First published: Aug 2022
Slow Death of a Sweetheart Lease
This case is a cautionary tale. Individuals who serve as members of a cooperative board owe a fiduciary duty to act in the best interests of the corporation. The record in this case shows that the defendant, Siwana Green, together with at least one relative who also served on the board until they were voted out in 2018, succeeded at enriching themselves while failing to ensure that the co-op paid the City of New York more than $1 million for real estate taxes and water charges, resulting in a foreclosure proceeding and leaving the building in dire financial straits.
67-69 ST. NICHOLAS AVE. HOUS. DEV. FUND CORP. V. GREEN
WHAT HAPPENED The board of a South Harlem HDFC co-op at 67 St. Nicholas Ave. engaged in a legal fight over its commercial space. In 2004, when the board president was Siwana Green, the co-op issued a lease for the commercial space to Thomas Green, her husband, and their partnership “A Cup of Harlem.” It was a 99-year sweetheart lease at $700 per month with an option to renew for an additional 10 years at $800 per month. The Greens sublet this space for 10 years (2009 through 2019) at $2,500 per month to Antonio Contreras, who operated a hair salon, renewed the sublease at $2,800 for an additional five years, and netted nearly $350,000 in profit over this period.
In 2018, the shareholders voted out Green and her board. The election was contested and the board successfully defended it in court. The new board discovered the lease and sublease and in May 2019 sued the Greens and A Cup Of Harlem to void the sweetheart lease and recover damages for president Green’s breach of fiduciary duty. The co-op lost this round when the Supreme Court denied the co-op’s motion for summary judgment.
IN THE COURT The co-op appealed, and the Appellate Division’s First Department unanimously reversed the order of the Supreme Court, holding that the lease was void. The court found that the lease was voidable under Business Corporation Law §713(b) because it had not been voted on by a majority of disinterested directors. The burden was on the Greens to show affirmatively that the transaction was otherwise fair and reasonable to the co-op, and they failed to do so. The co-op submitted an undisputed affidavit by a former board member establishing that he was elected to a one-year term in February 2004, that he only learned of the lease in 2018 after Green was removed from the board, and that he never would have approved a lease with such “outlandish” terms. The court also found that Green had breached her fiduciary duty of loyalty to the co-op by diverting a corporate opportunity to lease the commercial space to a tenant at the fair market rate.
COUNSEL For Green SHE REPRESENTED HERSELF / For 67-69 Nicholas Ave. HDFC CAROL A. HERLIHY, KELLNER HERLIHY GETTY & FRIEDMAN
