The business judgment rule applies to both residential cooperative corporations and to condominiums. Levandusky v. One Fifth Avenue Apt. Corp., 553 N.E.2d 1317 (1990); Perlbinder v. Bd. of Managers of 411 E. 53rd St. Condo., 65 A.D.3d 985, 989 (1st Dep't 2009). However, the business judgment rule "will not serve to shield boards from actions that have no legitimate relationship to the welfare of the [cooperative or] condominium, or that deliberately single out individuals for harmful treatment". Perlbinder., 65 A.D.3d at 989.
For board members and their counsel seeking guidance, a recent federal court decision may provide a deeper understanding about the extent of the business judgment rule's reach in addressing repair requests. Kofinas v. Fifty-Five Corp., 2021 WL 3169155 (S.D.N.Y. July 27, 2021) (The Kofinas decision dismissed the plaintiffs' claims for breach of contract, negligence, breach of fiduciary duty and aiding and abetting a breach of fiduciary duty after a bench trial, and after previously having already dismissed the plaintiffs' tortious interference with contract, and aiding and abetting tortious interference with contract, and all claims for punitive damages. Id. at *1.)
It would appear that reasonable forms of patch work, such as caulking and sealing cracks, rather than engaging in a more permanent, and expensive repair program, may satisfy a board's repair obligations – provided those cheaper alternatives do in fact, resolve the complaint. Additionally, it is neither per se unreasonable, nor negligent, for a board to prioritize repair projects, but a board should nevertheless be prepared to justify the reasons for its decisions in case there is a claim of breach of fiduciary duty, which would trigger a judicial inquiry into the reasons for the decision. Levandusky v. One Fifth Ave. Apartment Corp., 75 N.Y.2d 530, 537-38 (1990).
This is discussed in the full analysis that originally appeared in the September 1, 2021 publication of the New York Law Journal. Access may require a subscription.
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