Good News for Condos

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In any co-op or condo building, one troublesome inhabitant can poison the well of communal life. For various reasons, co-op boards have been far better equipped to address this problem than condos. Now, that situation may be changing.

Residential life in cooperative and condominium communities necessarily entails a certain level of social intimacy, interaction, and interdependence among building residents, who must live together and share common facilities on a daily basis. All cooperatives and condominiums maintain rules, regulations, and bylaws that set forth certain behavioral guidelines. However, one of the marquee differences between co-ops and condos is that co-op boards have a strong arsenal of provisions in their proprietary lease to control misconduct by tenant-shareholders, their guests, or subtenants, whereas condo boards are relatively powerless in this respect.

This difference stems from distinct legal definitions.

A co-op board, acting as landlord, can evict problematic tenant-shareholders under the terms of the proprietary lease. The board can do this by terminating a shareholder’s tenancy and initiating holdover proceedings on the grounds of illicit activity or violation of the cooperative’s rules. The vast majority of proprietary leases also contain a process for termination of the tenancy and eviction of the apartment’s occupants based upon chronic “objectionable conduct” by the tenant-shareholder, his guests, or subtenants. Popularly known as “Pullman Proceedings” (because of a case in which a board successfully evicted shareholder David Pullman for bad behavior), this process is followed by the co-op’s cancellation of the tenant-shareholder’s stock certificate and resale of the stock and lease on his behalf.

Conversely, condominium ownership is a form of common-interest property ownership where boards are not in a landlord-tenant relationship with the unit-owners. Because a condo does not maintain title to or have a stake in individual units, its board lacks legal standing to evict unit-owners or expel them from the community, no matter how offensive their misconduct may be.

Condo Remedies

To be sure, condo boards are not completely without legal remedy. The Condominium Act authorizes maintenance of an injunction action to enforce a condominium’s rules against non-compliant owners. Moreover, most condominium bylaws authorize fines against unit-owners who violate rules and regulations. However, as a practical matter each of these is flawed. Judges are loath to issue injunctions against unit-owners for violation of rules, perceiving such infractions to be petty annoyances, and defiant unit-owners tend to ignore fines as there is no immediate consequence for failing to pay such a penalty. Without a reliably effective enforcement remedy such as eviction, condo boards are ill-equipped to deal with difficult unit-owners.

Our proposed antidote to this lack of an effective rule-enforcement remedy embraces the concept now in use in the co-op context of expelling “bad apples” from the community and terminating occupancy of their units by reason of their repeated “objectionable conduct.” However, since the principle of lease termination on the grounds of such conduct is based upon existence of a landlord-tenant relationship, and since there is no such relationship or other basis for ejecting a problem unit-owner in a condominium, this doctrine cannot be directly applied.

Our proposed remedy borrows from the Pullman concept while avoiding the legal constraints presented by the absence of a landlord-tenant relationship. Basically, the proposal envisions an amendment to condo bylaws (or insertion of a provision in bylaws for newly created condos) compelling a unit-owner’s sale of his unit(s) to the board of managers or someone of its choice for fair market value as determined by a panel of appraisers (less the aggregate of all liens and judgments of record against the owner, which would be paid by the purchaser to clear title). This would occur only after a finding by super-majority vote of both the board and the unit-owners that his occupancy or that of his guests or tenants, repeated after written notice, is “objectionable.”

Once title to the affected unit(s) is obtained in this fashion, the board or its selected purchaser would have standing to maintain an ejection action to obtain legal possession in the event of the unit-owner’s refusal to voluntarily vacate. This bylaw contains an attorney’s fee provision so that fees and disbursements incurred in connection with any successful enforcement action would be recoverable.

To the extent the condominium’s offering plan requires approval of the sponsor, holders of unsold units, or commercial unit-owners for bylaw amendments, these groups would be in a position to veto the proposal. Such a veto might be averted by exempting them from the amendment’s application.

Our proposed amendment language gives boards the option to designate a purchaser of its choice for the offending unit-owner’s unit. This feature allows the board to avoid incurring acquisition costs while still exercising control through its choice of a nominee over who actually replaces the objectionable unit-owner in the community.

Since the proposed bylaw amendment would by its terms apply only to subsequent purchasers and would be recorded in the county clerk’s office against each unit’s tax lot, each such purchaser would take title with notice of the provision. Application only to prospective purchasers is also necessary to avoid breaching certain provisions of existing unit-owner deeds. Of course, developers sponsoring new condo conversion plans can insert this bylaw provision at the inception of the project so that its provisions are binding on all purchasers.

Due process considerations were taken into account when we created the proposed remedy. Under this bylaw amendment, the objectionable conduct provision is not triggered unless and until the unit-owner has repeated his offense after having received prior written notice of its intolerable nature.

A forced conveyance of the unit occurs only after super-majorities of both the board of managers and unit-owners have determined that his conduct is “objectionable.” The unit-owner is afforded an opportunity to attend each meeting with counsel and present evidence on his own behalf before the vote is taken. He is also permitted to designate one member of the three-person team of appraisers who will determine fair market value, the other being selected by the board and the third (potential “tie-breaker”) being jointly appointed by the other appraisers. Appraisal costs (up to $2,000 per panel member) are borne by the board of managers whose choice it was to initiate the process.

The proposed bylaw amendment contemplates boards being authorized under the unit-owner’s power of attorney to ministerially effect the unit transfer upon the appraisers’ determination of fair market value. Thus, any board adopting this amendment would need to (i) ensure that its standard form unit-owner power of attorney contains such authorization; and (ii) modify the language on a prospective basis if the current form does not convey such authority.

This remedy is clearly not appropriate for every objectionable conduct situation in every condominium. It is a heavy hammer and therefore should not be used to punish trivial offenses. Moreover, there are several cautionary points that every condo board should consider before embracing this measure. First, even if the board were to locate a person of its choice to fund the unit purchase, the legal and appraisal costs entailed in this process could be significant.

Second, inasmuch as this is a “cutting edge” proposal, its impact on marketability of units and lenders’ reaction is unclear. However, the prospect of objectionable conduct evictions does not appear to have affected either the co-op market or lenders’ willingness to finance the purchase of co-op units. Finally, enactment and enforcement of this process could prove politically explosive within the community.

Notwithstanding these considerations, the concept offers condo boards a potent option for addressing serious situations for which they are currently ill-equipped. Even if this weapon is not actually used, the mere presence of such a sword in its arsenal might well help a condo board deter objectionable conduct. Elliot J. Coz, an associate at Rosen Livingston & Cholst, assisted in the preparation of this article.