A Fine Mess: When Boards Try to Fine You Without Authority

The Landmark Colony at Oyster Bay condominium complex is comprised 33 units in eight buildings. According to Blumberg vs. Albicocco, decided June 13, 2006, the plaintiff Blumberg and her husband had conducted a two-day garage sale at their 14 Adams Court condo in 1999. The Landmark Colony Homeowners Association (HOA), fined Blumberg $250 for each day of the sale for violating the association's "Declaration of Covenants, Restrictions, Easements, Charges, and Liens."

That provision stated: "No nuisance shall be allowed upon the property, nor shall any use or practice be allowed which is a source of annoyance to residents or which interferes with the peaceful possession and proper use of the property by its residents." Blumberg refused to pay the fine, and sought declarations that the imposition of a fine was null and void. (Her lawsuit also sought unrelated relief for HOA's alleged failure to maintain and repair the common areas associated with the Blumberg unit.) The HOA, in addition to denials and defenses, included a counterclaim for $4,237.60 for homeowners' dues, common charges and late fees.

The court cited the famous case Levandusky vs. One Fifth Avenue Apartment Corp., where the Court of Appeals not only employed the oft-quoted description of a cooperative or condominium association as, "a little democratic sub-society of necessity," but further characterized it as a "quasi-government." Fleshing out this analogy, the Court of Appeals said: "Through the exercise of this authority, to which would-be apartment owners must generally acquiesce, a governing board may significantly restrict the bundle of rights a property owner normally enjoys. Moreover, as with any authority to govern, the broad powers of a cooperative board hold potential for abuse through arbitrary and malicious decision-making, favoritism, discrimination and the like."

Not "Business" as Usual

While it acknowledged the potential for abuse of power, the state's highest court found that the standard to be applied for the review of co-op or condo board actions should be modeled on the corporate world's "Business Judgment Rule," which states that courts will generally not second-guess any corporation's business decisions not involving direct self-interest, and will assume that corporate directors are acting on an informed basis, in good faith and in the corporation's best interest.

Before reviewing a condominium board's decision under the business judgment standard, however, the court said that it must first determine whether the board in fact possessed the power it purported to exercise. After all, it said, no democratic principle is more fundamental than that all governments ultimately derive their powers from the consent of the governed. Thus, the power claimed by the board must either be granted by statute or derived from the declaration or the bylaws of the condominium.

New York State mandates that a condominium association must be governed by bylaws annexed to the founding declaration, and while such bylaws may imposes restrictions and requirements in respect to the use of condo homes, they also "are designed to prevent unreasonable interference with the use of their respective units and of the common elements…." Bylaws may be amended upon a sufficient vote of the unit-owners.

The court said that, while a validly adopted bylaw banning all garage sales within the condominium would be sustainable under the Business Judgment Rule, no such bylaw was in effect at the time Blumberg held her garage sale. Rather, the HOA contended that a garage sale violated the above-quoted portions of the declaration that prohibited any "nuisance" and "any use or practice...which is a source of annoyance."

Nuances of "Nuisance"

The court reviewed the meaning of "nuisance." It determined that, as a general term, it describes the consequences of conduct – that is, are other people being inconvenienced – rather than the type of conduct involved. There was no evidence that the garage sale either substantially inconvenienced other condominium residents nor caused them particular damage. While these deficiencies would pose no obstacle to enforcing a specific bylaw prohibiting garage sales, or an appropriately adopted resolution defining garage sales as a nuisance, the court said that no such bylaw or resolution existed at the time in question. There was also no evidence that the board had warned Blumberg that a garage sale constituted a nuisance.

The court declared that the action of the board of directors imposing a fine premised on the garage sale was null and void, as were all subsequent actions intended to collect and enforce the fine.

This case is consistent with a number of prior co-op and condo decisions holding that a board's power to fine a unit-owner must be expressed in the governing documents of the entity – usually the proprietary lease or bylaws.

Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan.

Adapted from Habitat March 2007. For the complete article and more, join our Archive >>