MAY 2008

 

            Ganfer & Shore, LLP invites clients and friends of the firm to attend a breakfast seminar on “Hot Topics in Real Estate and Insurance Related Matters.” The seminar, being sponsored in conjunction with Bollinger, Inc., will feature presentations by attorneys Steven J. Shore and Matthew J. Leeds on topics including “how the mortgage meltdown will affect you,” “mezzanine loans and other financing vehicles,” and “dealing with objectionable shareholders.”

 

            The seminar will be held on May 22, 2008 at the Yale Club of New York, Vanderbilt Avenue at 44th Street in Manhattan (adjacent to Grand Central Station). A continental breakfast will be served from 8:00 to 8:30 a.m. followed by the seminar from 8:30 to 9:30 a.m. Those interested in attending the seminar should RSVP by May 16 by e-mailing amy.kansay@bollingerinsurance.com or christine.syron@bollingerinsurance.com, or by telephoning (212) 797-9600.

 

 

            A condominium owner’s complaint for breach of contract and negligence in the construction, marketing, and sale of its units, arising from complaints of mold in the unit, was dismissed in Kerusa Co. LLC v. W10Z/515 Real Estate Limited Partnership, 2008 WL 1821497, 2008 N.Y. Slip Op. 3687 (App. Div. 1st Dep’t Apr. 24, 2008).

 

            In this case, the purchaser of a luxury condominium unit alleged that the unit was contaminated by mold. The purchaser’s complaint asserted that both its own unit and the common elements of the Condominium were contaminated, but at the outset, the court observed that “Plaintiff has standing to seek relief for damage to its own units only and not for injury to the common elements of the subject building.” The court also noted that the purchaser had established the presence of excessive mold on only a single date in 2002, while all environmental inspections and tests conducted since that date found had acceptable levels of mold, and that no expert evidence had been submitted establishing that the mold levels present on any date created any health hazard.

 

            The court observed that in any event, the purchase agreement for plaintiff’s unit limited the remedy for any defective construction to the “repair or replace[ment of] any defective item of construction.” This provision, the court reasoned, “necessarily excludes from recoverable damages any diminution in the value of the unit that may result from defective construction.” Plaintiff had not alleged that it had incurred any expense to repair or replace any construction defects, and because it had subsequently sold its unit, it would not incur any such expense in the future.

            Plaintiff’s claims against the general contractor, architect, mechanical engineer, and structural engineer of the premises were also dismissed. Because plaintiff had no direct contractual or other relationship with these parties, it was not entitled to recover for negligence or breach of contract against them.

 

 

            The shareholder-tenant of a cooperative unit sought to sell his unit, but the cooperative board rejected the prospective purchaser’s application. The shareholder-tenant then sought to sell the unit to a second purchaser, whom the board approved but only upon conditions. The shareholder-tenant’s suit against the Cooperative and its board members for breach of fiduciary duty and related claims was dismissed in Silverstein v. Westminster House Owners, Inc., 2008 WL 852005, 2008 N.Y. Slip Op. 2882 (App. Div. 1st Dep’t Apr. 1, 2008).

 

            In this case, the Appellate Division reaffirmed the now-familiar holding that the business judgment rule applies to decisions by residential cooperative corporations and that the party seeking judicial review of a cooperative’s decision has the burden of demonstrating a breach of duty. Here, the plaintiff’s allegations as to the reasons that the board had rejected the first application and conditioned its approval of the second were “speculative,” unsupported by evidence, and therefore insufficient. The court rejected plaintiff’s argument that an inference of self-dealing or misconduct could be drawn from the fact that the spouses of two of the board members are real estate brokers and had entered into a short-term exclusive listing agreement with plaintiff, which had expired several months before defendants’ alleged misconduct took place.

 

            The court also dismissed plaintiff’s claim that the rejection of the first purchaser’s application breached the covenant of good faith and fair dealing implied in the proprietary lease, for the same reasons as applied to the other claims. In the absence of specific allegations or evidence in support of the allegations of breach, plaintiff was not entitled to conduct discovery based on further speculation that doing so would provide such evidence.

 

            However, the court denied the Cooperative’s request for an award of attorneys’ fees against the former shareholder, because there was no allegation that the shareholder had defaulted under the proprietary lease, which was the only circumstances under which the lease authorized an award of fees. As discussed in the March 2008 issue of this Client Advisory, cooperatives may wish to seek to broaden the scope of attorneys’ fee provisions of their proprietary leases to cover other situations, such as this one, where the Cooperative prevails in litigation with a shareholder-tenant.

 

 

            We have received reports of a business sending unsolicited letters to cooperative shareholders, offering to provide them with copies of the “deeds” to their cooperatives that are on file in public records. The letters have all the trappings of a legitimate business offer – but they are part of a scam. One way to tell: individual cooperative units do not have deeds. Unsolicited offers of this type should be discarded.