Building Violations: How to Avoid Financial Consequences and Reputation Damage

When code violations are the fault of a shareholder or unit-owner …

ACT SWIFTLY TO AVOID BUILDING FINES

Building violations can be a complex maze of responsibilities, costs and potential pitfalls. While the general rule seems straightforward — unit-owners and shareholders are typically responsible for conditions inside their apartments — the reality is often more nuanced. The challenge for boards lies in the fact that violation notices typically go to the building or managing agent registered with NYC’s Department of Housing Preservation and Development, regardless of who’s ultimately responsible for the correction. This creates an urgent need for proactive monitoring and management of violations.

FINANCIAL IMPLICATIONS. Poorly managed violations can cause staggering financial implications. In one dramatic example, a 25-unit co-op on Manhattan’s Upper East Side accumulated over $300,000 in violation penalties — equivalent to roughly 18 months of their annual budget. This massive liability not only affected the building’s finances but also scared away potential buyers, creating a ripple effect on property values and sales.

Violation issues are often brought to the forefront when a co-op’s underlying mortgage is being refinanced. While most lenders will proceed with loans despite existing violations (unless they’re rent-impairing), they typically require buildings to resolve all violations within six months of closing. This can create a pressure-cooker situation in which boards must quickly address years of accumulated violations, often at significant expense.

The short-term rental landscape presents another layer of complexity. Even though illegal short-term sublets (fewer than 30 days) are the responsibility of the unit-owner or shareholder, the Department of Buildings holds the building itself liable for violations. While buildings can usually recover these costs through indemnification clauses in their governing documents, they must first pay the fines and then pursue reimbursement from the responsible parties.

Beyond the financial impact, unresolved violations can affect a building’s reputation and the daily lives of its residents. While some violations might be minor, such as inadequate signage, others can seriously impact safety and quality of life. Additionally, many violations, particularly Environmental Control Board penalties, accrue interest over time, making prompt resolution essential.

LEGAL FEES.  We recently represented a condo where a unit-owner called 311 to complain about mold growth inside her apartment and a violation was issued against the building. But the mold was on an interior dividing wall, so there was no leak or any other condition in a common area that could have caused it. In many cases, co-op and condo documents include indemnity clauses, which allow the building to recover fines, penalties or costs associated with violations caused by a unit-owner or shareholder. We went to the unit-owner and her attorney and said, “Hey, you have to either resolve this violation or settle it, and if we end up getting the maximum penalty because you didn’t, we’re going to charge that back to you.” 

However, when it comes to recouping your legal fees, it’s a gray area. Generally speaking, courts are loath to award attorney fees. So unless the building documents explicitly say that you can recoup legal costs in this type of situation, that’s not going to be upheld in court if the shareholder or unit-owner challenges it. But I would say probably a majority of building organizational documents would include attorney fees by default. Boards should review their building’s documents to ensure they are protected in this way.

THE BOTTOM LINE. Monitoring and prompt action are essential in dealing with violations caused by unit-owners or shareholders. Boards need to ensure that they are addressing their responsibilities and enforce indemnification clauses where appropriate. Letting violations accumulate is not only financially dangerous but also harms the building’s reputation and can create legal and safety concerns for residents. You’ve got to stay vigilant.