Appellate Court Affirms Rockland County Supreme Court’s Reliance Upon the Business Judgment Rule to Uphold Board’s Decision to Make a Construction Contract without Owner Vote

In or around 2007 a common interest community board of managers contracted for certain construction work on its common elements.  Owners within that common interest community filed a suit against the condominium arguing that the contract called for "alterations" or "improvements", which required approval of the owners per the condominium’s governing documents.  The resulting suit was captioned William F. Helmer, et al v. Marc A. Comito, et al. 

Because an owner challenged a board action, the court relied upon the business judgment rule.  The court wrote that under "the business judgment rule, the court’s inquiry is limited to whether the board acted within the scope of its authority under the bylaws (a necessary threshold inquiry) and whether the action was taken in good faith to further a legitimate interest of the condominium.  Absent of showing of fraud, self-dealing or unconscionability, the court’s inquiry is so limited and it will not inquire as to the wisdom of soundness of the business decision."  In this case, the board determined that the work involved constituted "repairs" and "maintenance", which was within the board’s sole authority to address.  There was an overwhelming amount of evidence that the buildings continued to suffer from leaks, and that experts hired by the condominium recommended repairs.  Further, the Village of Nyack Building Department opined that "the proposed scope of work is of a repair/maintenance nature and does not require a building permit".   As a result, the court found the board was "within its authority in entering the construction contract without the unit owner approval required for ‘alterations’ or ‘improvements’ costing more than 25% of the estimated annual budget, such that the owners’ complaint should be dismissed.” 

The case continues the longstanding applicability of the business judgment rule in matters involving challenges to board decisions.  It is imperative that boards ensure that the authority for a particular action is set forth in the governing documents or applicable laws, and that said action is motivated by good faith.  It is equally as important that a board document the evidence supporting its decisions and/or actions.