First published: Feb 2024
In Guaranties We Trust
TAKEAWAY Based on a change in federal law back in 1986, many cooperative shareholders have sought to transfer their shares to a trust, for tax or estate purposes. When a board is faced with such a request, there is much to be said for simply refusing it, as well as all similar requests. Cooperative living has always contemplated ownership by, and a community of, individuals, not trusts and their beneficiaries. Trusts are actually not legal entities per se, like LLCs or corporations, and a trust might better be described as a legal arrangement by which a trustee holds title to property and administers it for the benefit of beneficiaries. The complications that can arise from dealing with an apartment that is held by a trust are not insignificant, and since there is no upside to the cooperative itself if the shares are held by a trust, denial of the request outright may be the cleanest and best option for a board. Still, if a board were inclined to allow ownership of apartments by trusts, they would be wise to follow the path chosen by the plaintiff in this case. Here, the cooperative demanded and got a solid, well-crafted, and unconditional guaranty of payment by a solvent individual. As this case demonstrates, the courts will hold a guarantor liable for unpaid maintenance plus attorneys’ fees, and the cooperative does not have to wait around to get paid until trust and estate issues are resolved in Surrogate’s Court.
CHURCHILL OWNERS CORP. V. KENT
WHAT HAPPENED Robert Roman Kent, a Holocaust survivor and activist, was a shareholder at the Churchill, a nearly 600-unit co-op in Murray Hill. In 2017, he began the process of assigning his apartment shares to a trust, so he sought the cooperative’s consent. The co-op agreed, but conditioned approval upon obtaining a guaranty from the shareholder’s adult son, Jeffrey Kent. The guaranty, among other things, covered all maintenance charges plus attorneys’ fees upon default. When Roman Kent died, his trust stopped paying maintenance. His estate, including the trust, became subject to proceedings in the Surrogate’s Court, which has jurisdiction over estate matters. With arrears mounting, the co-op sued his son as guarantor in Supreme Court, seeking a money judgment for unpaid maintenance as well as attorneys’ fees.
IN THE COURT At the trial level, the co-op successfully moved for summary judgment and obtained a money judgment against Jeffrey. On appeal, the appellate court affirmed the ruling in favor of the co-op. Although the co-op sought, and obtained, the guaranty from the son as a condition to the transfer of ownership of the apartment to the trust, the guaranty itself was unconditional and absolute. The son argued that the co-op had to await the administration of his father’s trust and the appointment of a successor trustee, two issues before the Surrogate Court, but the appellate court disagreed. The son was liable for nonpayment, and the money judgment was affirmed. COUNSEL for the co-op PAUL N. GRUBER, NICOLE ELIZABETH MEYER Borah Goldstein Altschuler Nahins & Goidel / for the defendant JESSICA MARIA BAQUET, JOHN G. FARINACCI, LOIS ANN BLADYKAS Ruskin Moscou Faltischek / Judge: Arlene P. Bluth
