LIEB BLOG

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Showing posts with label board. Show all posts
Showing posts with label board. Show all posts

Thursday, February 11, 2021

Co-op / Condo / HOA By-Laws Can Reduce Board's Protection From Suit - If You Don't Know What You're Doing

Traditionally, boards are protected from suit under what is called the Business Judgment Rule, which means that actions that are undertaken in good faith and in furtherance of the community, no matter how foolish, can not give rise to board liability. The only real exceptions to this rule are for acts of self-dealing or discrimination. 


However, poorly drafted By-Laws can change that standard and expose boards to liability. 


This was just highlighted in the recent Appellate Division case of Matter of Kotler v 979 Corp.


In the case there was a dispute about the assignment of a cooperative's proprietary lease on the lessee's death. The Court found that the by-laws supplanted the Business Judgment Rule with a heightened Reasonableness standard when the document stated "consent shall not be unreasonably withheld to any assignment or transfer of this lease."


Then, the board lost the case and was told to pay damages and attorneys' fees. 


Attention boards, managing agents (property managers), and board counsel - don't just copy another board's by-laws - think for yourself.