Advisories

Unit Owner May Recover Damages From Another Unit Owner  Under Indemnification Provision of Alteration Agreement

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UNIT OWNER MAY RECOVER DAMAGES FROM ANOTHER UNIT OWNER  UNDER INDEMNIFICATION PROVISION OF ALTERATION AGREEMENT

The plaintiffs own a condominium unit and the defendant owns the penthouse unit above plaintiffs’ unit. In connection with renovations in the penthouse, defendant signed the Condominium’s alteration agreement. The alteration agreement provided, in relevant part: “Owner hereby indemnifies and holds harmless the Board, the Board’s architect or engineer, and other Owners and residents of the [Condominium] against any damages suffered to persons or property as a result of the Work, whether or not caused by negligence, and for any and all liabilities arising therefrom or incurred in connection therewith. Owner shall reimburse the Board, the Board’s architect or engineer, and other owners or residents of the [Condominium] for any losses, costs, fines, fees and expenses (including, without limitation, reasonable attorneys’ fees and disbursements) incurred as a result of the Work.” The alteration agreement further provided that Owner would “bear any and all costs for any plumbing, leaks or other conditions which cause damage to adjacent apartments in the [Condominium], if such leakage or damage results from the alterations made or equipment installed as part of the Work.”

During the renovation of the penthouse, defendant’s contractor failed to bypass a radiator, causing a pipe to freeze and crack, flooding plaintiffs’ unit as well as several other units in the building. Plaintiffs sued defendant for the damage to their apartment and moved for summary judgment on the issue of liability, arguing that defendant was required to indemnify them under the terms of the alteration agreement.

The court sided with plaintiffs and rejected the defendants’ arguments in opposition to the summary judgment motion. For example, defendant argued that because plaintiffs were not parties to the alteration agreement, they could not authenticate the document and therefore could not rely on it. However, defendant’s own opposition papers referred to the alteration agreement, so defendant could not deny the agreement’s existence or its contents.

Defendant argued that the alteration agreement is invalid based on New York public policy and a statute providing that a party may not be indemnified for its own negligent conduct. However, the court held that this was not a situation in which a party sought indemnification for its own negligence. It was undisputed that the plaintiffs were not present in the Condominium at the time of the flood, but were residing at their other residence outside New York. As such, any suggestion that plaintiffs might have caused the damage was “completely speculative.”

Plaintiffs had provided documentation, including reports from the Condominium’s security officer and from the emergency repair contractor, showing that the bypassing of the radiator during defendant’s renovation work caused the flooding. Once properly authenticated, these documents would be sufficient to support granting summary judgment to plaintiffs on the issue of liability.

COURT GRANTS CONDOMINIUM BOARD’S MOTION TO APPOINT RECEIVER OF UNIT WHOSE OWNER WAS NOT PAYING COMMON CHARGES

In previous issues of this Client Advisory we have discussed remedies available to a Condominium Board of Managers when a unit owner fails to pay common charges over an extended period. In an increasing number of cases where the facts warrant such relief, courts are appointing receivers for such units.

In Matter of Board of Managers of 20 Pine Street Condominium v. MN Pine St., LLC, 2017 N.Y. Misc. LEXIS 4414, 2017 N.Y. Slip Op. 32403(U) (Sup. Ct. N.Y. Co. Nov. 13, 2017), the Board of Managers had secured a money judgment against a unit owner for $20,750, and the unit owner was indebted to the Board for another $125,000 in additional common charges and fees that had not yet been reduced to judgment. The Board of Managers sought “the appointment of a receiver in order to satisfy the judgment debt and recover all other indebtedness owed to it” by the Unit Owner.

The court found that the Board “has adequately demonstrated its interest in the unit, and shown that there is a danger of irreparable loss and damage to the unit in the absence of a receiver, since [the Unit Owner] is a limited liability company, and unless [the Unit Owner] leases out the unit, which it has failed to do, there will be no one residing therein to maintain and care for the unit. In addition, since [the Unit Owner] has failed to keep its obligations to the [Board] current, and the [Board] has shown that there is little or no likelihood that it will be able to collect the judgment against [the Unit owner] or recover the additional charges that have accrued since the entry of the judgment, the [Board], in the absence of a receiver to effectuate a rental or sale, would have to forego income that is necessary to pay taxes, utilities, and building staff. Hence, the appointment of a receiver is warranted.” The court’s order authorized the receiver to take actions including retaining a broker to find a tenant for the unit, lease the unit, collect rent, and remit the common charges to the Condominium. The receiver was also authorized to sell the unit.

CONDOMINIUM BOARD THAT PREVAILED IN LITIGATION AWARDED ATTORNEYS’ FEES, BUT NOT “FEES ON FEES”

A Condominium Board of Managers and the Sponsor had a dispute that resulted in litigation. The parties entered into a settlement agreement that provided, among other things, that if either party had to bring an action in court to enforce the settlement, “the prevailing party in such action shall be entitled to recover all costs and expenses, including … reasonable attorneys’ fees and disbursements, incurred in connection with the prosecution or defense of such action …. ” The condominium sued the sponsor for breach of the settlement agreement, prevailed on appeal, and then sought an award of attorneys’ fees.

The court held that the Condominium was the prevailing party in the litigation and was entitled to recover its attorneys’ fees as provided in the settlement agreement. The court also held that the Condominium was entitled to 9% interest on the attorneys’ fee award, beginning on the date the Condominium prevailed on its appeal. The Sponsor’s argument that the settlement agreement did not provide for interest was rejected, as the subj ct of interest on judgments is governed by statute.

However, the Condominium’s attorneys’ fees award would be limited to the fees incurred in the underlying litigation and appeal, and would not include the attorneys’ fees incurred in connection with the motion to recover attorneys’ fees. Under New York law, the court held, an attorneys’-fee clause must “explicitly provide” for recovery of “fees on fees’ before they may be awarded, which the clause in this case did not. The case was referred for a hearing on the amount of reasonable fees to be awarded. Park Union Condominium v. 910 Union Street, LLC, 2017 N.Y. Misc. LEXIS 4545, 2017 N.Y. Slip Op. 32487(U) (Sup. Ct. N.Y. Co. Nov. 22, 2017). 

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