Coping with Leak Legalities

Dec. 30, 2015 — Cooperative buildings often become embroiled in litigation involving leaks in apartments caused by defects in roofs, exterior façades, or other common areas that are the responsibility of the co-op corporation to maintain. The warranty of habitability is duty that is continuous, cannot be delegated, and cannot be waived. It requires that the landlord maintain the apartment in a habitable condition, free of health and safety issues and providing all the basic and necessary services expected of a residence. Damages for breach of the warranty of habitability are generally in the form of a full or partial abatement of maintenance. In addition, the co-op will be required to repair an apartment so that it is in habitable condition. Repair obligations under warranty require only that the co-op restore to the basic requirements.

In addition, the proprietary lease may provide that in the event of a casualty loss, the cooperative will be required to repair or replace walls, floors, ceilings, pipes, wiring, and conduits within the apartment with materials customary in buildings of the type involved.

We interpret this language to mean that the co-op corporation is required to repair or replace with materials customary in the building at the time of the loss. This may be a higher standard than that required by the warranty of habitability. For example, the warranty only requires that a damaged floor be replaced with a usable floor. It does not mandate any particular type of material. However, it does not obligate the co-op to replace higher-end finishes that may have been originally installed by the tenant, typically defined by insurance companies as “betterments and improvements.”

Where the leaks and damages have been outstanding for an extended period of time, the tenant may also seek to recover for breach of fiduciary duty from the individual board members for failing to take sufficient action to resolve the conditions causing the leaks. While board members may be held personally liable for willful or bad faith concerning the corporation’s repair obligations, courts are generally loath to find directors personally liable and often dismiss such claims.

Takeaway

The board should take prompt action to investigate the source of leaks and to promptly make the necessary repairs to curtail further water infiltration and mitigate a claim by the tenant-shareholder for damages in the form of a maintenance abatement and out-of-pocket repair costs. The corporation’s insurer is typically obligated to indemnify the co-op for its repair obligations, usually found in paragraph 4(a) of the lease. When notified of leaks and water damage, boards should promptly notify their insurers and negotiate the highest possible indemnity for the repair costs.

Co-ops also often attempt to fulfill their habitability obligations by performing the repairs and then charging the tenant-shareholder back for those costs on the theory that the proprietary lease makes the tenant-shareholder ultimately responsible for maintenance and repair of those components. However, this “charge-back” practice is not supported by controlling case law and may violate the warranty of habitability’s protections.

There is authority for the proposition that a co-op’s obligation to make habitability repairs should include the duty to bear the costs. The law suggests that the payment of rent (maintenance) entitles the shareholder to the benefit of the bargain, which includes the warranty’s protections. Thus, when contemplating a “charge-back,” the board should be mindful that the practice is susceptible to legal challenge.