No Control Equals No Liability Condo Owners and Third Party Liability

No Control Equals No Liability

Recently, the Appellate Division, First Department—the state’s second highest court located in Manhattan—announced a decision with far-reaching implications for the state’s condominium owners. In the case Pekelnaya v. Allyn, the court ruled that individual condo owners cannot be held liable to third parties for injuries sustained as a result of a defective condition in the “common elements” of the building.

As most apartment-dwellers know, common elements are the parts of the property which are necessary or convenient to its existence, maintenance and safety, or normally in common use. Common elements include (but are not limited to) the land on which the building sits, the foundation, roof, halls, lobbies, stairs, stairways, fire escapes, entrances and exits, as well as the basements, cellars, yards, gardens, recreational or community facilities, parking areas, storage spaces and any elevators and escalators.

The Case

The case of Pekelnaya v. Allyn involved a lawsuit against a condominium association and 11 individual unit owners on 106th Street. In the suit, a father and his son claimed they suffered head injuries when they were hit by a section of chain-link fence that fell from the building’s roof. The plaintiffs’ lawyers argued that the condo board’s insurance policy covered only $2 million in damages, which they claimed was insufficient. They therefore decided to target each of the individual unit owners and their liability insurance policies too.

This case is especially important because in it, the court addressed the public policy issue of whether condo unit owners should be financially liable just because their building’s board of managers has an inadequate amount of insurance coverage. The court ruled that the condominium board in this case had obtained substantial insurance coverage, and that although the law affords a means of recovery, it need not guarantee that the defendant will have sufficient resources to provide full compensation for any and all losses sustained by an injured person.

The court also noted that the questions of whether boards should be required to carry a minimum amount of general liability insurance, and what the amount of such coverage should be are matters that the New York State Legislature must address. The court urged the legislature to require condominium associations to obtain a minimum amount of insurance deemed adequate to protect the public—although it did not state the amount.

The Nature of Ownership

Condo ownership is a separate and distinct scheme of real estate ownership that was created by the New York State Legislature with the ratification of 1964’s Condominium Act.

By design, there is no landlord-tenant relationship between a condominium’s governing body—the board of managers—and its individual unit owners. In addition to their individual unit, condominium unit owners own a proportionate share of the common elements. However, as specifically set forth in the Condominium Act, each condominium unit is deemed to be under the control of the person who owns it, and the board of managers is deemed in control of the common elements. However, the Condominium Act does not state that individual unit owners should be liable in tort for injuries to a third party as a result of defective conditions in the building’s common elements.

By contrast, the Multiple Dwelling Law imposes a non-delegable duty on real estate owners to maintain their premises in a reasonably safe condition. If the premises are not kept reasonably safe, and a person is injured on the premises, liability will generally be imposed on the owner if he or she had notice of the alleged defective condition and failed to remedy it. Until recently, there was no case law in the state of New York reconciling this legal principle with the law regulating condominium unit owners. However, due to individual unit owners’ lack of control over common elements, the court has now made it clear that they cannot be held liable to third parties for injuries sustained as a result of a defective condition in common elements.

An Issue of Control

In the Pekelnaya case, the unit owners of the 106th Street building demonstrated three key points:

(1) As condominium unit owners, they had no legal duty to maintain or repair any of the condominium’s common elements—including the chain-link security fence.

 (2) They did not have or exercise exclusive control over the security fence, which was part of the common elements.

(3) The unit owners did not receive notice of any alleged defective condition in the chain-link fence.

In opposition, the plaintiffs contended that the individual unit owners did have exclusive control over the security fence exercised by the condominium’s board of managers, which was composed of unit owners, as agent for the unit owners.

In its consideration of the Pekelnaya case, the court reviewed the statutory framework provided under the Condominium Act and found that there was no express provision addressing the subject at hand—namely, the responsibility for personal injuries to third parties due to defective conditions in a building’s common elements.

The court ruled that because there is no express statutory basis for recovery, the operative criterion upon which liability is based must be control. In the absence of such control by the individual unit owners over the common elements, the court unanimously concluded that individual owners cannot be held liable to third parties for injuries sustained as a result of a defective condition in those common elements.

Multiple Dwelling v. Condo Act

The court also found that the unit owners at 106th Street were not liable under the Multiple Dwelling Law, despite their ownership in the common elements. The court explained that the nature of the ownership interest in the common elements is materially dissimilar to the freehold interest necessary to subject a person to liability as an “owner” under the Multiple Dwelling Law. The court found that the minority proportionate leasehold interest granted by the Condominium Act was not an interest in the freehold estate necessary to subject the condominium unit owners to liability as an owner under the Multiple Dwelling Law.

Finally, the court found that the unit owners were not liable for a board’s negligence in the maintenance of the common elements based upon a principal-agent relationship. The court ruled that vicarious liability of a principal for an agent’s negligence is predicated on the “general common law notion that one who is in a position to exercise some general control over the situation must exercise it or bear the loss.”

However, as the court recognized, in the realm of condominium ownership, the condominium’s common elements are clearly and solely under control of the board of managers.

Pekelnaya’s Impact

Clearly, in rendering this decision and order, the court has given individual unit owners an ironclad defense against liability from third parties who are injured because of defective common elements. The issue is not necessarily tabled, however—lawyers for the plaintiffs have indicated that they intend to appeal.

If they are successful on appeal, there will likely be a profound effect in a city and state where hundreds of thousands of individuals and families have chosen condo ownership. A successful appeal of the Pekelnaya decision might mean that all individual condo owners have an entirely new and unforeseen duty to the general public. Such a reversal could trigger numerous lawsuits for claims of negligence, and even punitive damages for alleged hazardous conditions over which condominium unit owners have no control.

As a practical matter, thousands of condominium owners could be subjected to endless legal fees, increased insurance costs and potential judgments in every slip-and-fall or other premises claim arising in the common areas of their buildings.

Peter James Johnson, Jr. is the president of Manhattan-based Leahey & Johnson, P.C. and served as a lead defense counsel representing one of condominium unit owners.

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