Published: Summer 1995
SURCHARGES; NON-RESIDENTS ON THE BOARD; MINIMUM PURCHASE PRICE;&
Marc Luxemburg, president of the Council of New York Cooperatives
& Condominiums, is an attorney specializing in cooperative and condominium
law. In each issue of the CNYC Newsletter, Mr. Luxemburg reviews
recent court cases. In addition, at the annual Cooperative
Housing Conference he presents a workshop on significant legal decisions
of the year.
CNYC frequently takes advocacy positions on key legal issues in briefs
of amicus curiae. If your building is involved in a legal action that
you think is significant to other buildings, please be sure to keep CNYC
informed of the status of the case.
SUBLET SURCHARGES MUST BE
The Appellate Division, 1st Department, has dealt a severe blow to cooperatives
with its affirmation of the decision in Zimiles v. Hotel Des Artistes,
Inc., 627 N.Y.S.2d 382 (June 8, 1995). In this case, the proprietary
lease required the consent of the directors to any sublease, but did not
expressly authorize the board to attach any conditions to its consent,
such as charging a sublet fee.
The lower court had found that the board needed express authority to
attach conditions to granting or withholding consent. This decision was
affirmed by the Appellate Division, which ruled that, "Since the
Bylaws and Proprietary Lease ... contained no specific authority for the
imposition of a sublet surcharge" and since the cooperative did not
amend the proprietary lease to authorize such a surcharge, the surcharge
was properly voided from the beginning. The court affirmed that all improperly
obtained surcharges had to be returned. The court ignored the possibility
that many of these charges may have been paid without protest and without
any reservation of rights on the part of the tenant-shareholders.
Additionally, the court held that it was proper to award attorney's fees
to the plaintiffs under the attorney's fees provision in the proprietary
lease. This provides that attorney's fees arising out of a legal action
based on a default are payable to the cooperative by a shareholder. Although
the proposition was not stated, apparently the court assumed that the
improper imposition of sublet fees constituted a default under the proprietary
CNYC has previously advised its members to be sure that the
proprietary lease authorizes the attaching of conditions to
the granting of consent to a sublet, and that the bylaws do
not limit the fees charged to a reimbursement of expenses.
For suggested texts, contact CNYC by e-mail to
with your name and address or call (212) 496-7400, but be
sure to consult your own attorney.
TO RESTRICT NON-RESIDENTS ON THE
BOARD, DOCUMENTS MUST BE EXPLICIT
In Johar v 82-04 Lefferts Tenant Corp., NYLJ, 7/5/95, p.30, c.1
(Sup. Ct., Queens Co.), the issue was whether a non-resident tenant-shareholder
was qualified to be elected as a member of the board of directors. The
plan gave the sponsor the authority to designate a minority of the board,
and the cooperative took the position that these were the only seats that
could be occupied by non-residents.
The court found, however, that the bylaws of the cooperative did not
distinguish between shareholders who are residents and those who are non-residents,
and that they did not restrict eligibility for the majority seats on the
board of directors. The court held that the terms of the offering plan
restricting the sponsor's rights were not relevant to the current issue,
since it was the bylaws and not the offering plan that governed the legal
rights between the parties. Since the bylaws simply provided that "not
less than a majority of directors shall be tenant-shareholders other than
holders of unsold shares," but said nothing about residency, the
court declared the plaintiff eligible for election to the board to fill
a non-sponsor seat.
COURT DISALLOWS REJECTION FOR LOW PURCHASE
Continuing the judicial trend to restrict the authority of the board
is Oakley v. Longview Owners, Inc., Sup. Ct., Westchester Co.,
NYLJ, 5/16/95, p.32, c.1. In this case, the board rejected a purchaser
because the purchase price fell below a minimum floor price established
by the board. The minimum had been based on an appraisal of two other
apartments. The board decided it would not approve a contract that was
more than 10% below the appraised value. The disappointed buyer sued the
board for damages, and the board moved to dismiss the suit. The court
found that despite the special nature of the cooperative corporation that
gives it the right to reasonably restrain the alienability of apartments,
this power is not unlimited, and the restriction cannot prohibit transfers.
The court found that since the restraint is dependent upon market forces
beyond the control of the parties, it is, as adopted, a prohibition of
transfer and an unreasonable restraint of alienation. The court also found
that the board had no authority to impose this kind of restraint, and
that the shareholders must be given an opportunity to vote on such a significant
restriction. Accordingly, the motion to dismiss the complaint was denied
and the case was set down for trial as to whether the board had any other
valid reason for rejecting the purchaser.
COURT UPHOLDS PRUDENT MANAGEMENT
In Muraskin v. 260 Apartments Corp., an unpublished decision in
the Sup. Ct., NY Cty, Index No. 107278/93, Justice Cahn (July 7, 1995),
plaintiffs were investors who owned two apartments occupied by rent-regulated
tenants. They complained that they were unable to collect rent increases
because the cooperative had failed to cure numerous building violations
or to provide certain documentation.
When the building was converted to cooperative status in 1981, it had
approximately 250 building violations; as of 1992, only 15 violations
remained. The managing agent asserted that the board of directors had
the violations remedied in a manner that was financially feasible and
that caused the least amount of inconvenience to the shareholders, and
that all of the violations had been cured by 1994, at which time a rent
increase had been approved.
The court analyzed the complaint as based on a failure by the board to
maintain the building in accordance with the condition required by the
proprietary lease. However, the proprietary lease specifically provided
that the plaintiff was not entitled to a remedy unless the failure or
delay in making repairs was due to negligence by the cooperative. Since
the court found that the cooperative had not displayed any negligence
in its conduct, the complaint was dismissed.
CNYC SEEKSCO-OP/CONDO PART IN HOUSING COURT
Not only do court decisions resolve issues for those who are directly
involved, they also provide guidance for those in parallel situations.
Unfortunately, the courts often hand down conflicting decisions, producing
more confusion than instruction.
In the interest of providing better, more consistent judicial due process
for cooperatives and condominiums, the Council of New York Cooperatives
& Condominiums has joined with the Coordinating Council of Cooperatives,
the Federation of New York Housing Cooperatives and the Coalition of HDFC's
to request a separate part in the Housing Court for cooperative and condominium
cases. You can view the Position Paper
on Housing Court at this Web site.