Merioz v. Addison Hall Owners Corp.

May a co-op shareholder claiming to be a holder of unsold shares permit a “bed and breakfast” operation to be conducted in a residential co-op? The court ruled “no” in Merioz v. Addison Hall Owners Corp. The case involved a motion for contempt against a co-op and the co-op’s cross-motion for summary judgment to dismiss the complaint. 

Plaintiffs Gilad Merioz and William Brock acquired the shares for apartment 1404 at the co-op’s building at 457 West 57th Street on September 5, 1996. The two claimed that the contract stated at Paragraph 41 that “the sellers represent that they are the holder of unsold shares as defined in the offering plan.” Mary Delagy of defendant Kreisel Management Company, the co-op’s managing agent, informed the plaintiffs’ counsel that the pair needed board approval before the transfer of shares. Counsel stated that, in August 1996, Delagy confirmed that the shares were “unsold shares” and the closing took place without approval. 

On January 28, 1997, Merioz acquired the shares of Apartment 1611. In a letter dated December 16, 1996, counsel had sought and received assurance that the 1611 shares were considered “unsold.” The co-op and Kreisel alleged that the plaintiffs had been using their apartments as a bed-and-breakfast operation through a company called A Hospitality Company. Plaintiffs claimed that the “subtenant” of both premises was to use the apartment for short-term residential occupancy of corporate clients; that the co-op and Kreisel wrongfully refused to allow

guests access to the apartments.

On August 13, 1997, the court granted a preliminary injunction to plaintiffs pending the determination of the action, upon their posting of a $5,000 bond, “enjoining and restraining [the co-op and Kreisel]…from interfering with the use and occupancy of, and access to the apartments 1404 and 1611 at 457 West 57th Street, New York, N.Y., by any persons acting by or through plaintiffs so long as such use occupancy and access is for residential

purposes only.”

Merioz stated in her affidavit that, on April 16, 1998, the doorman refused to accept mail she was attempting to have delivered to other shareholders in the building. She said she was told that the doorman was not permitted to accept packages or mail from her without board approval; that on June 22, 1998, the doorman was notified that a “new subtenant” for 1611 would arrive later that night, but that she was told by the doorman she had to personally escort the subtenant to the apartment; that on June 26, 1998, a doorman told her the managing agent would refuse to allow mail to subtenants or occupants of 1611 and would return mail to the sender.

When Merioz complained to board president Barbara Langerberger, she was allegedly told that the board was powerless to direct the actions of the managing agent which controlled the doormen. In their cross-motion for summary judgment, the co-op and Kreisel argued that plaintiffs were not holders of unsold shares under recent court holdings, and that thus, their sublets were improper; that, under the proprietary lease, board approval is required and no sublet for under a year is permitted.

The co-op and Kreisel further argued that the share status issue notwithstanding, the plaintiffs were not complying with the house rules, proprietary lease, or occupancy requirements which limited the use of the apartments to residential purposes.

With regard to the contempt motion, Douglas Miller, the Addison superintendent, denied any interference with the plaintiffs’ use of the premises, and complained that the building was rarely notified of the identity of the many occupants or the dates of their stay. Nonetheless, he asserted that they had been allowed access.

Concerning the specifics of the contempt claims, Miller stated that the mailing of which Merioz complained was not accepted because it was a mass mailing to non-resident shareholders who did not have mail slots. The mail was returned to the post office.

With regard to the mail destined to the subtenants, Miller stated that it was building policy not to accept mail for unknown individuals; that plaintiffs had never notified the building of the identity of the occupants; that the building had never been authorized or instructed to accept mail on their behalf. Miller stated that the building is willing to accommodate plaintiffs it they so authorized the staff, and if they identified the occupants and the length of their stays.

Miller stated that he checked with the staff regarding the late arriving guest; that no one was aware of the plaintiff’s call, but that the new occupant arrived at 1:40 AM and was permitted entry. Under the circumstances, the court did not find that the co-op and Kreisel had violated the court’s order and thus denied the motion for contempt. 

Turning to the motion for summary judgment by the co-op and Kreisel, the court said that recent appellate law makes clear that as a matter of law, the plaintiffs cannot be deemed holders of unsold shares. As explained in a prior case cited by the court, in order to be deemed the holder of unsold shares, the shareholder must have been designated by the sponsor, must have fulfilled registration requirements of the attorney general, must have maintenance payments guaranteed by the sponsor, and must be the lessor, not the lessee.

Therefore, the plaintiffs, who had not fulfilled any of the above requirements, were not holders of unsold shares. Moreover, the court agreed with the co-op and Kreisel that, even if they were so deemed, the use to which they had put the premises violated the house rules and proprietary lease provision requiring that the units be used for residential use only.

David Dreyfus, Addison’s managing agent, argued that the proprietary lease designated the building a “first-class apartment building” to be used as a “private dwelling…and for such other purposes as permitted under zoning laws and are otherwise legal.” Dreyfus averred that use of the apartments as a hotel/bed-and-breakfast violated the building’s certificate of occupancy

which provides for residential use only.

Notwithstanding the short-term residency of transient occupants, the court concluded that a commercial business was being operated through the subtenant, as evidenced by the materials contained in exhibits furnished by the co-op and Kreisel which indicated that A Hospitality Company advertised and booked the subject premises as an alternative to a hotel. This violated

the rules.

Under the law, the plaintiffs were not holders of unsold shares, despite Kreisel’s mistake in the letter of December 16, 1996 stating that the shares of Apartment 1611 were “unsold shares” which did not require board approval for transfer. Even if the co-op and Kreisel might be said to have waived their right to approve the initial transfer of shares, in the court’s view, they did not waive their right to object to plaintiffs’ use of the premises for any purposes in violation of the proprietary lease and the building’s certificate of occupancy use requirements.

Under the circumstances, the court granted summary judgment dismissing the plaintiffs’ complaint which sought permanently to enjoin the defendants from interfering with Merioz’s sublets, and $100,000 in damages for interfering with Merioz’s economic advantage. The court dissolved all stays and said that the co-op and Kreisel could pursue any remedies afforded them by law or under the proprietary lease.