Prophets and Loss

Does the fact that there were leaks into an apartment automatically render the cooperative corporation liable for damages? That was the issue before the court in Loss v. 407-413 Owners Corp.

Plaintiffs Gregory and Eileen Loss purchased the shares of the defendant cooperative corporation, 407-413 Owners Corp., in February 2004. A prior owner (not the immediate seller), added a board approved additional room (extension) to the apartment. The apartment is on the top floor of the building.

During the summer of 2004, the Losses began experiencing leaks in the kitchen and living room. The Losses asserted that they immediately reported the leaks to defendant Harriet Kyrous, who is an officer of defendant Kyrous Realty Group, the co-op’s managing agent. Kyrous and the superintendent inspected the apartment and, after there were several leaks, made a hole in the ceiling to alleviate the pressure. The Losses claimed that the leaks continued.

In early 2005, the Losses began writing letters, complaining about the leaks. Between February and May 2005, the building’s architect, ARC, was sent to the apartment on four occasions. ARC made four reports recommending certain repair work, but – according to the Losses – the co-op did not do the work to remedy the leaks. The Losses said future damage was predicted by these experts on the first examination. They claimed that, by October 2005, the leaks were so bad that they had to use industrial-sized trash cans to catch the falling water.

According to the ARC reports, ARC could not definitively determine the source of the leaks but believed that they might be caused by the skylight in the Losses’ bathroom or by decking on the penthouse level outside the apartment. The skylight and decking were both installed by prior owners of the apartment. Also, ARC indicated that there were no signs of leakage on the Losses’ kitchen ceiling, but noted water stains on the wood joists, indicating that some leaking had occurred.

In October 2005, defendant Frederick Horen, who was the board president, viewed the apartment. He indicated that he would remedy the situation. In December 2005, the leaks continued. The Losses wrote to the board and expressed concern about the presence of mold in the apartment. The Losses had small children and Mr. Loss allegedly suffered from asthma and sinusitis. In early 2006, the board said that it would have mold testing done. It also caused a tarp to be placed over the bathroom skylight to determine if that was the source of the leak.

The mold inspection report was completed in March 2006. There were borderline levels of mold contamination, but the report also indicated that mold was present in most, if not all, indoor and outdoor environments. The reports stated that there was an indication of leaks into the apartment, but that the source was not apparent. It recommended that the ceiling plenum be sealed off until the source could be determined. The Losses contacted a contractor to obtain an estimate for removal of the mold, which they forwarded to the board.

The Losses claimed that the board said it would do no further work until it was determined who was to pay for the repairs. Eventually, the Losses paid for the removal of the decking and, allegedly, the board agreed to pay for a majority of the repairs. The work began in June 2006.

The Losses asserted that because the cause of the leaks emanated from the exterior of the building, the board should have to pay for the repairs and damage. The cooperative claimed that the cause of the leaks was still unknown – it could have been the Losses’ bathroom skylight or the windows and doors leading to the deck, which were installed by an earlier owner. Therefore, the cooperative argued, it was the Losses’ responsibility.

The Losses maintained that the leaks were continuing and that the co-op had failed to make any additional repairs since the lawsuit was filed in 2007. The Losses claimed that the leaks caused severe damage to their apartment, caused health problems for their family, and made the apartment uninhabitable. The Losses continued to make their maintenance payments when due.

The cooperative explained that, between 2005, when the Losses made their first written complaint, and June 2006, it made localized repairs in an attempt to locate the source of the leaks. In June 2006, the defendants authorized the repairs recommended by a contractor found by the Losses. That included masonry and stucco work, and copper wall-through flashing repairs. This appeared, temporarily, to resolve the problem. The defendants further claimed that the Losses refused to vacate the apartment to allow for treatment of the mold. The court noted that the apartment would have had to have been vacated in order to perform the mold work safely.

According to Kyrous, repairs had been done to the walls and roof in 2005, additional repairs were performed in 2006, as were inspections and water tests. As of the date of the court’s decision, there was still no definitive answer about the cause of the leaks.

In the motion before the court, the Losses sought summary judgment with respect to the following claims: breach of contract against the co-op; breach of fiduciary duty against all defendants; nuisance against certain defendants; trespass against certain defendants and breach of the warranty of habitability against the co-op.

The court discussed the long-standing rules concerning summary judgment, noting that the proponent of a motion must make a prima facie showing of why he is entitled to judgment as a matter of law. The party making the movement had to tender sufficient evidence to eliminate any material issues of fact.

Once the party making the motion met that burden, the burden shifted to the opponent to present evidence in admissible form to raise a genuine issue of fact that could be explored at trial. The court explained that if there were any doubt about the existence of a fact for trial, summary judgment must be denied.

The Losses moved for summary judgment based on breach of contract, i.e., the proprietary lease. The proprietary lease in question required the co-op to care for and repair the exterior of the building. The Losses argued that, because the leaks still existed, the co-op had failed to meet its contractual obligations. Relying on a case decided in 2005 by an appellate court in another action, the court determined that, since the source of the leaks was still undetermined – and because there was evidence that the leaks could have been caused by the previous owner’s installation of a skylight or windows and doors to a deck – questions of fact existed as to who was responsible for remedying the problem. Further, the repair work performed by the co-op may have been enough, since the source of the leak was unknown. Accordingly, the court denied the Losses’ motion for summary judgment based on the theory of breach of contract.

The court also denied the Losses’ motion for judgment on their breach of fiduciary duty claim. The court first discussed that the Business Judgment Rule protected board actions from judicial review so long as the board acted for the purposes of the co-op, in good faith and within the scope of its authority.

The court then quoted from a recently decided appellate case in another matter: “Plaintiffs disagree with the board’s decisions as to the costs, means, allocation and methods employed in making repairs to the building, but fail to adduce evidence of self-dealing, fraud or other acts constituting a breach of fiduciary duty sufficient to overcome the Business Judgment Rule.” The court did not grant judgment on the Losses’ claim for breach of fiduciary duty.

The court also denied the Losses’ attempt to obtain judgment on their cause of action for nuisance. The court explained that the elements of private nuisance were (1) an interference substantial in nature; (2) intentional in origin; (3) unreasonable in character; (4) with a person’s property right to use and enjoy land; (5) caused by another’s conduct in acting or failing to act.

The court found that there was no evidence that the defendants intentionally caused the leaks or that they totally failed to remedy the situation. The court also denied the Losses’ motion concerning trespass as such a finding would have been premature until the source of the leaks was discovered.

As to the Losses’ warranty of habitability claim, the court described a warranty of habitability – “first, that the premises are fit for human habitation; second, that the condition of the premises is in accord with the uses reasonably intended by the parties; and third, that the tenants are not subjected to any conditions endangering or detrimental to their life, health or safety.”

The court explained that the warranty may be breached even if the tenant-shareholder remained in the apartment. However, there was a question of fact as to whether the conditions in the apartment were so severe that a reasonable person would find that the warranty of habitability had been breached.

Comment: This case illustrates the due diligence purchasers should perform if they buy a cooperative or condominium apartment. When buying, it is important to learn whether a prior owner performed work in the unit, whether the work was authorized by the cooperative, and who is responsible if the work requires repair or causes damage to your apartment or any other part of the building.Although not specifically discussed in this case, it appears as if this cooperative’s proprietary lease would require the tenant-shareholder to be responsible for repairs and any damage caused in the event the leaks were emanating from alterations performed by a prior owner.

In addition, this case explains that a cooperative’s diligent efforts to locate the source of leaks, and to make repairs as directed by proper professionals, may create an issue of fact as to whether there is a viable claim for breach of the warranty of habitability, breach of contract, breach of fiduciary duty, and other claims.

As a practical matter, we propose that, in most situations, if there are leaks into an apartment, a cooperative immediately attempt to address those leaks and leave the issue of who is responsible for paying costs associated with the work until after the repairs have been completed. H

Attorneys at the Bar For Plaintiffs: Chadbourne & Parke

For Defendants
Molod, Spitz & DeSantis