LIEB BLOG

How current events impact your business and real estate holdings

Showing posts with label business judgment rule. Show all posts
Showing posts with label business judgment rule. 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.




Monday, January 20, 2020

Eye on Real Estate Q&A: Co-op Disapproval of Sale and Suing the Board

On this week's episode of Eye on Real Estate, January 18, 2020, we were asked about suing a cooperative board for refusing a sale by creating an absolute floor price, which unit owners had to obtain in order to sell units to third-party purchasers.

Initially, we discussed the business judgment rule, which generally protects boards from lawsuits as long as the board acted in good faith and in accordance with it's power. 

However, there can be a case against the board where the board created an absolute floor price in bad faith or if the board created the absolute floor price beyond its powers as set forth in the bylaws. 

As the courts explain, the test is whether the board's floor is "a provision merely postponing sale during the option period," which is permissible or, if it is, instead, "an effective prohibition against transferability itself," which is impermissible. 

So, if you are being blocked on price, consider a lawsuit after you obtain and review the bylaws. 

For a great explanation of this issue, see Oakley v. Longview Owners, Inc.