Published: Autumn 1996
THE COURTS CONTINUE TO CHIP AWAY AT THE
POWERS OF THE BOARD BUT SUSTAIN PAYMENT FOR HOUSING
CNYC thanks Marc J. Luxemburg, Esq. for this regular column. A partner
In the law firm of Snow Becker Krauss, Mr. Luxemburg was a founder of
CNYC and serves as its president.
Foreclosure Sale Stalled
In McMillan v. Park Towers Owners Corp., 640 N.Y.S., 2d 144 (2d
Dept., March 25, 1996), the court enjoined the cooperative from conducting
a foreclosure sale of a defaulted apartment pursuant to the Uniform Commercial
Code (UCC). The cooperative had served the shareholder with a 10-day Notice
to Cure seeking arrears in excess of $20,000 and, upon failure of the
shareholder to pay, it served a notice of termination. The Second Department
held that the existence of a proprietary lease does not establish an enforceable
Security Agreement, to which the UCC applies. It also said the preservation
of the status quo was essential, otherwise the cooperative would be able
to divest the shareholders of their ownership interest without any judicial
determination of defenses or counterclaims. Accordingly, the cooperative
was enjoined from auctioning the apartment until after a determination
on the merits of the amount due to the cooperative. The shareholder was
required to post a bond in excess of the value of the unpaid maintenance
to secure the injunction.
Another judge has ruled that the word "and" is the legal equivalent
of the word "or". In Fifth 912 Corporation, Inc. v. Krupinski,
Sup. Ct., N.Y. Co. NYLJ, 9/24/96, p.23, col. 2, a purchaser submitted
an application stating that he and his spouse would live in the apartment.
The board granted approval. After performing extensive alterations, the
purchaser and his spouse did not move into the apartment, and instead
the daughter and son-in-law moved in. The cooperative sought to rescind
the consent because it was procured by fraud, and to terminate the proprietary
lease because the apartment was not being occupied by the lessee.
The court (Justice S. Cohen) dismissed the complaint, finding that the
facts did not show that the statement in the application was fraudulent,
and that the clause of the proprietary lease stating that the apartment
shall not be occupied or used other than as a private dwelling for "the
lessee, the lessee's spouse and children, and, provided that the lessee
is also in occupancy, the lessee's domestic employees" was clear
and unambiguous, and permitted the lessee's children to occupy the apartment
whether or not the lessee was also in occupancy. In other words, the court
found that although the proprietary lease said that apartment was to be
occupied by the "lessee... and children", this was the equivalent
of saying that the apartment could be occupied by the lessee "or"
the lessee's children.
Business Judgment Rule Misapplied
In Salmansohn v. Fourth Avenue Owners Corp., Sup. Ct., N.Y. Co,
NYLJ 9/11/96, p. 21, col. 4, in order to improve the security of the building,
the board of directors had bars installed over the plaintiff's windows.
The plaintiff complained that the view was of substantial value to her
apartment, and the bars substantially diminished the value of the apartment.
She also asserted that the security could be provided without depriving
her of her view.
The cooperative moved for summary judgment claiming that the decision
to put bars on the windows was a matter of business judgment. The court
(Justice Arber), however, found that it was up to the court to determine
whether the actions by the board were "reasonable", and that
the case required a factual determination as to whether the shareholder
was treated equally, and whether the cooperative could have employed some
less intrusive means to accomplish the same goal. Summary judgment was
denied and the matter was set down for trial.
It seems very difficult to square this decision with the rule set down
by the Court of Appeals in the Levandusky case, which said that the business
judgment of the cooperative should not be interfered with unless the shareholder
can claim bad faith or malice. BUT...
Residents Must Pay Common Charges
On the good side of the ledger, in Foxwood Square Condominium I v.
Albert, Civ. Ct., Richmond Co., NYLJ 5/15/96, p. 28, col. 6, the court
ruled that a tenant of a defaulting unit owner could be compelled to pay
use and occupancy in the amount of the monthly carrying charges directly
to the condominium. Although the court held that General Business Law
Section 352-e 2(d) did not apply, because the definitions set forth in
the statute only covered situations where the tenant was in residence
at the time the plan was declared effective, the court did hold that,
since the tenant had not paid rent to the unit owner and was occupying
the unit and obtaining the use of heat and utilities without any payment
whatsoever, there had been an unjust enrichment, and accordingly awarded
use and occupancy against the tenant in the amount of the common charges.