Answer:
“The warranty of habitability mandates that a co-op board is responsible for keeping the apartments and building safe and suitable for residential use,” says Ian Brandt, partner at the Manhattan real estate law firm Wagner, Berkow & Brandt.
The board has statutory obligations not only from the warranty of habitability but also under the state’s Multiple Dwelling Law and the city’s Housing Maintenance Code to keep the building in good repair.
“Plus, it’s in everyone’s financial interests to maintain the building because allowing it to fall into disrepair makes the building less desirable to buyers, lowering resale values of apartments,” Brandt says.
The proprietary lease also sets out the shared obligations to look after the building.
If you’re the owner of the affected property
If you’re the owner of an apartment that’s in disrepair, you need to get your co-op board to make the necessary building repairs. It’s not unusual for a co-op board to pass the blame to shareholders when it comes to issues like water damage in an apartment. This can result in a dispute between the shareholder and the board about who should pick up the cost of repairs.
Brandt says the best thing a board can do is to assume all of the repairs necessary to ensure that essential services are provided. "The apartments need to be wind and water-tight and safe to live in," he says. The finger pointing can take place later.
“The longer the conditions are allowed to exist the more difficult it is to reach a solution between the parties and the bigger the stakes become. The passage of time increases liability and cost. First, the board needs to fix the problem, then they can focus on liability,” he says.
Co-ops typically have large insurance policies and they should be using them, Brandt says. “The purpose of insurance is to receive an indemnity for covered losses, rather than pay for liabilities out of pocket.”
However, a lack of maintenance may result in coverage being declined—which is why continual upkeep is so important.
If the board is refusing to make repairs, you can sue. “We do these cases all the time,” Brandt says. The starting point is a letter from your lawyer detailing the issues and demanding steps be taken. If the board is willing to engage with you, you may have solved the problem but if they ignore you it may be time to consider legal action.
There are several different types of lawsuits that might be brought, Brandt says. "For example, you can bring a Housing Part (HP) in which you seek to have the city enforce the law and the co-op board comply with it. These are relatively inexpensive lawsuits and can be very effective," he says. As a shareholder you can also withhold maintenance charges and when the co-op takes you to court, you can ask for an abatement and repairs.
Supreme court action is also available but may not be as quick or cost effective. If a board loses any of these cases, they may have to pay a shareholder’s legal fees.
If the board continues to dig its heels in, Brandt says it’s probably a good time to vote the board out.
If you’re a shareholder who doesn’t own one of the apartments
If you are a shareholder in a co-op building with apartments in disrepair, one of your primary concerns is probably board mismanagement.
If the co-op is owned by the board, it could be generating an income for the building by being rented out. “If the co-op is letting these precious investments, either as sales or rental opportunities, go unused, that could be considered corporate waste,” Brandt says.
In these circumstances, you have the option of proceeding with a derivative action in New York Supreme Court. This is the term used to describe legal action taken by a minority shareholder as a representative of all of the other stakeholders against others within a company. "It would be an expensive option but with the right legal representation, you can begin a lawsuit on behalf of the co-op against the board," Brandt says. The outcome could result in a financial settlement and compensation and again, if you’re successful, the judge may award legal fees to be paid by the co-op or the defendants.
Supreme Court cases require expert testimony. For example, you may need a structural engineer, a sound expert, an architect or a roof specialist to explain to the court the source of the damage and its scope. It is sometimes possible to have the city place violations and to use the city’s inspectors to give testimony about violations of law.
Don’t expect all shareholders to be on board. Some people don’t like bringing lawsuits, particularly against their neighbors.
“You may also face opposition to the suit from the board with the business judgment defense, namely that the board acting in good faith has the right to decide how to maintain the building,” Brandt says. However, the board cannot disregard the law and refuse to make repairs that are clearly in violation of state and city laws.
If a majority of shareholders agree that the building is being run down, this kind of legal action would probably go hand in hand with a fight over control of the board.
“That’s when you use the election process to change the way the co-op is run,” Brandt says.
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.
