NY Residential Cooperative Corporations and Condominium Associations — Left Out of Protections under Governor Cuomo’s E. O. 202.38 and the Real Estate Entity Guidance But Must Prepare Business Safety Plans

Seyfarth Synopsis: New York residential rental building owners, cooperative corporations and condominium associations and their managing agents are left out of Governor Andrew Cuomo’s June 6 Executive Order 202.38 which among other things, insulates commercial building owners and retail store owners and their managers from claims of violation of the covenant of quiet enjoyment or frustration of purpose if they deny admittance to individuals who refuse to participate in discretionary temperature check screenings or who are denied access based on such screening results. At the same time, although not defined as “entities” in the issued Real Estate Business Entity guidance, it appears that NY State is requiring residential cooperative corporations and condominium associations to develop and implement Safety Plans. Cooperative and condominium boards, even more than rental building owners and managers, face challenges balancing the obligation to minimize the spread of COVID-19 and protect the health and safety of their residents and their buildings, while not creating liabilities by undertaking more screening than is required by law, and more than is authorized under their governing documents.

On June 6, NY Governor Andrew Cuomo issued Executive Order No. 202.38 which provides commercial building owners and retail store owners and managers with immunity during the covered period, from claims of violation of the covenant of quiet enjoyment and frustration of purpose if they deny admittance to individuals who refuse to participate in discretionary temperature check screenings or based on high temperature screening results. This Order also is significant for residential building owners, cooperative corporations and condominium associations and their managers, in that they are not covered by this immunity. Executive Order 202.38 provides, in part:

“Consistent with Center for Disease Controls and Prevention and NY State Department of Health Guidance, commercial building owners, retail store owners and those authorized on their behalf to manage public places within their buildings and businesses (collectively “Operators”) shall have the discretion to require individuals to undergo temperature checks prior to being allowed admittance. Further, Operators shall have the discretion to deny admittance to (i) any individual who refuses to undergo such a temperature check and (ii) any individual whose temperature is above that proscribed by the NY State Department of Health Guidelines. No Operator shall be subject to a claim of violation of the covenant of quiet enjoyment, or frustration of purpose, solely due to their enforcement of this directive. This directive shall be applied in a manner consistent with the American with Disabilities Act and any provision of either NY State or New York City Human Rights Law.” (emphasis added)

New York Commercial building owners and retail store owners (“Operators”) are obligated to have written business Safety Plans in place, outlining how their workplaces will prevent the spread of COVID-19. Such Safety Plans must, at a minimum, comply with applicable mandatory NY State guidelines for the specific industry of the business. Businesses may develop their own Safety Plans or may complete the NY State Department of Health template.

Pursuant to Executive Order 202.38, through July 6, 2020, Operators which institute temperature check screenings as part of their Safety Plans and deny admittance to a tenant or a tenant’s employee, guest or invitee who refuses to comply with the temperature screening or who “flunks” the screening by having a temperature above that proscribed by the NY State Department of Health Guidelines, will be protected from liability for claims of breach of the covenant of quiet enjoyment in their lease agreements and for common law claims based upon frustration of purpose solely due to their enforcement of such screening protocol. The legality of this portion of Executive Order 202.38 may well be challenged insofar as it purports to abrogate contractual rights of commercial tenants.

Residential building owners, cooperative corporations and condominium associations (“Residential Operators”) are not covered by the protections afforded by Executive Order 202.38. In contrast, Governor Cuomo’s Executive Order 202.34, issued on May 28, 2020, authorizes “building owners” (all building owners, both residential and commercial), to deny access to individuals who refuse to wear face coverings, as required under Executive Order 202.17.

Cooperative corporations and condominium associations are not included in the definition of “Real Estate Business Entities” which must follow the NY State guidance for Real Estate industry businesses, including the requirement to create a Safety Plan. Upon inquiry to the NY State Department of Health this week, we were advised that although it is not (yet) set forth in the ever-changing Guidelines, cooperative corporations and condominium associations are required to create Safety Plans as to how they will handle employees and operate their buildings to minimize the spread of COVID-19. We are further advised that REBNY and NY EDC are working with the State to clarify the obligations of cooperatives and condominiums and are developing templates for cooperative and condominium Safety Plans.

The omission of cooperative corporations and condominium associations from E.O. 202.38 highlights the challenge for Residential Operators to craft Safety Plans and establish protocols and rules to minimize risk to their owners, tenants, residents and staff, and minimize their own potential exposure for claims of negligence, breach of the warranty of habitability, breach of contract, or breach of fiduciary duty that could arise if they do not take appropriate steps to protect the health of staff, residents and visitors. At the same time, Residential Operators may have exposure for claims of breach of fiduciary duty, frustration of purpose, breach of the covenant of quiet enjoyment or breach of the warranty of habitability from proprietary lessees or breach of the by-laws, that could arise from depriving proprietary lessees or condominium unit owners of the full use and enjoyment of their apartments, if a guest, contractor, moving company, employee, nanny, dog walker, or other invitee is turned away based upon temperature screening or other discretionary COVID-related screening, beyond a failure to comply with mandatory face covering protocols. A cooperative or condominium board, like the board of a for-profit business corporation, is obligated to act within its authority under its governing documents and in a manner that is based upon the exercise of its business judgment, in good faith, and in a non-discriminatory manner. Cooperative and condominium boards also have fiduciary obligations to their owners, over and above their contractual obligations. However, if a board imposes restrictions on owners that are not mandated by law or are not expressly authorized by the entity’s governing documents, the board’s actions will be ultra vires and unenforceable, and also could expose the board or entity to liability.

Now that New York City is in Phase One of reopening, to the extent that Executive Order 203.38 does not protect Residential Operators from claims of violation of the covenant of quiet enjoyment or frustration of purpose, it appears that overly proactive cooperative and condominium boards and, for that matter, residential building owners, which institute discretionary temperature checks and other protocols or restrictions beyond mandatory face covering requirements, which result in denial of access to residents’ guests, repair people, nannies, dog walkers and the like, may expose themselves to liability for claims by unit owners, proprietary lessees and rental tenants of wrongful deprivation of the use of their apartments. Generally, pursuant to proprietary leases, condominium by-laws and rental leases, the proprietary lessees, unit owners and rental tenants, respectively, are responsible for the conduct of their family members, tenants, subtenants, guests, and invitees who come into their apartments and the buildings’ common areas. The challenge for each cooperative and condominium board is to review the language in its own governing documents and find the right balance to minimize the spread of COVID-19 and health risks to its residents/owners and employees, in compliance with applicable legal requirements and guidance and within the confines of its authority under the governing documents, without creating other liabilities. Given these considerations, the better course of action may be for cooperative and condominium boards to institute all government-mandated protocols for their buildings’ common, public areas (such as required face coverings and the recently issued NYC Department of Buildings COVID-related requirements for construction work), as well as daily certification requirements and screenings for the boards’ vendors and employees, while leaving to the residents and owners, responsibility for additional COVID-related screening of the residents’ guests and invitees.