Why Your Alteration Rules Might Land You in Court

When board members think they have unlimited power, they run the risk of going too far when handling unit owner alterations. Carol Sigmond, partner at GreenspoonMarder, shares eye-opening stories from her legal practice, including one particularly puzzling case involving dangerously hot walls and a board's baffling response that turned a straightforward renovation into months of conflict.

Sigmond discusses the fine line between reasonable oversight and overreach, plus reveals her three key takeaways for boards navigating alterations in today's changing regulatory landscape. Whether you're dealing with construction defects, climate law requirements, or just trying to set fair policies, this conversation offers insights that could help your board avoid serious legal trouble down the road. Habitat's Paula Chin conducts the interview. 

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The business of running a building is demanding work that requires making endless decisions — some that can quickly lead your board into a quagmire of legal difficulties. Legal Talk interviews New York's leading co-op/condo attorneys to find solutions, and get some guidance, on these challenges. For more co-op and condo insights, sign up to receive Habitat's free newsletters or become a Habitat subscriber today!

Transcript

Paula Chin: Welcome to Legal Talk, a conversation about governance issues that New York's co-op and condo boards are tackling today. I'm Paula Chin with Habitat, the New York City magazine for co-op and condo board directors, and my guest today is Carol Sigmond, a partner at GreenspoonMarder. When construction defects surface in new condos, boards at buildings that are still controlled by the sponsor can dodge the bullet of having to remedy problems that say arise from alterations, but at older buildings where boards have to approve alteration plans, they can often run into trouble, especially if they set conditions that are unreasonable for people seeking to do alterations. Carol, I understand you've dealt with both circumstances. Can you tell us about them?

Carol Sigmond: Sure. I'm dealing right now with some active defect cases involving new construction. And in all cases it is the unit owner, not the board that is proceeding forward because in all cases the board is still controlled by the developer. It's interesting because the, board members from the condo because they're still in the minority and don't control the board, are watching all of this with great concern because at some point they will tip over the 50%, they will take over, and they will have to decide what to do.

And in those cases, I think there's been some common sense shown. In some cases the board members. Individually are tracking the litigation and watching to see what happens and trying to learn what the issues are that we identified. Some of the things that we identified are definitely building wide.

They will be everywhere in the building, and I suspect that the board will be confronted with what to do. Some of them are unique to the particular unit there, but in fact the more serious issues are the ones that I think are gonna be building-wide. 

Paula Chin: Can you tell me about any particular buildings where, let's say a unit owner did some work inside and then it turns out that there were some serious problems, and whether in fact, in those cases, was the board responsible?

Was the board not? What happened there? 

Carol Sigmond: I am familiar with a situation now that's actually still ongoing, in which the unit owner, after they bought the unit, discovered that when they touched walls on the columns, the walls were very hot, which is actually a code violation. The reason the walls were hot is because they were chase walls for the steam system, and the steam pipes had never been wrapped.

The steam pipes are supposed to be wrapped for two reasons. One, to insulate the pipes so that you don't use excess steam to warm the building. And two, they're supposed to be wrapped so that they in fact don't pose a burn hazard if you touch the wall. This particular unit owner was going to do a fairly extensive renovation, so decided to wrap the steam pipes. Now, the cost of the wrapping is not a big number, and she was perfectly happy to have assumed that cost. It really wasn't her cost. It really was a common element cost, and the mistake that the board made was to torture her and to use this as a reason to complain she wasn't doing this right or she wasn't doing that right.

And complaining that it was taking too long. In fact, it turned out to be much more complicated to wrap these pipes because some of them were very close together. Some of them were so close together that they actually were a code issue. And so she keeps dealing with this, and dealing with this, and dealing with this, and they continue to torment her to the point that she gets unhappy, which is why I'm now looking at it. So if you're a board and you're thinking about these kinds of issues, particularly in the climate change area, and I say this because of Local Law 97 of 2019. Very important to understand what is your obligation, what is the unit owner's obligation, and if the unit owner is actually dealing with a climate issue, trying to save energy, trying to reduce the building's footprint. It's probably not going to look good in court if what you've been doing is making it hard. 

Few things I would not do, just by way of example, I would not have interior designers trying to oversee mechanical or fire code trades or things of that nature. I would get real engineers in there. I would not use this as a pretext for some other issue. I would deal with these issues separately. And I would always understand that if you annoy that unit owner enough, they're going to come back at you and say, this is a common element. I want all the money back.

And it isn't just in the steam area. I'll give you another example of something that boards should do. There are constant improvements in materials, constant efforts to improve materials. One of the materials that is used very heavily for fire retarding is drywall. Why? 'Cause it's cementitious and it doesn't burn very well.

And if you put enough layers of drywall in, you get a two hour or four hour rating. There are now paints and other coatings that will give you a better rating, particularly on metal. So it's no longer necessary to cover up all the metal in some of these apartments with drywall. Just put the new paints on it. You're gonna get a better fire rating. Boards don't keep up with these kinds of materials. Most of them have no training. Managing agents ought to keep up on this, but my concern with managing agents sometimes is that they're more concerned with their fees than they are with the efficient operation of the building.

So boards need to be careful. 

Paula Chin: Carol, can we go back to this particular, building in this unit. I assume this was a condo. Okay, so the unit owner discovers these very hot walls, which are obviously dangerous and decides that she wants to take care of it herself even though it's not her responsibility.

Why on earth would a board not allow this and give this person a difficult time? I mean, that just sounds insane.

Carol Sigmond: Yeah, sounds insane to me too. So I have a number of thoughts on that issue. One is that the unit owner involved ultimately took control of the board in a subsequent election. So there may have been a little bit of jealousy involved in that situation. Board members cannot indulge their personal feelings. They have gotta stay above this.

Secondly I actually think there was a great deal of ignorance involved. I do not think this particular board is very well informed. When you listen to them talk and when you read the emails they really just do not understand. They did not understand they had a code problem. They do not understand the financial consequences of Local Law 97 of 2019. And they just think that they've got power. And sometimes they think they have too much power. Recently I was speaking with a lawyer who does a lot of work for co-op and condo boards, and we were talking about a very hyper-technical legal issue as to whether or not the individual unit owners would have standing to enforce the rights of the building as a whole, or if that was something restricted to the board.

And if it was restricted to the board, would the unit owners who were adversely affected by the failure to enforce this particular provision have the right to go after the board members for breach of fiduciary duty? And this lawyer did not look at these issues the way we thought they should look at them.

And we were having this debate. And she finally said to me, oh, but we never find a fiduciary duty for the board members. We're always trying to give them the maximum amount of authority, and we interpret the documents to do that for them. And I'm thinking to myself, you gotta be kidding me.

That is very risky. First of all, if you're the lawyer giving that advice and you're wrong, you've just opened your malpractice policy up. Number two, I don't think it's a good plan to tell boards they're not accountable to the property owners. The courts are not ultimately gonna support an attitude like that.

There has been support for the concept of the business judgment rule, but that's subject to a little bit of erosion as boards make silly decisions. The business judgment rule's not gonna save you if you don't understand that the new paints are better than drywall. The business judgment rule isn't gonna save you if you are insisting that someone spend a lot of money to do what is essentially common element work that you probably have a duty to do under both the bylaws, the condo offering plan, and possibly Local Law 97 of 2019.

Use your head. 

Paula Chin: So getting back to this building. Again I'm just trying to still wrap my head around what the board was doing. When you say they were tormenting the unit owner, what were they doing? Were they setting all of these requirements, like physical requirements in terms of how the work had to be done?

What were they doing? 

Carol Sigmond: They were doing a number of things. One is they had an interior designer trying to inspect and oversee the work, so all of the decision making made no sense. And in this particular case the unit owner had access to a mechanical engineer who did know the law. So that was problem one.

Problem two, the individual board members thought they had a right to be in and out of the apartment based on the fact that they were doing work. Managing agent has a right to be in and out of the apartment. The Super does. Not the individual board members. The individual board members were going through the apartment and then distracting the workforce and trying to give instructions.

They had no authority to do that either. And in fact, it was foolish. They didn't know what they're talking about. So those were two of the problems they created . Then as a result of all of that, they caused delay and additional expense with the contractor, and then they tried to assess liquidated damages based on the delays they caused.

Paula Chin: Where does it stand now? I would imagine this is going to lead to a bad lawsuit. 

Carol Sigmond: At some point. I think it will. There's gonna make one more attempt to try to resolve it peacefully and then we'll have a bad lawsuit. 

Paula Chin: Where does it stand now, and where do you think it's heading? 

Carol Sigmond: I suspect there's a serious effort being made to resolve it. I think there's probably a realization now that the work was common element work. The unit owner has made a demand for the money back and has started to surface this issue and I believe that ultimately will resolve this short of litigation.

I don't think this board can afford to have some of these decisions out in public. I don't think they can afford to have the litigation. You go too far as a board, you can't afford to have too much sunshine. 

Paula Chin: Carol, what would you say the takeaway for boards is here from this rather bizarre situation? 

Carol Sigmond: I have three takeaways for boards.

First of all. Try to understand that when unit owners are doing improvements to their apartments and upgrading and modernizing them, they're doing you a favor because they're helping to maintain the property and keep the property values up. That's number one. Number two, if you have sensible rules, for example, replace the feeder pipes back to the walls whenever you do certain types of work, you're gonna constantly modernize the building and you're gonna constantly reduce the chance for leaks. And let's understand, water leaks are the number one problem in apartment buildings really. So you know, let's see what we can do to avoid leaks. So that's the first thing.

Understand what the unit owner's goals are. Embrace those goals and try to make sensible policies that are consistently applied. That's number one. 

Number two, if there are things that you believe should not happen at all, either for insurance reasons or other reasons, such as moving gas lines, which no one ever permits because of the risk involved, or the other big one is wet over dry -- allowing people to add wet installations in areas that were not intended to take them. Those are sensible. Make them consistent, publish them, let people know they exist. 

And number three, face the future. Okay? So if you are in New York City in 2024, you face the future.

You want people to convert kitchens from gas to all electric. Why? Because gas service is gonna disappear eventually and it's going to add to your climate footprint under the calculation of climate over time. So what should you do? Personally, I think you increase your panel size, you bring in additional power from the outside, from ConEd or KeySpan, whoever you get your power from. You increase your panel size. You increase your electrical capacity, and then set out sensible, not silly, but sensible policies for the designers, for the unit owners to access the new power and run it to their kitchens.

So if, for example, there's lots of room in the ceiling and it should be easy to run it, then just tell 'em to run it in the ceiling in whatever conduit you feel is appropriate. And we would pick a fire conduit. That's the kind of thing boards should walk away from this with. 

And the big thing when we're saying face the future is, New York City has a lot of policies in place, so does the state, to try and deal with climate change. The gradual elimination of gas is one. If you are in a steam building, you need to be thinking about what happens if the city starts to eliminate steam. It can't completely, but they're trying to. They really want this entire city to go all electric. Translation? Start to think about, do I have enough area to put in solar panels?

Do I have a place for a battery shack? Can I begin to offset electric costs within my building by making some of these kinds of improvements now. Face the future is a very key takeaway I think for boards. 

Paula Chin: And obviously with any kind of alterations though, to be reasonable in terms of what you do require of shareholders or unit owners seeking to do them.

Okay, great. Thank you so much for joining us today, Carol. This was really informative, I think. 

Carol Sigmond: Thank you for having me. It was fun.