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Richard Siegler is a partner in the firm of Stroock & Stroock & Lavan and is an adjunct professor at New York Law School. Eva Talel is also a partner in Stroock & Stroock & Lavan. Nodira Rakhmatkarieva, a student at New York Law School, assisted in the preparation of this article. New issues concerning apartment alterations have emerged which should be addressed by prudent co-op or condominium management by adapting existing forms of apartment alteration agreements. These issues include evolving case-law questioning the enforceability of liquidated damage provisions — historically, the mechanism for enforcing the time limit for completion of an alteration. Another area of concern is protecting the co-op or condominium from the consequences of an unanticipated adverse outcome, such as increased noise, after an approved alteration has been completed. This column updates previous articles on the subject, While proprietary leases in co-ops and by-laws in condominiums broadly govern apartment alterations, the governing details should be found in an apartment alteration agreement. Model Form Alteration Agreement In 2000, the Residential Management Council of the Real Estate Board of New York (REBNY), promulgated two standardized forms of alteration agreements, one for structural changes and the other exclusively for decorative/cosmetic work. Co-op and condominium boards and management are well-served by these standardized agreements. They clarify responsibilities and facilitate uniformity and professionalism. The model agreements suit buildings with varying apartment values and allow for riders to address unique building conditions or special alteration features. Liquidated Damages for Delays A liquidated damage clause in an alteration agreement serves as a motivation for the altering shareholder to timely complete the work. The 2001 decision in Behler v. Ten Eighty Apartment Corp., The co-op submitted affidavit testimony that the charge covered the extra expenses and use of the building’s facilities and covered inconveniences to other shareholders. Nonetheless, the court found the $500 per day delay fee greatly disproportionate to the $100 fee for permitted work and held it was an unenforceable penalty because it did not represent the liquidation of actual co-op loss or expenses. Recently, in 179 East 70th Street Corp. v. Steindl, The court held that the provision was an unenforceable penalty because it was disproportionate to any actual loss or expense incurred by the co-op. Importantly, the court also held that the co-op’s damages are calculable, thereby negating the rationale for enforceability of liquidated damages clauses — that the actual loss suffered is difficult to determine precisely. These decisions suggest it may be prudent for boards to reconsider imposing escalating alteration fees if an alteration exceeds its permitted time frame. Instead, a reasonable time frame for completion of each job should be established by the building architect and embodied in the alteration agreement, with an exception for force majeure. Management should monitor the work and time frame, at the shareholder’s expense. If it becomes apparent that the work will not be completed timely, the board should stop the work until the submission of a schedule for each trade showing the new proposed completion date of the work. If the proposed schedule is determined to be reasonable by the building’s architect, work may be resumed after the agreement is amended to include a new completion date and payment is made in settlement of all sums owed to the co-op or condominium, as a condition for extending the completion date. The alteration agreement should specifically provide for shareholder consent to entry of an injunction halting the work if it is not timely completed and for payment of counsel fees incurred in procuring same. Due Diligence To avoid erroneous approval of an alteration, boards must make sure that apartment owners present all necessary plans, surveys and other documents in support of the application and subject them to a thorough and diligent review by both the managing agent and the professional engaged to review alteration plans. Once a board consents to the proposed alteration and executes the alteration agreement, it may not withdraw its consent as an exercise of discretion under the business judgment rule. Unauthorized Alterations A frequent problem for co-op and condominium boards is unauthorized alterations by apartment owners. The shareholder argued that the terrace was not illegal because the board never objected to the terrace improvements her predecessor had made and caused her to believe that she could enclose the terrace because she was billed for the costs of repair and removal of the terrace surface. The court rejected the shareholder’s arguments and held that she had violated her proprietary lease. Specifically, the lease prohibited the apartment owner from performing any alterations to a terrace without first obtaining written board consent. Also, the lease provided that any such structure could not impinge on public areas of the building and could be removed by the co-op if so required for repair of the building. The court concluded that the terrace alteration was therefore illegal because no written board consent was obtained and it hindered repair of the building’s chimney. ‘Bad Outcome’ Alteration Enhanced Indemnification. It is common to include in the alteration agreement a provision indemnifying the co-op or condominium against possible losses that the alteration work might cause. However, it is very important to make this provision as broad as possible with respect to the direct and indirect losses and impacts that the alteration might cause. It should require the shareholder to indemnify not only for issues that might occur while the work is in progress or right after its completion, but also for any conditions or losses that may arise years after the alteration work has been completed, such as noise transmission from one apartment to another due to the failure to provide adequate insulation. Adding the following italicized language to a standard indemnity clause is recommended to achieve the foregoing result: The Shareholder agrees to indemnify and hold harmless the Corporation . . . from and against any and all claims, damages, expenses (including reasonable attorneys’ fees and expenses) suffered to persons or property as a result of or in any way related to (i) the work to the Shareholder’s apartment and its adverse impact on the comfortable occupancy of other apartments in the Building; (ii) the Shareholder’s failure to comply with the Shareholder’s obligations hereunder (including without limitation the obligation to repair and maintain the work); and (iii) the Shareholder’s failure to perform the work in accordance with the approved plans and specifications and the terms and conditions contained herein . . . Conclusion Use of the standardized REBNY forms and guidelines will enhance management of the alteration process. Elimination of escalating fees for alteration completion delays should make liquidated damages clauses less open to challenge. The use of stop-work provisions, backed-up by shareholder consent to court-ordered stop-work injunctions, should improve management of alteration time-frames. And the enlargement of indemnification provisions should enhance a co-op or condominium’s protection from the consequences of a “bad outcome” alteration.

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