Bin There, Done That

May a sponsor enter into license agreements identifying the condominium as licensor and collect storage bin license fees from unit-owners after conversion? The answer was “yes,” according to the court in Residential Committee of the Board of Managers of The Sycamore vs. 250 East 30th Street Owners, LLC.

Formed in September 2003, the condominium consisted of eighty residential units and one commercial space owned by the sponsor. From September 2003 through February 2004, when the first annual meeting of the purchasers of residential units was held and a board of managers consisting of a majority of residential unit-owners was elected, the condominium was fully controlled and managed by the sponsor.

The offering plan and amendments showed that the sponsor had constructed 22 storage bins in the basement of the building. The bins were intended to house the personal belongings of residential unit-owners. Under the provisions of the offering plan, residential unit-owners who wished to use a bin had to pay the sponsor a license fee for the right to enter into a storage bin license agreement with the condominium.

A schedule to the offering plan set forth the license fee for storage bins payable to the sponsor: $15,000 for large storage bins and $7,000 for small ones. The storage bin license agreements also provided for payment of a monthly fee to the condominium, which the bylaws set at $10 per month for the first three years of operation, after which the board could increase the fee in accordance with the cost-of-living index. All provisions of the offering plan, including those relating to the bins, were adopted and incorporated into the agreements signed by each purchaser of a residential unit.

As of the date of the court’s decision, six residential unit-owners had paid the sponsor a license payment and had entered into agreements. Those were between “the Residential Committee of the Board of Managers of The Sycamore Condominium,” as licensor, and the individual residential unit-owner, as licensee. Each of those were signed on behalf of the condominium by the then-president, who was a sponsor representative. The remaining storage bins were available to be licensed.

The declaration contained several provisions relating to the bins. Specifically, it denominated the storage bins and the storage area in which they were located as residential common elements under the control of the condominium.

The declaration also specifically delegated to the condo the right to regulate access to and use of the bins. Finally, the declaration stated: “The affairs of the Residential Area shall be governed and controlled by the Residential Committee, as described in the bylaws. When the Residential Committee is authorized or obligated to act it shall be acting on behalf of all Residential Unit-Owners.”

Under the offering plan and declaration, a unit-owner who is a party to a storage bin license agreement has the right, when selling a residential unit, to assign the license agreement to the purchaser. The offering plan and declaration note that, if a unit-owner sells a residential unit without assigning the storage bin license agreement to the purchaser, the right to use the bin reverts to the condominium. The offering plan and declaration grant no such reversionary right with respect to unsold storage bins.

Several years after the condominium became effective, the condo contested the provisions of the offering plan requiring the payment of a storage bin license fee to the sponsor and urged the court to deem the arrangement in violation of law, deny the sponsor its right to collect storage bin license payments, and direct the sponsor to return fees received from certain residential unit-owners.

The condo began an action against the sponsor, moving for summary judgment on its first, third, and fourth causes of action. In the first, it sought a declaration that the condominium was entitled to enter into storage bin license agreements with unit-owners without requiring the licensees to pay a fee to the sponsor. In its third cause of action, the condominium alleged that sponsor representatives used several of the storage bins for the storage of their personal property without the condo’s permission or consent, without a license from the condo, and without the payment of any license fee. The condominium sought payment for the fair use and occupancy of the storage bins by those defendants. In the fourth cause of action, the condo sought the release of all license payments received by the sponsor.

The sponsor cross-moved for summary judgment for a declaration that the sponsor was entitled to collect a storage bin license fee for the remaining storage bins. Specifically, the condo contended that the bins were located in the residential common elements that were owned by the residential unit-owners and were to be regulated by the condominium. The condo claimed that it was therefore the only party entitled to charge a fee for the use of bins. It also asserted that the imposition of the license fee to the sponsor was contrary to the provisions of the Condominium Act and the declaration.

For its part, the sponsor claimed that, under the offering plan, the sponsor had the right to collect storage bin license payments and had the right to continue to do so with respect to the remaining storage bins. It claimed that the arrangement was long-standing, clearly disclosed in the offering plan, and adopted by the purchase agreements.

Addressing the parties’ arguments, the court said that the offering plan, the declaration, and the bylaws formed part of a single transaction and were required to be read together and reconciled. The documents established that a purchaser of a residential unit desiring access to a storage bin had to execute a storage bin license agreement with the condo and pay the sponsor a fee for the privilege of entering into the agreement. The condo’s position violated the principle that courts should adopt an interpretation of a contract that gives meaning to every provision of the document, with no provision left without force and effect. Thus, the sponsor had the right to collect storage bin license fees.

The condo next argued that letting the sponsor determine whether there would be access to the storage bins was in direct conflict with the provisions of the Condominium Act. The court explained that after a parcel of real property became a condominium, it was subject to the jurisdiction of the Condominium Act. Once created, the administration of the condo’s affairs was governed principally by its bylaws. Those were, in essence, an agreement among all of the individual unit-owners as to the manner in which the property would operate, and which set forth the respective rights and obligations of unit-owners, both with respect to their own units and the condo’s common elements.

The court disagreed with the condo’s argument and found that a close reading of the Condominium Act revealed no provision prohibiting the scheme set forth in the offering plan.

Moreover, the court noted that the plan had been submitted to the attorney general’s office for review and comments. Only after the attorney general was satisfied could the plan have been accepted for filing and the sales of units allowed. Here, the offering plan underwent extensive attorney general review and the storage bin scheme was prominently disclosed in the offering plan. Since reviewing courts are required to give substantial deference to the attorney general’s review of offering plans, this was another basis upon which to deny the condo’s claims.

Further, the condo could not complain that the offering plan had “no relevance” after the residential unit-owners purchased their units and the offering was completed. Every residential owner who purchased a unit from the sponsor agreed to the terms and conditions of the offering plan, which included many references to the storage bins.

The court also addressed the condominium’s contract construction claims, ultimately finding that the offering plan, declaration, and the bylaws were unambiguous, not inconsistent, and designed to effectuate the same purpose and were part of the same transaction. The offering plan and bylaws contained a number of relevant provisions. For example, the offering plan provided that the condo may charge a “nominal” monthly fee under the storage bin license agreements and the bylaws set that amount. The offering plan also made clear that upon resale of units, storage bins not transferred to purchasers were to revert to the condominium.

The court explained that New York law “requires that all writings that form part of a single transaction and are designed to effectuate the same purpose be read together, even though they were executed on different dates and were not all between the same parties.” A condominium offering plan, declaration and bylaws are integrated documents that are intended to be read together.

New York’s highest court had consistently held that “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.” Construction of an unambiguous contract is a matter of law, and the intention of the parties may be gathered from the four corners of the instrument and should be enforced according to its terms. Courts must “construe the agreements so as to give full meaning and effect to the material provisions” and should not adopt an interpretation that would leave any provision without force and effect. Furthermore, the court noted, a contract should be “read as a whole, and every part will be interpreted with reference to the whole; and if possible it will be so interpreted as to give effect to its general purpose.”

The court said it was apparent that the offering plan, as adopted and incorporated into the purchase agreements, was clear and unambiguous, and that it should have been enforced according to its terms. Reading the plan, the declaration, and the bylaws together as one instrument, it was also clear that there was no conflict between these documents, notwithstanding the condominium’s claim that the terms of the offering plan conflicted with that part of the declaration that delegated to the condominium the sole authority to regulate access to and use of the storage bins. However, nothing in the declaration or bylaws limited the sponsor’s right to collect a bin license payment from residential unit-owners for the privilege of entering into a storage bin license agreement. Indeed, the condominium conceded that, other than the $10 monthly fee, “nowhere else in the Declaration or the Bylaws is there any mention whatsoever of any other fees.” Silence on an issue does not constitute contradiction. Moreover, the reference to the monthly fee in the bylaws supported the arrangement described in the offering plan.

Finally, the court noted, any suggestion that the condominium was not obligated to enter into license agreements with those unit-owners who wished to do so was contradicted by the express terms of the governing documents. The offering plan stated that the condominium “will license the use of storage bins to unit-owners who purchase the right to such license under this offering plan.”

In addition, under the declaration, the condominium acted as an agent of residential unit-owners for all purposes: “When the Board of Managers is authorized or obligated to act, it shall be acting on behalf of unit-owners in the Condominium.” Accordingly, under the plain provisions of the offering plan and the declaration, the condominium was obligated to follow through on the ministerial act of entering into storage bin license agreements with unit-owners who wished to do so.

The court granted the sponsor’s motion for a ruling that it is entitled to continue to license storage bins in accordance with the arrangement set forth in the offering plan.

Comment: The offering plan disclosed that, even though the condo would be responsible for maintaining the storage bins, all of which were located in an area controlled by the condominium, it was the sponsor that was entitled to reap the financial benefits of selling licenses to the storage bins.

The court applied standard rules of contract interpretation when construing all of the documents, found that the documents were unambiguous and that they did not contradict one another and concluded that it had no choice but to hold the parties to their terms. The condominium’s argument that the offering plan, itself, was irrelevant because the conversion had taken place was rejected, at least in part because many of the unit-owners purchased from the sponsor and entered into purchase agreements which adopted and incorporated the terms of the offering plan.