Case Notes: Owners Have Few Options When Boards Close Terraces for Years
July 30, 2014 — Buyers pay a premium for a co-op or condo apartment with outdoor space. But what happens when a terrace needs repairs that prevent the shareholder or unit-owner from using it?
That was the question in Goldhirsch v. St. George Tower & Grill Owners Corp.
That corporation — named for its two buildings, the Tower and the Grill, that once were part of the famous Hotel St. George — runs the cooperative at111 Hicks Street in Brooklyn Heights. A month after Lawrence Goldhirsch moved into Apartment 5K, which has access to a shared terrace, a blocked drain during a rainstorm caused a flood on that terrace.
The co-op board decided no one would be permitted onto the terrace while they investigated and repaired the area. The occupants of the unit below the damaged space vacated their apartment for a few months in order to allow repairs. They were not required to pay maintenance for that period of time.
Goldhirsch, however, remained in the apartment and did not ask for an abatement of maintenance charges.
No Terrace for Two Years
In the end, the terrace could not be used for two years. Even worse, a few months after reopening, it was again closed for almost two more years so that repairs could be made to the roof of the building.
Goldhirsch sued, claiming, among other things, breach of the lease and breach of the warranty of habitability. Essentially, he said that the proprietary lease gave him the right to use the terrace, but he could not use it for many years because of the ongoing repairs. He argued that, because the terrace was closed, it should be considered dangerous and was therefore a breach of the warranty. He also argued that the co-op had violated a statute because it gave an abatement to the occupants below but not to him.
In response, the co-op argued that the lease required it to make repairs and comply with the law. It was a good faith decision to perform building repairs, and using the terrace to make repairs was within its rights under the lease.
Departmentalizing
The co-op argued that it closed the terrace in accordance with its business judgment. Interestingly, the court made a distinction between application of the Business Judgment Rule (BJR) in different New York jurisdictions. The court explained that the intermediate appellate courts in the First (Manhattan, Bronx) and Fourth (certain western upstate counties) Departments are clear that the BJR provides no protection for a breach of contract. In other words, a board cannot breach a contract and claim that it was good business judgment to do so.
The court believed, however, that the Second Department (which includes Brooklyn) was less clear on this point, and, given the leeway to do so, the court agreed with the board that its decision to close the terrace to repair the leak was protected by virtue of the BJR. As a result, it refused to award damages based on Goldhirsch's claim for breach of lease.
As to the breach of warranty claim, the court explained that the statute set forth merely a minimum standard of habitability relating to essential functions. The apartment was not unfit for human habitation, nor were there conditions that deprived Goldhirsch of the essential functions of a residence. Thus, Goldhirsch's motion for summary judgment was denied.
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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