Did Owner Have Notice of Illegal Loft Conversion?

Facts: A visitor to an art gallery that consisted of the storage mezzanine (loft) and first floor of a seven-story mixed-use building fell from the loft, which had been used as a bedroom by the tenant for 11 years. There was a knee-high wall around the perimeter of the loft, which overlooked the first floor where artwork had been set up. The tenant installed shutters on top of the wall for privacy when he had converted the loft from a storage area to a bedroom. The shutters, which gave way when the visitor leaned against them, did not form a solid structure extending from the wall that would provide protection from a fall like hers.

The visitor sued the tenant, the building's owner, and the management company hired by the owner to maintain the building (manager) for negligence. She contended that the accident would not have happened, but for the tenant's illegal conversion of the legal loft into an unprotected bedroom, which she said the owner and manager had known about.

The tenant, owner, and manager asked a New York court for a judgment in their favor without a trial. They argued that the visitor's claims that they had been negligent by allowing the loft conversion should be dismissed because the presence of the shutters indicated that there was an “open, obvious, and not inherently dangerous condition” that she should have been aware of.

Decision: The court denied the tenant's, owner's, and manager's request for a judgment in their favor without a trial.

Reasoning: The court could dismiss the visitor's claims only if there were no “genuine issues of material fact” in dispute as to whether the tenant, owner, and manager had been negligent that would require a jury to decide. Here, the visitor had some evidence of negligence that a jury could interpret in her favor if it were presented during a trial, so her claims could not be dismissed by the court.

First, there was evidence indicating that the owner and manager had actual or constructive notice of the hazard for 11 years prior to the accident. The court pointed out that, “the possessor or owner of real property bears a duty at common law to maintain the property in a reasonably safe condition.” And the owner or possessor (in this case, the tenant) could be held liable for injuries caused by a dangerous condition on the property, if either of them had created, or had actual or constructive notice of, the hazard.

To constitute constructive notice, a defect had to be visible and apparent and it had to have existed for a sufficient length of time prior to the accident to permit it to be discovered and remedied. The visitor produced evidence that representatives of the owner and the manager—including its president—had been in the gallery on numerous occasions during the conversion and thereafter until the date of the accident.

The owner claimed that it could not be liable for the illegal loft conversion because it was an “out-of-possession landlord.” However, when an out-of-possession landlord retains the right to enter, inspect, and repair a tenant's space, it can be held liable for all defects that are in violation of a statutory obligation, like complying with building codes, and for all defects of which it has actual or constructive notice.

The tenant's lease showed that the owner retained a right of reentry for the art gallery sufficient to expose it to liability for the accident that took place there. In fact, the lease expressly gave the owner and its agents the right to “visit, examine, or enter the apartment and any storage space assigned to Lessee at any reasonable hour of the day upon notice, or at any time and without notice in case of emergency, to make or facilitate repairs in any part of the building or to cure any default by Lessee and to remove such portions of the walls, floors, and ceilings of the apartment and storage space as may be required for any such purpose,” the court noted.

Moreover, New York state law imposes upon owners of mixed-use properties such as this one a duty to keep the premises in good repair. While an owner's liability was nondelegable, it could contract with another party, such as a property manager, for the maintenance of the premises.

For its part, the manager argued that it did not have “complete and exclusive control” over the premises. The visitor claimed that it could be held liable for her accident because it had a contract with the owner to act as its property manager, giving it the “unfettered right to repair any unsafe conditions at the premises.” Generally, a contractual obligation, without more, does not impose a duty of care in favor of a third party, such as the visitor, noted the court. But where a contracting party, like the manager in this case, has entirely displaced the owner's duty to maintain the premises in a safe condition, it can be found liable, the court added.

Here, the management contract between the owner and manager provided that the manager could make ordinary repairs or alterations involving an expenditure of less than $1,000. It also had the broad authority to make emergency repairs “necessary for the preservation or safety of the building or for the safety of the tenants or other persons irrespective of the cost thereof, without prior approval of the Owner.” The court concluded that the contract gave the manager the authority and obligation to cure the alleged hazard.

Finally, the visitor offered architectural plans for the building that showed that the loft was characterized as a “storage loft,” and was not designed for use as a bedroom because the ceiling height of that area was too low for that use. She asserted that the use of the shutters to convert the loft into a bedroom was not authorized by the plans and violated the state's building code, proving that the space was inherently dangerous. Ultimately, it was up to a jury to decide whether the presence of the shutters was sufficient to place the owner and manager on notice that there was any risk of harm from the loft, said the court.

• McCarthy v. Great Jones Current Project, Inc. et al., October 2010