First published: Jan 2017
11 Wooleys Lane Housing Corp. v. Smith; 50 Sutton Place South Owners Inc. v. Fried
When a co-op is trying to determine whether family members can live in an apartment without the shareholder also being present, a necessary first step is to analyze the terms of the lease itself. Although not discussed in either of the cases, we also believe that the cooperative’s course of conduct is an important factor to be considered. Course of conduct will rarely, if ever, trump a contract; yet, if the clause is ambiguous, the way in which it has been enforced may properly be used to consider how the parties interpreted the provision. Moreover, co-op boards must treat their shareholders equally, so that allowing one shareholder to have family members as the sole residents, while disallowing the same arrangement in another apartment, may give rise to a charge that the two shareholders are being treated differently, which is a breach of the board’s fiduciary duty. In a perfect world, use clauses would be unambiguous. To the extent possible, boards should propose and encourage shareholders to vote in favor of an amendment to the proprietary lease so that the use clause actually requires the kind of occupancy the shareholders intend and expect to have the board enforce.
At some point, almost every cooperative board asks about the proprietary lease’s “use clause.” When it says the apartment can be used as a private dwelling by the lessee and the lessee’s family, does that mean that both the lessee and the family must live there simultaneously? Some cooperatives have amended their leases, so that the language is unequivocal: “The apartment can be used as a private dwelling by lessee and simultaneously therewith, the lessee’s family” (italics added). But there is a startling dearth of case law on this subject. In other words, what does “and” really mean?
Two lower court cases considered the issue in July 2016: 11 Wooleys Lane Housing Corp. v. Smith in Nassau County District Court and 50 Sutton Place South Owners Inc. v. Fried in New York County Supreme Court.
In Wooleys, the co-op sought to evict a shareholder who had owned the apartment since 1994. The board had permitted her to allow her adult children and her mother to live in the apartment until 2000, and from 2000 until 2013 had allowed her to sublet to a non-family member. The shareholder then began living in the apartment, yet also seemed to be living in an apartment she owned in Manhattan. It appears that the shareholder’s daughter and four children moved into the apartment on August 30, 2014. The factual question: did the shareholder still live there? The legal question: who are the permitted occupants?
The Wooleys court first determined that the shareholder’s daughter and grandchildren were permitted occupants. It then addressed the thornier question: was concurrent occupancy required? Noting that it lacked the luxury of unambiguous language, the court considered prior case law and dissected the grammatical structure of the use clause, including the dictionary definition of “and.” The court ultimately found for the tenant. It concluded that because the shareholder’s daughter and granddaughter were permitted tenants, the implication was that the board desired to keep the family unit intact.
In reaching its decision, the Wooleys court recognized the general tenet in the cooperative and condominium field – that it is always preferable to have the owner reside at the premises “given the strong desire to maintain one’s equity in one’s holdings.” Notwithstanding its decision, the court stated: “Any ambiguity in paragraph 14 of the proprietary lease must be construed against the [co-op]. … However, the above analysis applied by this court would suggest that the intention of the word ‘and’ contemplates contemporaneous occupancy by the tenant.”
In Fried, the cooperative board claimed that the shareholders breached their lease because they allowed their daughters – who were not listed on the purchase application – to reside in the apartment while the shareholders maintained their residence in New Jersey. Thus, the Fried court was faced with the same question as the Wooleys court: what is meant when a proprietary lease states the apartment can be used as a private dwelling “for the lessee and the lessee’s family.” However, the case involved an additional issue – the cooperative asserted only that the shareholders “do not primarily reside in the apartment.” As a result, the court examined the meaning of “and” and the use clause through a somewhat different prism.
In its decision, the Fried court discussed the distinction between “contemporaneous occupancy” (requiring the shareholders to be on the premises any time their children were home) and “concurrent occupancy.” Given that the cooperative did not actually allege that the shareholders were not in occupancy (merely that the apartment was not their primary residence, which was not a requirement under the lease), the court dismissed the cooperative’s claim for breach of the lease.
Attorneys:
Wooleys: For the co-op:Schneider Mitola
For the shareholder: Nassau/Suffolk Law Services Committee
Fried: For the co-op: Axelrod Fingerhut & Dennis
For the shareholder: Gallet Dreyer & Berkey
