Liable for Legal Fees

In Miller vs. 965 Fifth Avenue Owners Inc., a Manhattan co-op was liable not only for its legal fees, but also for those of its shareholder and the subtenant occupying an apartment that required remediation for a mold condition resulting from a terrace drainage problem.

The building in this proceeding was a co-op owned by 965 Fifth Avenue Owners Inc.; 965 Associates was the proprietary lessee of a rent-stabilized apartment. A proceeding that seeks an order to correct violations of the Housing Maintenance Code is known as an HP (Housing Part) action/proceeding, and a tenant or the New York City Department of Housing Preservation and Development may start it. By notice of motion dated August 19, 2005, the stabilized tenant sought legal fees as the prevailing party, and in opposition the shareholder cross-moved against the co-op for any legal fees that might be awarded in the tenant’s motion.

It was undisputed that some time in September or October 2004, the co-op and shareholder were notified of flood/water damage and a mold condition in the shareholder’s apartment. In November 2004, Mold Terminators, a mold remediation firm hired by the co-op, found high levels of allergenic mold in the library, first bedroom, and kitchen. It recommended the elimination of all leaks, vacuuming and biocide washing of the entire apartment and contents, the removal of 1,050 square feet of wood flooring, the removal of all ceiling plaster from contaminated rooms, the application of mold free paint to substrata, the dry cleaning of all clothing, and discarding the mattress and all foam furniture. It appeared that months of negotiations between the parties did not resolve the flood/water damage and mold condition; as a result, the tenant began the proceeding in March 2005. The shareholder’s answer included a cross-claim against the co-op for contribution/indemnification, and on June 24, 2005, the parties entered into a consent order.

According to the co-op, despite its attempt to negotiate with all of the parties in good faith so as to avoid litigation, the tenant’s decision to begin the proceeding was made in bad faith and merely to obtain relocation expenses incurred while the remediation was being done. The tenant, however, argued that, after waiting six months for the repair and remediation to begin, he had no choice but to commence this proceeding. He also stated that his request for reimbursement of any relocation and storage expense incurred during the repair and remediation period was merely ancillary to the main prayer for relief (i.e., flood/water damage and mold).

The shareholder, in turn, argued that the flood was caused by the co-op’s failure to provide proper drainage from the terrace above the subject premises, which was outside the shareholder’s dominion and control and solely the co-op’s responsibility under the proprietary lease. Under the consent order, neither the co-op nor the shareholder conceded liability; however, the co-op agreed to perform all repairs and remediation; the shareholder “reviewed the contract for restoration of the premises ... and agreed to and approve[d] the scope of work contained therein,” and the issue of relocation and storage costs was reserved for future litigation in another forum.

Although the exact details of the parties’ negotiations leading up to the start of this proceeding were in dispute, the fact remained that as of March 2005, more than five months after initially being notified, work on the flood/water damage and the remediation of the mold condition had not been completed. And despite the non-admission to liability in the consent order, it was the responsibility of both the co-op and the shareholder to keep the subject premises in good repair and to comply with the requirements of the Housing Maintenance Code.

The fact also remained that, in the end, there was a court-ordered stipulation to abate the very condition giving rise to this tenant-initiated code enforcement proceeding brought against the co-op. Specifically, the co-op had agreed to perform all of the work and remediation, which the shareholder reviewed and agreed to, and the tenant’s entitlement to attorney fees was reserved for future determination by the court. According to the consent order, all other claims were reserved for litigation in other appropriate forums.

Accordingly, the shareholder was the prevailing party entitled to attorney fees under the rent-stabilized lease. As there was no privacy of contract between the tenant and the co-op, the shareholder was not entitled to attorney fees as against the co-op. However, as it appeared to the court that the flood/water damage and mold were caused by factors outside the shareholder’s control and ultimately the responsibility of the co-op under the proprietary lease, and the co-op had agreed in the consent order to perform all repairs and remediation, the shareholder had prevailed in its cross-claim and was entitled to attorney fees under the proprietary lease as against the co-op. Therefore, upon completion of all repairs and remediation, the tenant and the shareholder could restore the proceeding for a hearing to determine the proper amount of reasonable attorney fees.

Comment: The failure of the co-op in this case to promptly abate a mold condition of which it was aware and responsible to repair for several months ended up costing the co-op more than it would have if it had acted promptly. As a result, it was forced to incur not only its own legal expenses to deal with the abatement, but also those of its tenant-shareholder and the subtenant-occupant of the damaged apartment. The lesson here for co-op and condo boards and their managers is to promptly remediate mold conditions once they are disclosed. Delay only increases the cost of solving the problem and increases the legal expenses.