May a Co-op Board Make Repairs that Reduce the Size of Your Apartment?
Dec. 19, 2013 — Maro Goldstone is a shareholder of Gracie Terrace Apartment Corporation, at 605 East 82nd Street, a.k.a. 1 Gracie Terrace, in Manhattan. She and her husband, Thomas R. Newman, suffered extensive damage to their apartment when a 10,000-gallon water tank above them overflowed in 2003. The co-op's plan for remediation required a 50-square-foot reduction in the 1,400-plus-square-foot apartment. Goldstone objected, claiming the proposal violated the terms of the proprietary lease. So: May a cooperative corporation, when repairing an apartment, reduce its size?
After the water tank overflowed in 2003, flooding the apartment and causing toxic mold to develop, the co-op board had the apartment gutted to the cement floors, ceilings and walls. It remains uninhabitable. In 2007, Goldstone filed a lawsuit for damages and relief. Over the years, she was awarded a complete abatement of maintenance from the date of the water damage through the date the apartment is restored to habitable condition.
Goldstone challenged the co-op's plan for remediation and sought to prevent the work from going forward. She had given the co-op board plans prepared by her architect in 2008, which provided for a design that would have prevented water infiltration in the future by demolishing and rebuilding portions of the exterior of the building. Rather than respond to that proposal, the cooperative had its own engineer prepare plans that provided, less expensively, for waterproofing and façade repair work, as well as renovation of the apartment.
Size Matters
If this alteration were permitted,
her hallway would no longer
meet the NYC Building Code.
Goldstone objected because the co-op's plan would decrease the size of the apartment. She argued that placing insulation on the apartment's interior would decrease the size and alter the unit's configuration because it would cause the loss of 2 1/2 inches along every wall at which insulation was placed, for a total of 50 square feet. She argued that if this alteration were permitted, it would reduce the size of a hallway to a width less than that required by the building code and that, to maintain the code-required dimensions of the hall, an adjoining room would have to be decreased in size. These alterations, according to Goldstone, would require changes to her storage and display units and custom-designed kitchen and built-ins. The co-op did not dispute the findings.
The co-op did argue, however, that the board's decisions concerning repairs were protected by the Business Judgment Rule; that she could not show irreparable harm because the reduction in space was minimal and could be compensated for by a reduction in maintenance charges; and that the co-op should not have to accede to her demand that it demolish the exterior walls, causing undue expense to all shareholders, to whom the co-op owed a fiduciary duty.
"Well, She's Right, But...."
The court agreed with Goldstone that she would likely be able to show that the co-op's plan, which would diminish the space and necessitate reconfiguration of the apartment, would constitute a breach of the proprietary lease. The co-op's reliance on the Business Judgment Rule was misplaced, the court said, because the rule did not shield co-ops from a breach of contract.
However, the court did not believe that Goldstone demonstrated irreparable harm or that the equities balanced in her favor. She had argued that there would be the loss of square footage and that the apartment would have to be reconfigured, so that adjustments would have to be made to her built-in cabinets and other places. The court found that the loss of square footage and the adjustments to her built-in cabinets and elsewhere could be compensated for with payment for damages.
The court recognized that the anticipated diminution of square footage caused an injury; however, it believed the injury was minimal and that she could be compensated by other means.
Finally, the court found that the equities balanced in favor of the co-op. Goldstone proposed an alternative method of performing work on the exterior. However, she did not respond to the co-op's assertion that the method would entail substantial additional expenses the co-op should avoid because it owed a fiduciary duty to all shareholders. Ultimately, the court determined that the potential damage to her was far outweighed by the expense to the co-op of demolishing exterior walls, particularly when those walls had been repaired and treated for waterproofing.
The Takeaway
Given the particular (although not unique) facts of this case — that the space was being taken in connection with a repair to the plaintiff's apartment, where the only other alternative was prohibitively expensive — we do not know how or if this decision will affect other situations where a co-op may wish to "take" a portion of living space from an apartment. Initially, the decision comes to us in the posture of a preliminary injunction, so that there is very limited precedential value.
Regardless, we can envision situations where a co-op might want to enlarge a common area hallway (particularly in older buildings) to make it wheelchair accessible by reducing the size of someone's closet or foyer. Will it be permitted (required?) to do so based on the holding here? Unlikely as such an outcome may be, it is certainly something that should be considered by boards and their counsel.
Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan. Dale J. Degenshein is a special counsel for that firm.
Illustration by Liza Donnelly. Click to enlarge.
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