Into the Breach

All the rage. More and more, shareholders who want to do apartment alterations want to make significant changes in their apartments. Boards are concerned about structural problems that might arise, and especially with wet-over-dry issues when people are moving bathrooms and kitchens, and new plumbing lines could lead to leaks or water infiltration.

Consistency counts. Generally speaking, the breach of fiduciary duty claims tend to arise when there’s an inconsistency in rejecting alteration applications. Boards often change from year to year, and new ones might be less liberal about aggressive changes. When that happens, people often think, “Other people in the building have had this work done, so why can’t I?” Many times, people feel that board members turn them down for personal reasons because board members might be directly impacted or are trying to protect a friend who might be.

Best defense. Boards can protect themselves by explaining their rationale for declining an application — more detail is always better than less — and doing so in a very timely fashion. Sometimes, shareholders will make adjustments and scale back the alterations. And if you are dragged into court, having communicated clearly with shareholders, you’ll be able to show how you’ve exercised good business judgment. 

Ideally, you want alteration conditions to be expressly set forth in your governing documents, and if they’re not, you can amend your house rules. But you have to be careful to strike a balance so that the language isn’t too limiting or too broad. Have your attorney craft language that is appropriate and will also address any situations that might come up in the future.