Blog

New York City’s skyline is dominated by apartment buildings, a significant portion of which operate under cooperative (co-op) or condominium (condo) forms of ownership. While offering paths to homeownership, these unique structures present distinct legal frameworks and potential conflict points absent in traditional rental or single-family home contexts. Disputes involving co-op corporations, condominium associations, boards, residents, and sponsors are frequent and often complex. Figeroux & Associates, located at 26 Court Street, Suite 701, Brooklyn, NY 11242, provides skilled legal counsel navigating these specialized disputes. Contact the firm at 855-768-8845 or visit www.askthelawyer.us for assistance. This analysis examines common co-op and condo disputes and the governing New York State (NYS) and New York City (NYC) legal principles.   

Distinct Structures, Distinct Laws

Understanding the fundamental difference between co-ops and condos is key to grasping the nature of potential disputes:

• Cooperatives (Co-ops): In a co-op, residents do not own their specific apartment as real property. Instead, they purchase shares in the cooperative corporation that owns the entire building. This share ownership entitles them to a proprietary lease, which grants the right to occupy a specific unit. Co-op residents are thus both shareholders of the corporation and tenants under the lease. Co-ops are primarily governed by the NY Business Corporation Law (BCL), along with the corporation’s certificate of incorporation, bylaws, the proprietary lease itself, and house rules established by the board.   
• Condominiums (Condos): Condo owners hold title to their individual unit as real property. They also own an undivided percentage interest in the building’s common elements (e.g., hallways, lobby, roof, amenities). Condos are governed by NY Real Property Law Article 9-B (the “Condominium Act”), as well as the condominium’s declaration, bylaws, and rules and regulations.   

The Board’s Role and the Business Judgment Rule

Both co-ops (Board of Directors) and condos (Board of Managers) are run by elected boards responsible for managing the property’s finances, operations, maintenance, and enforcement of rules. A critical legal principle shielding many board decisions from judicial second-guessing is the Business Judgment Rule (BJR).

As established in the landmark NY Court of Appeals case, Levandusky v. One Fifth Avenue Apartment Corp., courts will generally defer to decisions made by a co-op or condo board provided the board acts:

1. Within the scope of its authority (as defined by law and governing documents).
2. In good faith.
3. For the purposes of the cooperative or condominium.

This means that even if a decision seems unwise or suboptimal in hindsight, a court will typically not interfere unless a challenger can demonstrate that the board breached its fiduciary duty. This requires proving bad faith, self-dealing, fraud, discrimination, or that the decision was ultra vires (beyond the board’s power). The BJR sets a high bar for shareholders or unit owners seeking to overturn board actions, recognizing the board’s role in managing complex community living.

Common Flashpoints for Disputes

Given these structures and legal principles, disputes frequently arise in several key areas:

1. Challenges to Board Decisions: Often related to the BJR, shareholders/unit owners may challenge board denials of purchase applications (especially in co-ops, which have broad discretion), sublet requests, alteration plans, or decisions regarding repairs or capital improvements. Success requires overcoming the BJR presumption.
2. Maintenance Fee / Common Charge Disputes: Co-op shareholders pay monthly maintenance; condo owners pay common charges. Disputes arise over the amount assessed, the imposition of special assessments for major repairs, or collection efforts. Non-payment has serious consequences: 
   • Co-ops: Can terminate the shareholder’s proprietary lease for non-payment (following specific procedures in the lease, potentially including a shareholder/board vote under the Pullman decision standard) and then commence a holdover eviction proceeding in Housing Court.   
   • Condos: Can file a lien against the defaulting unit for unpaid common charges (RPL § 339-z). This lien has priority over most other liens except taxes and first mortgages. The condo can foreclose on the lien similarly to a mortgage foreclosure (RPL § 339-aa). Condos can also sue for a money judgment.   
3. Enforcement of Bylaws and House Rules: Conflicts are common regarding pets, noise (a frequent neighbor-to-neighbor issue), smoking, use of common areas, short-term rentals (often violating governing documents), and aesthetic rules. Boards have a duty to enforce rules, but challenges arise if enforcement seems arbitrary, discriminatory, or selective.
4. Alterations and Renovations: Residents seeking to renovate often face disputes over the board’s approval process, the terms of required Alteration Agreements, adherence to approved plans, noise/damage during construction, insurance requirements, and use of licensed/insured contractors. Boards, protected by the BJR, typically have significant control over alterations, especially those affecting building systems or common elements.
5. Neighbor-to-Neighbor Issues: Noise complaints, water leaks causing inter-unit damage, secondhand smoke infiltration, and personality clashes are common. While boards may attempt mediation or enforce rules related to nuisance, they are often reluctant to intervene directly in interpersonal disputes unless a clear violation of governing documents exists. Resolution may require direct communication, mediation, or lawsuits between the affected residents.
6. Access Issues: Governing documents usually grant the board/management the right to access units upon reasonable notice for necessary repairs, inspections, or emergencies. Disputes occur when owners deny access, hindering essential maintenance or emergency response.
7. Breach of Fiduciary Duty / Shareholder Oppression: Claims that board members violated their fundamental duties of loyalty, care, and good faith. This can involve self-dealing (board members benefiting personally from transactions), conflicts of interest, failing to act with reasonable diligence, or engaging in oppressive actions designed to harm specific shareholders/unit owners. Proving such a breach overcomes the BJR’s protection.
8. Sponsor Disputes: Especially in newer conversions, disputes may arise with the building’s sponsor (original developer). These often involve alleged construction defects in common elements or unsold units, failure to meet obligations outlined in the Offering Plan, or improper sponsor influence while controlling the board. The NY Martin Act (General Business Law Art. 23-A) grants the NY Attorney General broad powers to investigate sponsor fraud related to the offering plan, but it does not provide a direct lawsuit pathway for individual owners or boards (no private right of action).   

Governing Documents and Dispute Resolution

Resolving these disputes invariably involves interpreting the specific governing documents of the co-op or condo: the Offering Plan, Declaration (condo), Certificate of Incorporation (co-op), Bylaws, Proprietary Lease (co-op), House Rules, and any Alteration Agreements. These documents dictate operational procedures, rights, responsibilities, and often, initial dispute resolution steps.   

Resolution pathways include:

• Formal complaints to the managing agent or board.
• Mediation or arbitration, if provided for in the bylaws or agreed upon by the parties (e.g., NYC Bar Association offers a Co-op/Condo Mediation service).
• Litigation: Often filed in NY State Supreme Court, which handles BJR challenges, breach of fiduciary duty claims, contract disputes (like alteration agreements), and lien foreclosures. Certain co-op eviction matters (post-lease termination) proceed in Housing Court.   

Why Specialized Legal Counsel is Crucial

The interplay between corporate law (BCL), real property law (Condo Act), contract law (leases, bylaws), administrative rules, and the powerful Business Judgment Rule makes co-op and condo law a highly specialized field. Whether you are a board member facing a challenge, a shareholder/unit owner disputing a board action or dealing with a neighbor issue, or a board needing to enforce rules or collect arrears, experienced legal counsel is essential. Figeroux & Associates understands the nuances of co-op and condo governance and litigation, providing strategic advice and effective representation tailored to this unique legal environment.

Conclusion

Cooperative and condominium living, while popular in New York, brings a unique set of potential legal conflicts rooted in shared governance and distinct ownership structures. Understanding the powers and limitations of the board, the significant deference granted under the Business Judgment Rule, and the critical role of the governing documents is paramount for all stakeholders. When disputes inevitably arise, navigating the path to resolution requires careful legal analysis and strategic action. Figeroux & Associates (855-768-8845 | www.askthelawyer.us) stands ready to assist boards, shareholders, and unit owners in protecting their rights and achieving effective outcomes in the complex world of co-op and condo law.