appellate Term reversed because the board, by not including proof of place and time of violations, failed to make out a prima facie case.

Courts have relied on usury laws for guidance in reviewing a condominium board's levying of fines for late payments. Where a late fee exceeds the usury limit of 25% per annum, courts consider it to be unreasonable and confiscatory. In 943 Lexington Ave., Inc. v. Niarchos, 83 Misc.2d 803 the Appellate Term dismissed a holdover proceeding brought by a co-op corporation against a shareholder who failed to pay a rent surcharge of 5% per month for all late payments after the third month of default. The court held that in view of public policy created by usury statutes, a 5% per month late fee, 60% per year, was unreasonable and confiscatory, even though the resolution imposing the fee was adopted by resolution of the co-op's stockholders and board. See also Vernon Manor Cooperative Apartments v. Sabatino, 15 Misc.2d 491 (court, without mentioning usury statute, held that a co-op corporation was entitled to collect a monthly $2 fee for washing machine usage, but not a corresponding $2 late fee for each failure to pay the washing machine fee).

'

Shareholder's Conduct Precludes Reliance on Breach of Warranty

12-14 East 64th Owners Corp. v. Hixon

NYLJ 7/7/15, p. 23, col. 6

AppDiv, First Dept.

(memorandum opinion)

In a co-op corporation's consolidated holdover and nonpayment proceeding, shareholder appealed from the Appellate Term's order upholding a Housing Court award of maintenance to the co-op and denial of shareholder's counterclaims for rent abatement. The Appellate Division affirmed, holding that shareholder's own conduct precluded her from relying on the alleged breach of the warranty of habitability.

Shareholder's apartment was damaged in a flood. In May 2004, shareholder notified the co-op that she intended to make the repairs herself. Then, in August 2005, she changed her mind and demanded that the co-op make the repairs. Meanwhile, she had commenced repairs without the proper application for doing so, and did not tender a repair escrow amount until June 2005, in violation of a separate agreement she had made with the co-op board. Shareholder did not make maintenance payments during this period, and sought a rent abatement for the period between May 2004 and November 2006. The Appellate Term upheld an Housing Court order denying the abatement.

In affirming, the Appellate Division relied on shareholder's misconduct and subsequent delays after the flood. The court emphasized that once shareholder informed the co-op of her intent to make the repairs herself, the co-op “could not have overridden her instructions by making its own repairs.” That, in the court's view, was enough to remove the apartment from the co-op's control, and to preclude a rent abatement until shareholder changed her mind in August 2005. The court then held that shareholder's own misconduct in failing to make the proper applications led to the co-op's failure to restore the apartment to habitable condition, foreclosing shareholder's rent abatement claim.

COMMENT

When a co-op shareholder or other tenant fails to provide access to the landlord to make necessary repairs, tenant is not entitled to a rent abatement for breach of the warranty of habitability. For instance, in Brookwood Mgmt. Co. v. Melius, 14 Misc.3d 137(A), the Appellate Term awarded affirmed a final judgment of possession in favor of landlord, holding that tenant was not entitled to a rent abatement for breach of the warranty of habitability when the proof demonstrated that tenant had denied access to landlord's repairmen.

Courts also have rejected claims and defenses based on breach of the warranty of habitability when the tenant failed to provide notice of the defective apartment conditions and reasonable opportunity for the landlord to address those conditions. For instance, in Matter of Moskowitz v. Jorden, 27 A.D.3d 305, the court dismissed the tenant's warranty of habitability defense and found that the absence of the requisite notice of the alleged apartment defects was fatal to tenant's habitability defense.

'

Bylaws Did Not Authorize Fine for Violation of Guest Policy

Gabriel v. Board of Managers of the Gallery House Condominium

NYLJ 7/13/15, p. 18, col. 6

AppDiv, First Dept.

(memorandum opinion)

'

In an action by condominium tenants against the condominium board to invalidate an amendment to the condominium's house rules, and to invalidate a $500 per day fine for violation of the condominium's guest policy, tenants appealed from Supreme Court's grant of summary judgment to the condominium board upholding the amendment. The Appellate Division modified to invalidate the amendment, holding that the condominium's bylaws did not authorize the house rule.

'

In 2005, the condominium board adopted house rules prohibiting subletting, and in 2007 it adopted a rental and guest policy. Then in 2014, it adopted a new house rule requiring that leases be limited to no more than one year. In this action, the tenants sought a declaratory judgment invalidating those rules, and the $500 a day fine the board imposed for violations of the guest policy. Supreme Court held that the challenges to the 2005 and 2007 rules were barred by the statute of limitations, and held that the 2014 rules were valid as a mere clarification of the bylaws. Supreme Court did, however, declare the $500 per day fine invalid.

'

In modifying, the Appellate Division agreed that the challenges to the 2005 and 2007 rules were barred by CPLR 213(1)'s six-year statute of limitations for declaratory judgment actions. But the court held that the 2014 house rules could not quality as a “clarification” of the bylaw provision prohibiting use of apartments for “transient tenancy.” The court held that the board had failed to explain how requiring leases not to exceed one year was in keeping with the prohibition on transient tenancies. As a result, the court declared the house rule invalid. The court also held that the $500 a day fine was invalid as confiscatory, even though the general power to impose fines was within the board's authority to implement rules and bylaws.

COMMENT

Courts generally uphold sanctions imposed by condominium or homeowner association boards when the organization's bylaws grant the board the authority, in general terms, to impose sanctions. For instance, in Gillman v. Pebble Cove Home Owners Assn. , 154 A.D.2d 508, the court upheld a $25 fine for each violation of the homeowners association's prohibition on parking on private streets within the 48-unit townhouse development. The court emphasized that the bylaws granted the board authority to enact reasonable rules and regulations, and noted that there was no evidence that the regulations, or the fines, were unreasonable or enacted in bad faith.

In seeking judicial enforcement of fines, the condominium board must introduce into the record proof of the alleged violation that gave rise to the liability; introducing proof that fines were assessed and remain unpaid may not suffice. In Board of Directors of the Old Yorktown Village Corp. v. Hitt, 2003 WL 22038417 the court dismissed fines levied against shareholder for violations of house rules and the proprietary lease holding that evidence did not support assessment of fines. The trial court had awarded plaintiff corporation $25 for each of three parking violations, but the Appellate Term reversed because the board, by not including proof of place and time of violations, failed to make out a prima facie case.

Courts have relied on usury laws for guidance in reviewing a condominium board's levying of fines for late payments. Where a late fee exceeds the usury limit of 25% per annum, courts consider it to be unreasonable and confiscatory. In 943 Lexington Ave., Inc. v. Niarchos, 83 Misc.2d 803 the Appellate Term dismissed a holdover proceeding brought by a co-op corporation against a shareholder who failed to pay a rent surcharge of 5% per month for all late payments after the third month of default. The court held that in view of public policy created by usury statutes, a 5% per month late fee, 60% per year, was unreasonable and confiscatory, even though the resolution imposing the fee was adopted by resolution of the co-op's stockholders and board. See also Vernon Manor Cooperative Apartments v. Sabatino, 15 Misc.2d 491 (court, without mentioning usury statute, held that a co-op corporation was entitled to collect a monthly $2 fee for washing machine usage, but not a corresponding $2 late fee for each failure to pay the washing machine fee) .

'

Shareholder's Conduct Precludes Reliance on Breach of Warranty

12-14 East 64th Owners Corp. v. Hixon

NYLJ 7/7/15, p. 23, col. 6

AppDiv, First Dept.

(memorandum opinion)

In a co-op corporation's consolidated holdover and nonpayment proceeding, shareholder appealed from the Appellate Term's order upholding a Housing Court award of maintenance to the co-op and denial of shareholder's counterclaims for rent abatement. The Appellate Division affirmed, holding that shareholder's own conduct precluded her from relying on the alleged breach of the warranty of habitability.

Shareholder's apartment was damaged in a flood. In May 2004, shareholder notified the co-op that she intended to make the repairs herself. Then, in August 2005, she changed her mind and demanded that the co-op make the repairs. Meanwhile, she had commenced repairs without the proper application for doing so, and did not tender a repair escrow amount until June 2005, in violation of a separate agreement she had made with the co-op board. Shareholder did not make maintenance payments during this period, and sought a rent abatement for the period between May 2004 and November 2006. The Appellate Term upheld an Housing Court order denying the abatement.

In affirming, the Appellate Division relied on shareholder's misconduct and subsequent delays after the flood. The court emphasized that once shareholder informed the co-op of her intent to make the repairs herself, the co-op “could not have overridden her instructions by making its own repairs.” That, in the court's view, was enough to remove the apartment from the co-op's control, and to preclude a rent abatement until shareholder changed her mind in August 2005. The court then held that shareholder's own misconduct in failing to make the proper applications led to the co-op's failure to restore the apartment to habitable condition, foreclosing shareholder's rent abatement claim.

COMMENT

When a co-op shareholder or other tenant fails to provide access to the landlord to make necessary repairs, tenant is not entitled to a rent abatement for breach of the warranty of habitability. For instance, in Brookwood Mgmt. Co. v. Melius , 14 Misc.3d 137(A), the Appellate Term awarded affirmed a final judgment of possession in favor of landlord, holding that tenant was not entitled to a rent abatement for breach of the warranty of habitability when the proof demonstrated that tenant had denied access to landlord's repairmen.

Courts also have rejected claims and defenses based on breach of the warranty of habitability when the tenant failed to provide notice of the defective apartment conditions and reasonable opportunity for the landlord to address those conditions. For instance, in Matter of Moskowitz v. Jorden , 27 A.D.3d 305, the court dismissed the tenant's warranty of habitability defense and found that the absence of the requisite notice of the alleged apartment defects was fatal to tenant's habitability defense .

'