A recent Barton victory on behalf of a group of tenants with units in a luxury condominium building has reinforced the principle that condo boards cannot skirt their obligations to a minority of unit holders for the financial benefit of the majority.
In Calderoni v. 260 Park Avenue South Condominium, Barton clients and plaintiffs were a group of tenants who owned residential units in the purportedly luxury condominium building at 260 Park Avenue South, located in Manhattan’s Flat Iron District. A few years ago, it became apparent that part of the building’s roof and related drainage systems were causing leaks into the apartments below. This forced the owners of the units to vacate their residences and seek lodging elsewhere.
In a complaint filed in March 2022, plaintiffs claimed that they had “been unable to occupy their respective units for periods of time ranging from around seven months to more than three years, due to a materially deficient rooftop and drainage system causing substantial infiltration of water into their units, rendering them unsafe and uninhabitable.”
The complaint pointed out that, although the condo’s board of managers had a legal duty to repair the leaking roof, as well as the damage to the unit holders’ individual units, the board had not done so, despite having had almost three years to complete the project. The roof restoration had therefore languished in various states of mid-repair. Plaintiffs complained that the board had failed to fund the repairs and that the board was effectively dysfunctional, having also failed to meet the minimum number of required meetings per year, as well as the minimum number of required board members in attendance. Under the condo’s own bylaws, a quorum must be present at meetings for the board to legally transact business.
Plaintiffs therefore sought the appointment of a temporary receiver—a person appointed by the court whose sole job would be to ensure that the necessary repairs were undertaken. In their verbal arguments, the defendants claimed that they had attained enough funds to restart the roof restoration project (although they did not have all of the funds to complete the project). They argued that a temporary receiver was not needed because repairs had resumed. The defendants also claimed that the lack of funding issue was due to the fact that the condo bylaws only allowed the board to issue a $500,000 assessment to the owners per calendar year.
However, plaintiffs pointed out that this $500,000 cap only applied to funds for elective alterations or improvements to the building, e.g., a new gym or a renovated rooftop deck. Barton attorneys argued that the board had an unequivocal obligation under the condominium’s bylaws to maintain, repair, and replace common elements, which would expressly include the roof and drainage systems.
The judge agreed with Barton and its clients, noting that a temporary receiver’s only job would be to make sure that the necessary roof repairs were completed. After granting the plaintiffs’ motion to appoint a temporary receiver, the defendants issued a motion to dismiss. Within this motion, the condo board argued that the original complaint mixed individual and derivative claims, stating that the plaintiffs didn’t have “standing to bring claims on behalf of the common interest individually.”
However, plaintiffs pointed out that the same facts and breaches can give rise to both direct and derivative claims. In this particular case, the roof leak was causing issues for the whole condo building, therefore justifying a derivative claim. Additionally, until the roof was repaired, the damage to the individual units could also not be repaired, thus creating standing for individual direct claims as well. Therefore, the issue at hand was causing harm to both the common interest and the individuals.
Another aspect of the motion to dismiss was the claim that some of the causes of actions were duplicative of the other claims (specifically breach of contract and breach of fiduciary duty claims) because the remedy and damages sought were the same. Plaintiffs retorted that the board’s fiduciary obligations to tenants under the Condominium Act existed separately and independently of the condo’s bylaws and were therefore separate claims. Plaintiffs further added that the condo’s refusal to impose condominium-wide special assessments to fund the roof and unit repairs sacrificed the interest and well-being of the plaintiffs for the financial benefit of the majority of the unit holders.
Ultimately, defendants’ motion to dismiss was denied in its entirety. Although the defendants did file notices of appeal of both orders, they did not seek a stay of enforcement of the appointment of the temporary receiver.
If you have any further questions regarding condominium disputes, tenant rights, or the fiduciary duty of boards of members, please contact Randall Rasey.