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The Recovery of Money

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Under what circumstances may a co-op or a shareholder recover money damages and attorneys’ fees? That was the question in Siegler v. 875 Tenant Corp. and Himmelberger v. 40-50 Brighton First Road Apartments Corp.

In Siegler, Judy Cukier Siegler and Scott Siegler (no relation to the author) purchased the shares to adjacent apartments in the co-op at 875 Fifth Avenue in Manhattan. They purchased the shares for apartment 9G in 2004 and the shares to 9H in 2006. They substantially renovated 9G before they purchased 9H and then sought to combine the apartments. They submitted plans for combining the units to the board of directors and the plans were ultimately approved, subject to execution of an alteration agreement.

In the alteration agreement, the co-op consented to the work as set forth in the architectural drawings submitted by the Sieglers, subject to specific conditions. As relevant, the Sieglers agreed to give 10 days’ notice before they commenced work; agreed to complete the work within 120 days; agreed that floor areas would be covered with carpet or other sound-abating material; agreed that the co-op could suspend work and prevent workers from entering the apartment if the Sieglers did not comply with the alteration agreement; and agreed that they released the co-op from all liability for loss or property damage in any way connected with the work.

The Sieglers commenced demolition and plumbing work on July 14, 2008. On July 17, the co-op informed them that the project was no longer approved and that they were to immediately stop work. The co-op directed that workers be turned away.

The Sieglers were ultimately told that the co-op board changed its mind because their downstairs neighbor, who was the new board president, had his own renovation plans, which were not consistent with the Sieglers’ plans. Specifically, his plans called for moving his bedroom below the Sieglers’ living room and, therefore, the board president wanted the Sieglers to install new sound-proofed flooring.

The Sieglers and the board negotiated changes to the plans. The Sieglers retained counsel to negotiate and, if necessary, to sue the board. On Sept. 3, 2008, counsel for the parties entered into an e-mail agreement whereby the Sieglers agreed to revise their plans and the co-op agreed to permit work to resume. What had not been resolved, however, was the board’s demand for additional sound attenuation – either by installation of carpeting or a layer of sound-proofing material.

Work resumed. Negotiations over sound abatement took place. The co-op agreed to pay half the cost of the abatement, but ultimately the parties could not agree on the amount of the co-op’s contribution. The parties also had a disagreement concerning the way in which a bathroom – which was part of the previously approved plan – was to be installed due to concerns about leaks.

Negotiations broke down and on March 6, 2009, the co-op issued a second demand that work stop pending execution of another alteration agreement. The Sieglers commenced this action on May 4, 2009. They sought an order enjoining the co-op from blocking completion of work on the apartment. They also sought a money judgment for the increased cost of the project and for attorneys’ fees.

The Sieglers also claimed that the stop-work order left the apartment in an uninhabitable condition, so they were denied use of the apartment in violation of the warranty of habitability. They also claimed they were denied the quiet enjoyment of the apartment, in violation of the proprietary lease. Finally, the Sieglers claimed they were entitled to attorneys’ fees.

The co-op answered and asserted claims against the Sieglers for breach of contract for the Sieglers’ failure to comply with the e-mail agreement, for a declaration that the co-op had the right to install the sound-proofed flooring, and for attorneys’ fees. On June 1, 2009, the court issued an interim order directing that the work proceed except with respect to the floors in question. On June 12, all issues were resolved by agreement of the parties as to the work – the stipulation preserved each party’s right to seek monetary damages, including attorneys’ fees.

The Sieglers claimed that they twice obtained the co-op’s consent to perform alterations and that the proprietary lease gave them permission to make alterations with the co-op’s consent. They argued that the co-op breached these agreements when the stop-work orders were issued, and that they were entitled to recover damages. They sought to recover maintenance for the months the apartment was uninhabitable and some additional architectural fees. The largest part of their claim, however, was for attorneys’ fees.

The court explained that the proprietary lease permitted the co-op to obtain attorneys’ fees in the event that the shareholder/tenant defaulted. Because of this lease provision, Real Property Law Section 234 created a reciprocal right of the tenant to recover legal fees when it was the successful party.

The co-op argued that, in the alteration agreement, the Sieglers released it from liability in any way connected to the work. The release specifically referred to damages arising from the interruption or suspension of work, regardless of the reason. Accordingly, the co-op asserted, claims arising from the stop-work orders, i.e., the maintenance and architectural fees, should be dismissed based on the release. The court agreed.

The co-op further argued that the Sieglers could not recover attorneys’ fees because they were not the prevailing party, as the dispute was resolved pursuant to a settlement agreement and because, under the agreement, the Sieglers agreed to install floor covering in compliance with the co-op’s demand. The court noted that it appeared that both parties achieved their primary demands in the settlement agreement, as the Sieglers were permitted to complete the renovation substantially as they desired.

The court found that the Sieglers correctly argued that the proprietary lease did not entitle a party to attorneys’ fees based on which is the “prevailing party”; rather, reimbursement of fees could be obtained where the other party breached the lease. Here, although the co-op argued that the Sieglers breached the lease by failing to adhere to the house rules on floor coverings, as well as house rules concerning installation of bathrooms, the work was undertaken with the co-op’s approval and therefore there was no violation of the lease.

Moreover, the co-op did not breach an agreement by stopping work, as this remedy was specifically contemplated by the alteration agreement and the reasons were legitimately related to the enforcement of house rules, even if it appeared that a significant motivation was to benefit the neighbor below. The court dismissed all money claims.

In Himmelberger, Craig Himmelberger, individually and as administrator of the estate of Frances Himmelberger, sued 40-50 Brighton First Road Apartments Corp., Deborah Henderson, and Jennifer H. Campbell. At its inception, the action concerned the right to occupy a co-op apartment in Brooklyn. The court first discussed the lengthy history of the case.

Craig Himmelberger was the administrator of the estate of his deceased mother, Frances. He sued the co-op and the individuals who owned the shares of apartment 8M. Himmelberger alleged that in March 2007, his mother transferred her interest in the shares and proprietary lease for 8M to Henderson and Campbell, to be held as joint tenants with right of survivorship. However, Himmelberger alleged that the transfer was made with the understanding that he would be permitted to occupy the apartment for the rest of his life. This claim was ultimately not sustained.

Frances Himmelberger died in September 2007. By a notice dated November 6, 2007, the co-op notified Henderson that she was in violation of the lease because Craig Himmelberger was in occupancy while Henderson was not (apparently Frances had been permitted to live in the apartment). The notice advised Henderson that she would be responsible for costs and attorneys’ fees. When Himmelberger did not move out, a notice of termination was served. The co-op then brought an eviction proceeding in landlord/tenant court. Himmelberger brought an action in the Supreme Court and sought an order restraining the co-op from prosecuting the landlord/tenant proceeding. That motion was denied and the co-op eventually obtained possession of the apartment. The court also awarded the co-op $17,500 in attorneys’ fees. The parties had a dispute concerning the procedure for sale of the apartment, but ultimately came to agreement on all issues but one – whether the co-op was entitled to be reimbursed from the proceeds of the sale of the apartment for $42,000 in fees it paid a security guard because of Himmelberger’s occupancy of the apartment.

In sum, the co-op asserted that it was forced to incur the expense of hiring 24-hour security personnel to protect the occupants of the building because of Himmelberger’s conduct, which consisted of an “unrelenting pattern of dangerous and menacing conduct which in fact resulted in a deadly drug overdose by his guest, his brutal beating of his girlfriend with a bat to the head, a Federal drug investigation and numerous arrests for drug trafficking and domestic abuse.”

The proprietary lease stated: (1) that upon termination of a lease (such as here), the co-op was to apply the proceeds toward the payment of the shareholder’s indebtedness, including attorneys’ fees and other expenses; and (2) that if a shareholder refused to correct a condition that was objectionable to the co-op within 30 days of a demand for same, the co-op may do so and the expense of same was to be paid by the shareholder to the co-op.

The court discussed the general principles of contract law, and noted that a proprietary lease must be treated as any other contract and that its provisions lend themselves to both corporate principles and landlord/tenant principles.

The court found that there was no question that cost-shifting provisions, such as those in the proprietary lease, were proper and enforceable. However, a party’s duty to perform may arise only if conditions to its performance were satisfied.

Here, the co-op made no attempt to recover the fees for the security guard in the landlord/tenant proceeding, where the issue of rent and “additional” rent were addressed and, indeed, awarded in the form of attorneys’ fees.

Moreover, while the lease provided that the co-op should be paid expenses from the proceeds of any sale, the court determined that the expenses must be related to monies to be paid under the proprietary lease. The lease did not call for payment of monies paid to a security guard.

Finally, while a shareholder was required to remove any condition that was objectionable, the shareholder was obligated to do so only after a 30-day notice was served identifying the conduct. No such notice was served on Henderson concerning the objectionable conduct of the occupant, Himmelberger.

Accordingly, the co-op was not entitled to recover the fees it had paid to the security guard. Comment: There have been a number of cases that have addressed the parties’ entitlement to fees under co-op documents, including the proprietary lease and alteration agreements. Courts will interpret agreements as contracts, according to their terms. The court concluded that, as there was no default in Siegler, there was no basis upon which to award fees.

Similarly, in Himmelberger, it appears as if the co-op was required to retain security to protect its residents, yet at the same time had no vehicle through which to charge the cost to the shareholder, Henderson. We believe that most proprietary leases are insufficient to cover the myriad circumstances we see time and again, where co-ops are called upon to perform services or address issues as a result of the action of a single shareholder. Unless the reimbursement or indemnification provisions of a lease are revised in accordance with current best practices, it is likely that all shareholders will be required to pay costs incurred by the co-op because of the acts of a single shareholder.


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