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Unit Owner May Not Dispute Charges Based Upon Improper Board Composition When It Never Previously Objected

A recent decision from the Appellate Division, First Department holds that a unit owner may not dispute its obligation to contribute to the Condominium’s expenses on the ground that the Board of Managers was constituted improperly, where the unit owner was aware of the Board’s composition at all relevant times but failed to object to it or to seek representation on the Board. Board of Managers of the 120 E. 86th St. Condominium v. Park Ave. Physicians Realty, LLC, 2018 N.Y. LEXIS 2502, 2018 NY Slip Op 02543 (1st Dep’t Apr. 12, 2018).

The Condominium in this case is a “cond-op” comprising a Residential Unit (cooperative), a Retail Unit, and a Professional Unit. The By-Laws provided for a five-member Board of Managers comprising three members from the Residential Unit, one from the Retail Unit, and one from the Professional Unit. Despite this provision, for more than ten years the Professional Unit was not represented on the Board.

In 2013, the Board of Managers voted to borrow money to modernize the elevator and make façade repairs. The Board also voted to expend funds on other improvements.  The Professional Unit was assessed for its share of the costs, and when it did not pay in full, a lien was placed on the Professional Unit.  The Board of Managers then sued the Professional Unit Owner to foreclose on the lien.  The Professional Unit counterclaimed seeking a declaratory judgment that “because [the Professional Unit] was never represented on the board, the existing board was a nullity and that a new board should be constituted” on which the Professional Unit would be represented.  The counterclaims further alleged “that the board, in violating the bylaws provisions concerning board composition, breached its fiduciary duty, such that any and all charges imposed on [the Professional Unit] related to the 2013 building improvements lien should be reversed, the lien removed, and punitive damages assessed….”

The Board of Managers opposed the counterclaims, arguing that the Professional Unit “has no basis for protesting its lack of representation on the board because it neglected to assert its right to be represented over a period of 10 years.” The appellate court sustained the Board’s position, noting that the Professional Unit Owner “present[ed] no evidence that it was deliberately excluded from representation on the board.  Moreover, there is no evidence that it ever invoked its right to be represented but was rebuffed.”  While the Professional Unit Owner asserted that it did not know of its right to be represented until recently, this right was clearly stated in the By-Laws.

However, the court held that further proceedings would be needed on a separate counterclaim involving financing for the assessment. In this counterclaim, the Professional Unit Owner asserted that “the board engaged in self-dealing by arranging for the Coop to finance its share of the improvements while requiring the professional and retail units to either pay directly or arrange their own financing.”  The court found that the Board had not, at this stage of the litigation, established that it “advanced a legitimate interest of the Condominium” when the Board arranged financing for one of the three unit owners but not for the other two unit owners.