For decades, litigation concerning access to corporate books-and-records focused primarily on traditional business entities, such as corporations, partnerships, and limited liability companies. But as litigants and lawyers have discovered the efficacy of enforcing statutory and common-law books-and-records access rights through summary proceedings, this trend has spread not only to the residential cooperative corporation context but also to an even more popular form of communal living in New York: condominiums.

Background

As would be expected, books-and-records litigation in the residential co-operative context departs only slightly (if at all) from similar litigation in the corporate context. After all, residential co-operatives are organized as traditional business corporations, with owners holding shares in the corporation (together with an associated proprietary lease of a specific apartment owned by the corporation). Residential co-operative shareholders, therefore, like their business corporation counterparts, possess statutory and common law books-and-records access rights. Business Corporation Law 624; Pokoik v. 575 Realties, 143 A.D.3d 487 (1st Dept. 2016); Retirement Plan for Gen. Empls. Of the City of N. Miami Beach v. McGraw Hill Cos., 120 A.D.3d 1052, 1055 (1st Dept. 2014).

Condominiums—the preferred method of communal home ownership in New York City these days—are altogether different. Organized as unincorporated associations and governed by Article 9-B of the New York Real Property Law (the Condominium Act), condominiums are not business corporations, and owners hold their units in fee simple rather than as tenants of the association. But condominiums nonetheless bear similarities to the corporate form: They are governed by by-laws, ruled by boards of managers and officers, and are beset by disputes concerning finances, improvements, operations, management, and other matters inherent to communal living.

The rights of condominium unit owners to access condominium books-and-records is no exception. This is hardly surprising given the paucity of governing statutory authority. Indeed, the Condominium Act requires only that condominium boards maintain records of receipts and expenditures, which “shall be available for examination by the unit owners.” Real Property Law 339-w. The rest is left for common law adjudication—and for condominium unit owners and boards to wrestle over.

Early Condo Books-and-Records Decisions

Early condominium books-and-records court decisions upheld the rights of unit owners to access lists of unit owners for the purpose of soliciting unit owner votes. In one early case, A&A Properties NY Ltd. v. Soundings Condominium, 177 Misc. 2d 200 (Sup. NY 1998), the court adopted a pragmatic approach to sustaining access rights: “There is no valid reason why the Board should not furnish a unit owner this information and avoid the owner having to incur the time and expense of obtaining the list from the public records.”

Those early rights were confirmed and expanded in a series of decisions in the Pomerance v. McGrath litigation. In a 2013 decision (Pomerance I), the Appellate Division, First Department upheld a condominium unit owner's right to inspect the list of unit owners in connection with a board election. In so doing, the First Department issued the broad but well-reasoned pronouncement that “the rationale that existed for a shareholder to examine a corporation's books and records at common law applies equally to a unit owner vis-à-vis a condominium.” Pomerance v. McGrath, 104 A.D.3d 440, 441 (1st Dept. 2013). Pomerance I thus initiated a trend to equate condominium books-and-records access rights to those in the corporate context based purely on the similarities between the two entity forms.

In 2016, in the same Pomerance litigation, the First Department further broadened the scope of book-and-records to which condominium unit owners are entitled, upholding the same dissident unit owner's rights to a yet wider array of records, including monthly financials, invoices, redacted legal invoices, and board meeting minutes (Pomerance II). All that (and possibly more) was fair game, ruled the First Department, provided the inspection was sought “in good faith and for a valid purpose.” Pomerance v. McGrath, 143 A.D.3d 443 (1st Dept. 2016).

While these cases established a permissive trend in unit owner entitlement to condominium books-and-records, none addressed the access rights of condominium board members. Questions thus persisted: Are condominium board members entitled to access condominium books-and-records simply by virtue of their office? And, if so, just how robust and extensive are those rights?

Coincidentally, just as the First Department issued its Pomerance II decision, a New York trial-level court addressed and answered these questions in a case of first impression under New York law.

Condo Board Member Rights

Constructed in the heart of downtown Brooklyn in 2009, The Toren Condominium (the Toren) is a predominantly residential condominium with two commercial units. The larger of those commercial units is owned by GDLC, LLC, whose principal, Michael Salzhauer, also serves as a member of the Toren's board of managers.

In 2016, Salzhauer (as board member) and GDLC (as unit owner) requested access to the Toren's book-and-records, including its financial statements, budget documents, and an engineering report and settlement agreement concerning prior litigation between the Toren and its sponsor/developer.

When the Toren refused multiple written requests made by both Salzhauer and GDLC, Salzhauer and GDLC commenced a CPLR Article 78 proceeding to enforce their respective books-and-records access rights: GDLC as a commercial unit owner, and Salzhauer as a sitting condominium board member. The Toren cross-moved to dismiss the petition on the ground that Salzhauer and GDLC had refused to sign a confidentiality agreement required by the board as a pre-condition to books-and-records access—a pre-condition that the board argued was immune to challenge under the business judgment rule.

New York law has long upheld and safeguarded the books-and-records access rights of corporate board members, describing those rights as “absolute” and “unqualified.” See, e.g., Cohen v. Cocoline Products, 309 N.Y. 119 (1955); In re Lau v. DSI Enterprises, 102 A.D.2d 794, 794 (1st Dept. 1984); Edelman v. Goodman, 21 A.D.2d 786 (2d Dept. 1964); Dusel v. Castellani, 43 A.D.2d 799 (4th Dept. 1973); Baker v. Henry Glass & Co., 140 Misc. 2d 836 (Sup. NY 1988). Salzhauer argued that the same principle articulated by the First Department in Pomerance I—i.e., the notion that the right of shareholders to access books-and-records “applies equally to a unit owner vis-à-vis a condominium”—should apply with equal force in the case of a sitting condominium board member. That is, just as any corporate director, a condominium board member should be entitled to access condominium books-and-records at any time, for any purpose, and not subject to the board's business judgment whims, reasonable or otherwise.

The Supreme Court, New York County, in GDLC v. The Toren Condominium, 53 Misc. 3d 1214(A) (Sup. NY 2016), agreed. In confirming Salzhauer's entitlement to the Toren's books-and-records as a sitting condominium board member, the court drew the same parallel to the corporate context vis-à-vis board members as had been drawn by the First Department in the case of unit owners: “Just like corporate directors, the board members of a condominium have a fiduciary duty to the condominium and individual unit owners … to fulfill a board member's fiduciary obligations, board members need unfettered access to the books and records of the condominium.” Id.

In light of these “unfettered” rights, the court rejected the board's argument that its decision to maintain confidentiality of the requested books-and-records was impervious to judicial review under the business judgment rule. On the contrary, the court held, “Salzhauer would not be fulfilling his fiduciary duties as a board member” if he could not access and review the requested books-and-records. Id.

(As for GDLC's entitlement to the books-and-records, citing both Pomerance I and Pomerance II, the court also upheld GDLC's entitlement to access the books-and-records, finding that GDLC's requests were in good faith and for several valid purposes.)

Conclusion

In addition to further broadening the pattern of permissiveness in condominium books-and-records disputes, the Toren case serves as a reminder of just how readily courts in the condominium context will draw parallels to, and seek guidance from, established benchmarks in the traditional corporation context.

Ethan A. Kobre is a commercial and real estate litigator with Schwartz Sladkus Reich Greenberg Atlas, counsel to Petitioners in the Toren litigation.

For decades, litigation concerning access to corporate books-and-records focused primarily on traditional business entities, such as corporations, partnerships, and limited liability companies. But as litigants and lawyers have discovered the efficacy of enforcing statutory and common-law books-and-records access rights through summary proceedings, this trend has spread not only to the residential cooperative corporation context but also to an even more popular form of communal living in New York: condominiums.

Background

As would be expected, books-and-records litigation in the residential co-operative context departs only slightly (if at all) from similar litigation in the corporate context. After all, residential co-operatives are organized as traditional business corporations, with owners holding shares in the corporation (together with an associated proprietary lease of a specific apartment owned by the corporation). Residential co-operative shareholders, therefore, like their business corporation counterparts, possess statutory and common law books-and-records access rights. Business Corporation Law 624; Pokoik v. 575 Realties, 143 A.D.3d 487 (1st Dept. 2016); Retirement Plan for Gen. Empls. Of the City of N. Miami Beach v. McGraw Hill Cos. , 120 A.D.3d 1052, 1055 (1st Dept. 2014).

Condominiums—the preferred method of communal home ownership in New York City these days—are altogether different. Organized as unincorporated associations and governed by Article 9-B of the New York Real Property Law (the Condominium Act), condominiums are not business corporations, and owners hold their units in fee simple rather than as tenants of the association. But condominiums nonetheless bear similarities to the corporate form: They are governed by by-laws, ruled by boards of managers and officers, and are beset by disputes concerning finances, improvements, operations, management, and other matters inherent to communal living.

The rights of condominium unit owners to access condominium books-and-records is no exception. This is hardly surprising given the paucity of governing statutory authority. Indeed, the Condominium Act requires only that condominium boards maintain records of receipts and expenditures, which “shall be available for examination by the unit owners.” Real Property Law 339-w. The rest is left for common law adjudication—and for condominium unit owners and boards to wrestle over.

Early Condo Books-and-Records Decisions

Early condominium books-and-records court decisions upheld the rights of unit owners to access lists of unit owners for the purpose of soliciting unit owner votes. In one early case, A&A Properties NY Ltd. v. Soundings Condominium , 177 Misc. 2d 200 (Sup. NY 1998), the court adopted a pragmatic approach to sustaining access rights: “There is no valid reason why the Board should not furnish a unit owner this information and avoid the owner having to incur the time and expense of obtaining the list from the public records.”

Those early rights were confirmed and expanded in a series of decisions in the Pomerance v. McGrath litigation. In a 2013 decision (Pomerance I), the Appellate Division, First Department upheld a condominium unit owner's right to inspect the list of unit owners in connection with a board election. In so doing, the First Department issued the broad but well-reasoned pronouncement that “the rationale that existed for a shareholder to examine a corporation's books and records at common law applies equally to a unit owner vis-à-vis a condominium.” Pomerance v. McGrath , 104 A.D.3d 440, 441 (1st Dept. 2013). Pomerance I thus initiated a trend to equate condominium books-and-records access rights to those in the corporate context based purely on the similarities between the two entity forms.

In 2016, in the same Pomerance litigation, the First Department further broadened the scope of book-and-records to which condominium unit owners are entitled, upholding the same dissident unit owner's rights to a yet wider array of records, including monthly financials, invoices, redacted legal invoices, and board meeting minutes (Pomerance II). All that (and possibly more) was fair game, ruled the First Department, provided the inspection was sought “in good faith and for a valid purpose.” Pomerance v. McGrath , 143 A.D.3d 443 (1st Dept. 2016).

While these cases established a permissive trend in unit owner entitlement to condominium books-and-records, none addressed the access rights of condominium board members. Questions thus persisted: Are condominium board members entitled to access condominium books-and-records simply by virtue of their office? And, if so, just how robust and extensive are those rights?

Coincidentally, just as the First Department issued its Pomerance II decision, a New York trial-level court addressed and answered these questions in a case of first impression under New York law.

Condo Board Member Rights

Constructed in the heart of downtown Brooklyn in 2009, The Toren Condominium (the Toren) is a predominantly residential condominium with two commercial units. The larger of those commercial units is owned by GDLC, LLC, whose principal, Michael Salzhauer, also serves as a member of the Toren's board of managers.

In 2016, Salzhauer (as board member) and GDLC (as unit owner) requested access to the Toren's book-and-records, including its financial statements, budget documents, and an engineering report and settlement agreement concerning prior litigation between the Toren and its sponsor/developer.

When the Toren refused multiple written requests made by both Salzhauer and GDLC, Salzhauer and GDLC commenced a CPLR Article 78 proceeding to enforce their respective books-and-records access rights: GDLC as a commercial unit owner, and Salzhauer as a sitting condominium board member. The Toren cross-moved to dismiss the petition on the ground that Salzhauer and GDLC had refused to sign a confidentiality agreement required by the board as a pre-condition to books-and-records access—a pre-condition that the board argued was immune to challenge under the business judgment rule.

New York law has long upheld and safeguarded the books-and-records access rights of corporate board members, describing those rights as “absolute” and “unqualified.” See, e.g., Cohen v. Cocoline Products , 309 N.Y. 119 (1955); In re Lau v. DSI Enterprises , 102 A.D.2d 794, 794 (1st Dept. 1984); Edelman v. Goodman , 21 A.D.2d 786 (2d Dept. 1964); Dusel v. Castellani , 43 A.D.2d 799 (4th Dept. 1973); Baker v. Henry Glass & Co. , 140 Misc. 2d 836 (Sup. NY 1988). Salzhauer argued that the same principle articulated by the First Department in Pomerance I—i.e., the notion that the right of shareholders to access books-and-records “applies equally to a unit owner vis-à-vis a condominium”—should apply with equal force in the case of a sitting condominium board member. That is, just as any corporate director, a condominium board member should be entitled to access condominium books-and-records at any time, for any purpose, and not subject to the board's business judgment whims, reasonable or otherwise.

The Supreme Court, New York County, in GDLC v. The Toren Condominium , 53 Misc. 3d 1214(A) (Sup. NY 2016), agreed. In confirming Salzhauer's entitlement to the Toren's books-and-records as a sitting condominium board member, the court drew the same parallel to the corporate context vis-à-vis board members as had been drawn by the First Department in the case of unit owners: “Just like corporate directors, the board members of a condominium have a fiduciary duty to the condominium and individual unit owners … to fulfill a board member's fiduciary obligations, board members need unfettered access to the books and records of the condominium.” Id.

In light of these “unfettered” rights, the court rejected the board's argument that its decision to maintain confidentiality of the requested books-and-records was impervious to judicial review under the business judgment rule. On the contrary, the court held, “Salzhauer would not be fulfilling his fiduciary duties as a board member” if he could not access and review the requested books-and-records. Id.

(As for GDLC's entitlement to the books-and-records, citing both Pomerance I and Pomerance II, the court also upheld GDLC's entitlement to access the books-and-records, finding that GDLC's requests were in good faith and for several valid purposes.)

Conclusion

In addition to further broadening the pattern of permissiveness in condominium books-and-records disputes, the Toren case serves as a reminder of just how readily courts in the condominium context will draw parallels to, and seek guidance from, established benchmarks in the traditional corporation context.

Ethan A. Kobre is a commercial and real estate litigator with Schwartz Sladkus Reich Greenberg Atlas, counsel to Petitioners in the Toren litigation.