Eva Talel

This column features an important recent decision by the Supreme Court, New York County, regarding who has the exclusive right to use a building's rooftop, and succinctly summarizing current law on when directors may be held personally liable for board actions.

The Dispute

In Rushmore v. Park Regis Apartment, 2018 WL 3126499 (June 20, 2018), (Bannon, J.), plaintiffs contended that they had the exclusive right to use a portion of the building's roof located directly above their penthouse apartment. The defendants (the co-op and two of its directors) disputed the claim, arguing that the space belonged to the co-op and was intended for use by all building residents.

At the heart of the dispute was whether the building's roof—as opposed to the wraparound terraces at the same level as the apartment (which are the “roof” of the apartments below)—was “adjoining” or “appurtenant” to the apartment at issue, pursuant to the standard provision in the co-op's proprietary lease:

“If the apartment includes a terrace, balcony or a portion of the roof adjoining a penthouse, the [apartment owner] shall have and enjoy the exclusive use of the terrace or balcony or that portion of the roof appurtenant to the penthouse …”

Consistent with its position that this lease provision did not give exclusive use of the roof over the building's several penthouse apartments to those apartments' owners, when the plaintiffs purchased their penthouse apartment in 2006, the co-op required them to execute an agreement “acknowledging” that they had been advised by the board that the co-op intended to re-open the garden on the roof over the penthouses for use by all building residents. When the plaintiffs sought to sell that apartment in 2014, the board suggested to plaintiffs that they advise prospective purchasers of the board's acknowledged intention for the roof over the apartment. When the plaintiffs executed a contract to sell their apartment, the board required the prospective purchasers to execute an acknowledgement that the roof over the apartment is the property of the co-op and not for the exclusive use of the penthouse apartment owner. The prospective purchasers refused, the transaction did not close, and the plaintiffs claimed that the board's required acknowledgement reduced their apartment's market value. Thereafter, the plaintiffs lowered their purchase price, negotiated the language of the acknowledgement agreement, and sold the apartment for less than the original/asking purchase price.

The plaintiffs then commenced a lawsuit against the co-op and certain board members, alleging breach of the proprietary lease, which decreased the value of their apartment, by improperly stripping away the rights of penthouse apartment owners to object to the co-op's use of the penthouse roof as a garden terrace for building residents, and that certain directors breached their fiduciary duty to the plaintiffs by preparing and requiring execution of the acknowledgement by the purchaser.

The Decision

The court summarily ruled for the defendants, rejecting the plaintiffs' argument that the roof above the penthouse apartment was an “appurtenance,” holding that an appurtenance “is a right of way that is necessary to give usable enjoyment to the conveyed premises (citing Fischer v. Anger, 283 A.D. 2d 2nd 865 (3rd Dept. 2001)), and finding “that exclusive use of the penthouse roof by the owner of the penthouse [apartment] is not necessary to give that owner usable enjoyment of the [apartment], [nor] to give the owner of the apartment[s] immediately thereunder usable enjoyment of those apartments.” Further, the court found the lease to be unambiguous in this regard and that the words “the portion of the roof adjoining a penthouse” and “portion of the roof appurtenant to the penthouse” appearing in the proprietary lease “were not intended … to refer to … the [building's] roof but only the roof area on the same level and just outside the penthouse” (citing Rose v. 115 Tenants, 150 A.D. 3rd 472 (1st Dept. 2017) and Gracie Terrace Apartment v. Goldstone, 103 A.D. 2d 699 (1st Dept. 1984), app dismissed, 63 N.Y. 2d 925 (1984)).

In conclusion, the court held that the roof over the penthouse neither “adjoins” nor is an “appurtenance” to the penthouse apartments, and therefore the board was not precluded from nor subject to a damage claim for asking prospective purchasers to acknowledge the co-op's rights to the use of the roof.

Board Member Liability for Breach of Fiduciary Duty

Increasingly, apartment owners who challenge board actions have also sought to assert claims against board members individually. The Rushmore plaintiffs too asserted such claims against individual board members.

The court first stated the law governing board member liability: the Business Corporation Law §501(c) prohibits the unequal treatment of similarly situated apartment owners (citing Wapnick v. Seven Park Avenue, 240 A.D. 2d 245 (1st Dept. 1997); board members, including members of a co-op board, owe a fiduciary responsibility to individual shareholders to treat them “fairly and evenly” (citing Schwartz v. Marien, 37 N.Y. 2d 487, 491 (1975); and where the violation of such duty is alleged a claim may be maintained against such individuals (citing Ramos v. 24 Cincinatus, 104 A.D. 3d 619 (1st. Dept. 2013), and Fletcher v. Dakota, 99 A.D. 3d 43 (1st Dept. 2012).

Importantly, the court held that “no principle of corporate law [requires] that director liability arises only where the director commits a tort independent of the tort committed by the corporation itself”; a board member who “participates in the commission of a tort may be held individually liable” (citing Fletcher v. Dakota, supra).

However, an apartment owner challenging a board's action and seeking to hold board members individually liable has the burden to establish participation in misconduct by the defendant board member and damages caused thereby. Conversely, absent such participation, a board member should be protected from personal liability.

The Rushmore court held that the plaintiffs failed to allege conduct by the defendant board members showing that they committed misconduct, or that they imposed any unauthorized restrictions on the sale of their apartment. Instead, the board members established that the plaintiffs were treated no differently from “any other penthouse apartment owner[s] and that such treatment was fair, authorized, and within the intendment of the proprietary lease,” and the court therefore summarily dismissed the plaintiffs' claims against the individual board members.

Eva Talel is a partner at Stroock & Stroock & Lavan and an adjunct professor at New York Law School. Robert I. Cantor, counsel representing the defendants in Rushmore v. Parks Regis, and Margaret Jones, a legal analyst at the firm, assisted in the preparation of this column. Stroock is counsel to the Real Estate Board of New York.