Derivative claims against a condo managing agent survived a 2026 appeal. New York has no license to revoke.

On March 10, 2026, the Appellate Division, First Department, modified a Supreme Court order that had dismissed nearly all claims in Etkin v. Sherwood Residential Mgt. LLC, 2026 NY Slip Op 01301 (1st Dep't Mar. 10, 2026). The court kept alive derivative breach of contract claims that a unit owner at 500 West 21st Street Condominium in Chelsea had filed against both the Board of Managers and the building's managing agent, Sherwood Residential Mgt. LLC. Those claims proceed to trial. No professional license is at stake, because New York issues none.

What the unit owner alleged.

Etkin owns a unit at 500 West 21st Street, a condominium on the west side of Chelsea near the High Line. He notified the Board of Managers and Sherwood Residential Mgt. LLC, the building's managing agent, repeatedly that outdoor balconies appurtenant to at least two units were deteriorating and needed repair. When neither the board nor the agent addressed the problem to his satisfaction, he filed suit in Supreme Court, New York County.

His complaint raised two categories of claims. The first was derivative breach of contract: the bylaws obligated the board to maintain common elements and appurtenant structures, and the management agreement imposed complementary duties on Sherwood. Because those contractual obligations run to the condominium as an entity rather than to unit owners individually, Etkin filed them as derivative claims. The second category concerned financial impropriety: he alleged that expenses properly chargeable to parties other than unit owners had been absorbed by the unit owners.

In 2024, the Supreme Court granted the defendants' motion for summary judgment and dismissed the first, third, and fifth causes of action. Etkin appealed to the First Department.

What derivative standing requires.

A derivative suit is a vehicle for one owner to sue on behalf of the condominium as an entity when the board itself will not act. In New York, the framework governing derivative actions in incorporated entities is set by Business Corporation Law § 626. Under § 626(c), a plaintiff must make a written demand on the board to bring the claim before filing suit, or plead facts showing that such a demand would be futile.

The demand-first rule reflects the default that the board, not the individual owner, decides whether the condominium will pursue litigation. When a board receives a proper demand and declines to proceed, its decision receives the benefit of the business judgment rule. The board is protected unless the unit owner can show bad faith, a conflict of interest, or that the board failed to inform itself before acting. The rule, originally articulated for cooperatives in Levandusky v. One Fifth Ave. Apt. Corp., has been applied to condominium board decisions across the First Department.

BCL § 626(e) gives a successful derivative plaintiff a potential offset: the court may award reasonable expenses, including attorney's fees, from any recovery obtained for the condominium. That provision makes litigation economically possible in theory, but it depends on prevailing at trial.

What survived the appeal, and why.

The First Department modified the lower court's order. The modification denied summary judgment to the defendants on the first and third causes of action to the extent they alleged derivative breach of contract claims for repair of outdoor balconies appurtenant to the penthouse unit and unit 7A. Those claims go forward.

The notable aspect of the court's ruling is that the managing agent stayed in the case. Sherwood Residential Mgt. LLC is not a defendant because it owns the building or controls the board. It is a defendant because the management agreement between the condominium and Sherwood imposed specific contractual duties, and the court found sufficient basis to conclude that those duties reached the balcony repairs at issue.

The practical principle is narrow but real. When a management agreement specifies obligations for common-area maintenance, a unit owner who can show that the duty existed, that the agent failed to perform it, and that the failure harmed the condominium entity rather than just the individual owner, has a viable derivative breach of contract claim. Managing agents are not categorically immune from derivative suits. They are instead shielded by the demand requirement, the business judgment rule, and the standing rules that filter most claims before they reach trial. When those filters do not eliminate the claim, the agent is a proper defendant.

What the court dismissed, and what that tells you.

The financial impropriety claims did not survive. The court affirmed dismissal of those causes of action along with the fifth cause of action. The court also denied the defendants' cross-motion for sanctions against Etkin. The financial claims presumably required a showing of either demand futility or specific facts about the board's or agent's self-dealing that could not withstand summary judgment.

The outcome illustrates where derivative litigation against a managing agent will and will not reach in practice. Claims tied to a specific, documented contractual duty in the management agreement (the obligation to repair a specific structure) have traction. Claims asserting general financial mismanagement or diffuse improprieties face a higher burden: the plaintiff must get past the demand requirement, the business judgment standard, and often a fact-specific dispute about whether the challenged decisions fell within the board's or agent's discretion.

For unit owners considering a derivative suit, the distinction matters before any complaint is filed. A grievance with a managing agent is actionable in this framework if it can be traced to a specific provision of the management agreement, documented in writing, and characterized as harm to the condominium entity rather than to the individual owner. Most owner grievances do not meet all three conditions.

The licensing gap the case exposes.

Sherwood Residential Mgt. LLC manages property in New York City with no professional license issued by the state. That is not an oversight particular to this firm. It is the legal condition of every managing agent operating in New York. As documented previously, Senate Bill S.71, which would require managing agents to register with the Department of State, has not received a committee hearing in ten consecutive legislative sessions and enters 2027 without an identified sponsor.

The consequence is structural. The only enforcement mechanism available to a unit owner with a legitimate grievance against a managing agent is civil litigation. There is no license to revoke, no professional conduct board to file a complaint with, and no administrative process that costs less than Supreme Court litigation. The Attorney General's Real Estate Finance Bureau lacks statutory authority to resolve post-offering-plan condo governance disputes, as set out in detail in this post.

To our knowledge, Florida, Virginia, Georgia, Illinois, Nevada, Connecticut, and Washington D.C. each operate licensing regimes that give owners an administrative complaint path against managing agents. In Florida, conduct of the kind at issue in Etkin would trigger a Department of Business and Professional Regulation investigation, potential license suspension, and potential revocation — a process that runs parallel to civil litigation and at a lower cost barrier. The costs of New York's civil-litigation-only framework are borne by unit owners, not by the firms being supervised.

The table above reflects the enforcement options for a unit owner with a grievance against a managing agent in New York City today. The derivative suit path is real but expensive, technically demanding, and measured in years. The other paths range from limited to nonexistent for this class of dispute.

Bottom line.

The First Department's modification in Etkin v. Sherwood Residential Mgt. LLC keeps a specific accountability path open: derivative breach of contract claims against a managing agent can survive summary judgment when they are tied to specific obligations in the management agreement and pleaded as harm to the condominium entity. That is worth knowing. It is also where the path ends. New York's enforcement architecture for unit owner grievances against managing agents runs through the courts or not at all. No license exists to revoke. No administrative forum accepts this class of grievance. Albany has not scheduled a hearing on S.71 in ten sessions. The tool available is Supreme Court litigation, and the procedure is BCL § 626.

Primary sources: Etkin v. Sherwood Residential Mgt. LLC, 2026 NY Slip Op 01301 (App. Div., 1st Dep't, Mar. 10, 2026) · NY Business Corporation Law § 626 · NY Senate Bill S.71 (managing agent licensure)

Companion resources: Why the NY AG can't help with condo governance disputes · The managing agent bill has no Senate sponsor for 2027 · A managing agent illegally evicted four tenants. New York has no license to revoke. · NYC just made managing agents liable. They still need no license. · Managing agent licensure gap (issues page) · Write to your representative about S.71