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Alternate dispute resolution of condominium and cooperative conflicts
Many experienced practitioners and jurists believe that after relationships involving love and/or sex, the next most passionate relationship in our society is that of landlord-tenant and its related configurations, i.e. condominium unit owner/condominium ("condo") board of directors and cooperative ("co-op") shareholder/co-op board (collectively referred to hereinafter as "occupancy relationships").1 Conflicts arising from "occupancy relationships" ("occupancy conflicts") often evoke emotions of extreme hostility, bitterness and frustration. Many parties to such disputes erupt into diatribes of emotionally charged words which exponentially expand and intensify the conflict. The printable vocabulary of occupancy conflicts often includes words like "livid," "vicious," "revenge," "fraud," "arrogant," "pompous," "power crazy," "breach of fiduciary duty," "self-dealing," "favoritism," "insensitive," "litigious," "stupid," and "troublemaker." Not only are occupancy conflicts extremely intense, but they are propagating with alarming rapidity.
It has been reported that during the months of February, March, and April of 1997, in just three of the boroughs of New York City (Brooklyn, Queens, and Manhattan), co-op corporations or condo associations ("associations"), were involved in 4,328 Housing Court litigations.2 Such a statistic is only the tip of a massive iceberg because it excludes Housing Court litigation in the populous borough of the Bronx and the condominium laden borough of Staten Island. This statistic also excludes supreme court actions in all five boroughs, actions in the United States District Courts for the Southern and Eastern Districts of New York, disputes pending before alternate dispute resolution organizations such as the American Arbitration Association, JAMS Endispute, National Arbitration & Mediation (NAM), and disputes that are gestating in the dialogue and negotiation phases.
The Housing Court litigation statistic provides only a hint as to the enormous resources, public and private, that are consumed by such litigation. Given the intense and hostile nature of these conflicts, occupancy litigation commonly involves prolific, expensive, and wasteful motion practice.3 Parties to such disputes often make motions to punish for civil and/or criminal contempt and/or for sanctions.4 Opposing parties also tend to engage in fierce battles over pre-trial discovery.5 Moreover, aggrieved occupants will often attempt to invoke the assistance of government agencies6 and local elected officials. Some aggrieved occupants will even seek local news media coverage of their disputes.
Bar associations, industry and occupant organizations, state regulators, and legislators throughout our country are studying, debating, and proposing possible strategies for effectively dealing with the rising tide of occupancy conflicts. Since the proliferation of occupancy conflicts has been national in scope, it cannot be fairly ascribed to the stereotypical pugnacious New York personality.
For the many reasons discussed herein, knowledgeable professionals, regulators, legislators, owners, sponsors, and occupants are increasingly concluding that certain forms of Alternate Dispute Resolution ("ADR") can be extremely effective in resolving occupancy conflicts in a timely and cost effective manner. Moreover, many experts have concluded that employment of ADR procedures enhances the likelihood that the disputants will view the ADR process end result as equitable and just.7
I. GROWTH OF CONDOMINIUM AND COOPERATIVE OWNERSHIP
A number of factors have fueled the growth of the condo and co-op form of ownership, as well as other forms of common interest developments.8 As urban areas grow, residential, commercial, and retail developments consume an increasing amount of property located within a convenient distance from where most people work. Land prices rise as fewer convenient or "welllocated" sites remain available.9 Additionally, as development expands, land use regulation becomes more restrictive thereby increasing the cost of property development.Io As the cost of home ownership escalates, many people seek less expensive alternatives. Since residential rent payments are generally not deductible, the deductibility of mortgage interest payments is another reason for the popularity of condo and co-op ownership. In certain urban areas such as New York City, regulatory restrictions on rent provide an additional incentive for owners to convert their rental properties to condo or co-op ownership.ll
Sociological factors have also propelled the growth of condos and co-ops. More families today are comprised of two working spouses.l2 Additionally, people are increasingly enjoying an array of leisure and recreational activities. Cable television, satellite television, videos, the Internet, exercise, and yoga classes satiate one's leisure hours. Today's lifestyles leave individuals with less time and desire to address the many obligations that accompany private home ownership. Many homeowners seek to escape the responsibility of maintaining a home, such as care of a lawn, exterior painting, and repairs. As medical science has elongated life expectancy, an increasing segment of the population has watched their children "leave the nest" and they no longer wish to be saddled with the financial and physical obligations of maintaining a large home. Additionally, some people purchase condos or co-ops because they desire enhanced security. Many people live in co-ops because the common co-op requirement that purchasers be approved by governing boards affords them greater control over who may become their neighbors. The fact is that the co-op and condo form of ownership has experienced an immense rate of growth,13
II. GENESIS OF OCCUPANCY CONFLICTS
Purchasers of a condo or co-op ("unit") purchase subject to covenants, conditions, and restrictions embodied in a condo's declaration, by-laws, and house rules or in a co-op's certificate of incorporation, proprietary lease, by-laws, and house rules (collectively "restrictions").14
Purchasers typically focus on a unit's location, size, configuration, price, general physical condition, and their ability to finance. Unfortunately, purchasers often "gloss over" restrictions that directly impact their private use and enjoyment of the unit and the common areas within the building or community. Many unit purchasers have previously lived in rental apartments or private homes and have never experienced the types of restrictions imposed upon them in a condo or co-op. Accordingly, many purchasers do not focus upon such restrictions until after they have sold or vacated their prior residence, closed on their new unit, and settled into their new home.15
Most occupancy conflicts involve quality of life or financial issues. Common quality of life conflicts include, inter alia, disputes relating to repairs, alterations,16 leasing and subletting,17 noise, parking facilities, ownership of pets,18 use of units for commercial or professional purposes, incivility, use of common areas, and exterior decor. Common financial disputes include, inter alia, failure to pay maintenance, common charges, special assessments, fines or penalties, restrictions on resale or transfer, and access to books and records.19 Occupancy conflicts usually involve disputes between a unit owner and an association, a unit owner and a management agent, a unit owner and a sponsor, an association and a contractor, or a lender and a sponsor.
Even occupants who purchased their units with knowledge of restrictions may encounter occupancy conflicts because of human nature and the close proximity to one's neighbors. Condo and co-op occupants frequently interact with each other as they enter their building's lobby, elevator, parking lot, or common recreational facilities. The closer the proximity and the more frequent the interaction, the greater the opportunity for personality clashes to evolve.