Board Violated Proprietary Lease by Rejecting Installation of HVAC Unit
While the protections afforded to co-op and condo boards are substantial, as reflected in the case discussed above, they are not unlimited, as illustrated by Lemberg Foundation, Inc. v. Shuttleworth Artists Ltd., Index No. 651734/2021, 2022 NYLJ LEXIS 791 (Sup. Ct. N.Y. Co. July 22, 2022).
Plaintiffs brought this action against a cooperative board, the board of directors, and the cooperative’s directors individually. Plaintiffs asked the court to order defendants to approve their installation of an HVAC system on the roof or façade of the Cooperative’s building. The defendants defaulted in the action by failing to respond to the summons and complaint in a timely manner. Defendants’ excuses for their default, including that the parties were engaged in settlement discussions and that their attorney had a series of medical and personal issues, were insufficient to set aside the default.
Despite the default, the court was still required to review plaintiff’s papers to decide whether they had pleaded a valid claim. The proprietary lease provided in relevant part that alterations were subject to board approval, “which consent shall not be unreasonably withheld.” Plaintiffs asserted that they had sought the board’s consent since 2016 and that they had hired architects, presented design plans, and purchased a noise-reducing HVAC unit, but that “defendants repeatedly refused to grant permission to plaintiffs and gave no reasoned explanation.” Moreover, the court observed that even in response to plaintiffs’ court papers, defendants failed to explain why they denied defendants’ requests, nor did defendants identify any other tenant-shareholder who objected to plaintiffs’ request to install the HVAC unit. The court rejected defendants’ argument that the proprietary lease prohibited plaintiffs from installing equipment on the roof of the building. The proprietary lease authorized the Cooperative to install equipment on the roof, but this did not mean that plaintiffs could not also do so. The court held that plaintiffs were entitled to specific performance (equivalent to a permanent mandatory injunction) allowing them to install their HVAC unit on the roof and requiring defendants to apply for the permits necessary for plaintiffs to do so. The court also held that plaintiffs could recover their out-of-pocket expenses caused by the board’s violation of the proprietary lease, including attorneys’ fees incurred after the date by which the board’s continued withholding of consent to the HVAC installation became unreasonable. However, the court dismissed plaintiffs’ claims against the individual directors, because no breach of fiduciary duty by the directors in their personal capacity had been shown.