Our apartment building is leaking. What are our responsibilities as a board?
“If you are seeing water damage inside the building, you need to immediately establish where the leak is coming from. Regardless of whether it is a co-op or a condo, the board is fully responsible for any water penetration coming in from the facade or roof and your building’s priority is to make the necessary repairs,” says Ian Brandt, a partner at the Manhattan law firm Wagner, Berkow & Brandt who represents co-op and condo boards and owners.
The frequency and intensity of the weather events New York experienced with the remnants of Hurricane Ida are expected to increase, making it even more critical for boards to address flood risk and issues related to water damage as a priority for their residents.
Your first step will be to hire an architect to figure out the cause of the leak, and find out whether it is due to a leaking facade from a construction defect, faulty pipes, bad drains, or if the roof needs to be replaced. Then you need to get bids on the work and employ a project engineer who can oversee the repairs. Next, you’ll establish whether you have insurance coverage.
“Irrespective of the cause—even if the shareholder or owner is to blame—it doesn’t absolve the board from the responsibility to make repairs to the common areas and in some cases, the units,” Brandt says.
A board’s legal obligations
In a co-op, the warranty of habitability mandates that the landlord is responsible for keeping the shareholders' apartments and the building safe and livable at all times. The way co-ops are structured means boards take on a landlord’s responsibility in the eyes of the law. So a board has the same apartment repair obligations to shareholders as regular landlords have to ordinary, non-investing tenants.
“The buck stops with the board,” says Brandt. “When repairs are delayed, the costs can increase exponentially.”
In a condo building, there is no leasehold relationship between the board and the owners, so the warranty of habitability does not apply, though the board may still have a duty to make interior unit repairs, in whole or in part. In any case, however, if there’s flood damage in a condo, the board will want to be involved in establishing where the water is coming from.
“The bylaws will usually outline that the apartment owner is responsible for interior repairs to the apartment but there is usually a contractual provision for a negligence claim where the cause of the water damage originates from the common elements,” Brandt says.
In a situation where a board of managers has knowledge about a common element defect or disrepair that may lead to water infiltration into the units, and such leaks do in fact manifest, the condominium association could be collectively responsible for making interior unit repairs necessitated from that leak.
“If two years later a problem emerges either with catastrophic flood or water damage over time, the board’s knowledge of those preexisting conditions could create a claim against the condo association for negligence,” Brandt says.
Insurance claims for water damage
Once you’ve established the cause of the problem, you will need to figure out the cost of the repairs. Boards typically pay between $50,000 and $100,000 annually in premiums for an insurance policy with coverage up to tens or hundreds of millions of dollars. The purpose of insurance is to receive an indemnity for covered losses, rather than pay for liabilities out of pocket, so your board should be taking advantage of that coverage.
You will also want to see if the affected shareholders have homeowner’s insurance. “That doesn’t shift responsibility—it just might provide an opportunity to get additional money to cover the costs,” Brandt says.
When making a claim, Brandt says boards should challenge their insurance companys’ estimates of what the repairs will cost and the analysis of who they think is responsible. He says that, time and time again, insurance companies improperly minimize or underestimate the homeowners’ associations’ repair responsibilities under the bylaws or proprietary lease responsible, but this is in error. “The board’s obligations to repair are primary and substantial,” he says.
He points out that failure to maintain a property is not something a board is insured against.
In a co-op, the insurance company will often claim the board doesn't have to repair an apartment interior that is not original to the building.
“We’ve seen cases of apartments going unrepaired for years even after the board has notice of uninhabitable water damage but the cost of delaying repairs only increases the cost of those repairs and the shareholder’s damages,” Brandt says.
The cost of delaying repairs
When a board delays repairs and flood remediation, Brandt says the numbers get totally disproportionate and out of control.
“It often comes down to a disagreement over a portion of the repair costs. In addition, co-ops have historically underestimated their repair obligations with these kinds of claims saying the shareholder is responsible for all interior repairs, but that is false,” he says.
Within his law firm, he has seen situations where a $50,000 repair ends up being a multi million dollar lawsuit. He points out that in a co-op, the board can be exposed to a claim from the shareholder for legal fees due to a breach of the proprietary lease. A shareholder may also be eligible for a maintenance abatement which can be a substantial sum. Then there is the issue of where the shareholder lives while repairs to the apartment are carried out.
Brandt says insurance companies have reduced additional living expense benefits for homeowners who are displaced due to apartment damage. That coverage is often now capped at 40 percent of personal property contents so a $100,000 coverage would give a maximum of $40,000.
“That doesn’t go very far if you are a family and you have to move to a hotel,” he says. A board could find themselves picking up the bill, if it does not act promptly and prudently.
Staying on top of repairs
To avoid litigation over water damage, your board needs to be willing and financially prepared to make structural repairs to the building without kicking the can down the road, says Brandt. Roof replacements are a good example of capital investments that will make a board less vulnerable to water damage disputes.
Brandt says, if a managing agent or engineer points out you have a couple more years before the roof needs upgrading, a board should be proactive about getting the work done. “The notion of delaying repairs is very dangerous and could mean a board is liable if a winter freeze and thaw results in leaks that could have been prevented with timely capital investment.
Ian Brandt is a partner at the New York City real estate firm Wagner, Berkow & Brandt. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Ian an email or call 646-780-7272.
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