Did Prior Practice Trump Governing Language in Facade Signage Dispute?

New York City abounds in mixed-use condominiums where the rights and obligations of the commercial and residential unit owners are often meticulously defined in the declaration and by-laws. But disputes nevertheless often arise where those living in the building take issue with conduct of those doing business there. And, as a recent case illustrates, the scrupulous detail of the governing documents may not be dispositive where a prior course of conduct arguably suggests otherwise.

The Board of Managers of the 80th at Madison Condominium sued 1055 Madison Avenue Owners LLC for violating the condominium’s Declaration and By-Laws by affixing signage to the granite exterior facade of the building located at 45 East 80th Street without their approval. The Board sought to compel Owners to remove the signage.

The Board submitted the Declaration and By-Laws, as well as the affidavit and e-mails of Gerald A. Novack, a member of the Board of Managers.

It was undisputed that the parties were bound by the Declaration and By-Laws. Article 9 section (d) of the Declaration stated:

The Commercial Unit Owner may erect, maintain, repair and replace one or more signs, of such size, content and character as the Commercial Unit Owner may determine (in its sole discretion), for the purposes of (i) advertising the operation of any business conducted in the Commercial Unit or (ii) the sale or rental of the Commercial Unit or any portion thereof, on the inside of the windows and doors of the Commercial Unit. The Commercial Unit Owner shall not be required to obtain the consent of the Condominium Board, the Manage Agent or any other Unit Owners, or any pay and fee or charge of the Condominium Board or its agent, for such sign(s).

Further, Section 5.7 of the By-Laws stated in pertinent part:

Use of the Units. (A) In order to provide for congenial occupancy of the Property and for the protection of the values of the Units, the use of Units shall be restricted to, and shall be in accordance with, the terms contained in the balance of this Section 5.7 …(E) … The Commercial Unit Owner shall have the right to erect, maintain and replace one or more signs, for the purposes of (a) advertising the operation of any business conducted in the Commercial Unit or any portion thereof, or (b) the sale or lease of the Commercial Unit or any portion thereof, on the inside of the windows and doors of the Commercial Unit. Such signs may be of such size, content and character as the Commercial Unit Owner may determine (in its sole discretion). The Commercial Unit Owner shall not be required to obtain the consent of, or pay any fee to, the Condominium Board, its Managing Agent or any other Unit Owner for such sign(s).

The Board argued that, when 5.7(A) and (E) were read together, there was a clear restriction on erecting or installing signage to the condominium’s exterior, absent their consent.

Novack averred that, during 2019, the Board and Owners were in negotiations concerning plans for Owners to do certain alternation work. He alleged that he was directly involved in those negotiations and that the issue of signage was only one of many issues being discussed as part of a global alteration agreement. He claimed that throughout the negotiations he repeatedly told Owners’ representative that unless the parties reach a written, signed global “alteration agreement” addressing all of the issues, that there was no agreement as to any of the issues. Moreover, Novack clarified that he had no authority to agree to any provisions, including signage, and that any decisions had to be agreed to by vote of the Board. He concluded that the parties were ultimately unable to come to an overall agreement.

In opposition, Owners argued that, based on the Declaration, they were entitled to erect exterior signage without the approval of the Board. And, even if they were not, summary judgment was still premature. As to the first portion of their argument, Owners cited Article 12 section (b) of the Declaration, which stated in pertinent part:

The Commercial Unit Owner (including Sponsor) shall have the right, to the extent not prohibited by Law, without obtaining the consent or approval by the Condominium Board …(A) to make alterations, additions and/or improvements (whether structural or nonstructural, interior or exterior, ordinary or extraordinary) in and to such Commercial Unit …

That argument was unavailing because an alteration made to the exterior facade of the building did not constitute an alteration made in or to the Commercial Unit. The Commercial Unit was specifically defined by Article 6(c) of the Declaration and stated:

The boundaries of the Commercial Unit consist of the area measured (i) horizontally from the unit side of the glass or concealed block work or concealed concrete structural member of the exterior walls to the centerline of demising partitions and (ii) vertically from the top of the concrete floor to the underside of the concrete ceiling on each floor.

Thus, any alterations to the outside, rather than inside, of the exterior wall would constitute an alteration outside the permissions contemplated in 12(b) of the Declaration. The Court found that Owners’ contrary interpretation to that general provision, when read in comparison or in conjunction to the specific signage provision of the By-Laws in Section 5.7(E), would render Section 5.7(A) of the By-Laws as ineffectual or false.

Nevertheless, Owners’ argument that summary judgment was premature because there were triable issues of fact and the parties had not engaged in discovery was not without merit.

In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance. As a result, no party may do anything to limit the other party from receiving the fruits of the contract.

Here, Owners proffered some evidence that a previous commercial unit owner, “Ralph Lauren,” had exterior signage on the facade. Additionally, the e-mails sent by Gerald Novack demonstrated that, while never officially approving the proposed signage, the Board never expressed any signage concerns. To the contrary, the e-mails tended to indicate that the Board was okay with proposed signage as a concept, Novack approved of the signage, another member also approved the signage– and the approval of the balance of the Board would be a mere formality. Moreover, although it was clear that Novack maintained that there was no agreement as to any signage without a global agreement as to all of Owners’ proposed alterations, it was unclear why that was the case. The mere existence of the Board’s motion for partial summary judgment demonstrated that the issue of signage on the exterior facade could be resolved and was not inextricably intertwined with any of the other disputed alterations. As a result, questions of fact remained at this juncture as to whether the Board acted arbitrarily or unreasonably in refusing to approve of the exterior facade signage.