The Long Arm of the Business Judgment Rule at a Queens Condo

The Village Mall at Hillcrest Condominium, a pair of 15-story towers built in Kew Gardens Hills, Queens, in the 1970s, bills itself as a place “Where Neighbors Become Friends.” But a recent court case shows that it’s also a place where friends can become enemies – thanks to the ironclad protections and long life of the Business Judgment Rule.

Way back in 1979, unit-owners Sunil and Sabita Banerjee claim they received permission from the condo’s managing agent to enclose the balcony on their apartment, creating a new room. Almost three decades later, a successor condo board revoked the permission, claiming access to the balcony was required to complete work on the facade mandated by the city’s Facade Inspection and Safety Program (FISP), formerly known as Local Law 11. The Banerjees refused to remove their enclosure.

This being New York, litigation ensued. The condo board filed suit to compel the Banerjees to remove their balcony enclosure, alleging that the Banerjees failed to obtain approval to erect the balcony enclosure from the board, as required by the condominium's bylaws, or from the Department of Buildings, as required by city law. The board claimed that removal of the balcony enclosure was necessary to complete a multi-year facade and balcony restoration project undertaken to comply with FISP, which requires the inspection and repair of facades every five years by owners of buildings, including co-ops and condominiums, that are taller than six stories.

The Banerjees moved for summary judgment, declaring that they were entitled to maintain the enclosure; the board cross-moved for summary judgment, declaring that the enclosure must be removed under the condominium's bylaws.

The State Supreme Court denied the Banerjees's motion, granted the board’s cross motion and authorized the board to enter the Banerjees' unit in order to remove the balcony enclosure. The court also declared that any permission that was granted to the Banerjees to erect the balcony enclosure had been revoked, and the enclosure had to be removed under the condominium's bylaws. The board was also allowed to inspect the balcony to assess its condition. 

The appellate court affirmed that decision, writing: “Regardless of whether the Banerjees obtained written advance permission in 1979 to enclose the balcony as required under the condominium's bylaws, the board demonstrated that, under the bylaws, its consent could be revoked at any time and that, in 2016, the board revoked its consent to all balcony enclosures. The board also demonstrated that it decided to mandate the removal of all balcony enclosures to enable the completion and inspection of building facade and balcony restoration work so that the building could pass municipal inspection and have an architecturally uniform facade.”

The court then spelled out the enduring impact of the landmark Levandusky v. One Fifth Ave. Apt. Corp. case from 1990: “The Business Judgment Rule prohibits judicial inquiry into the actions of a condominium board as long as the board acts for the purpose of the condominium, within its authority, and in good faith. The (condo board) met its burden on summary judgment by establishing that it acted in good faith, within its authority, and for the benefit of the condominium when it mandated the removal of balcony enclosures in order to complete its facade renovation project. In opposition, the Banerjees failed to raise a triable issue of fact.”

Lesson learned: Nothing is forever. The Business Judgment Rule confers sizable – and long-lived – power on co-op and condo boards. What the bylaws of a condominium permit the board to give may also permit the board to later take away. Residential community living may require a resident’s previously allowed conveniences to yield to the evolving needs of the building – and to the board’s powers provided under the Business Judgment Rule.

Victor M. Metsch is of counsel at the law firm Smith, Gambrell & Russell.