First published: Mar 2022
Objectionable Conduct: A ‘Pullman” Slip -Up
The so-called Pullman provision in a proprietary lease is a very useful tool when it comes to shareholders who exhibit objectionable conduct. However, in order to properly use this weapon, the co-op must strictly comply with the terms of the provision, as the courts are very aware that terminating a proprietary lease is an extreme remedy. Prior to utilizing this provision, the co-op must review every step required with management and counsel, as any defect in the procedure will result in a dismissal of the co-op’s action.
What Happened. Hernandez was a tenant-shareholder in Tomfol Owners Corp., and had owned the apartment since 2006. Because of a series of events that the co-op found objectionable over a ten-month period, it served Hernandez a 30-day notice of default on March 19, 2019. Shortly before serving this notice there had been a fire in Hernandez’s apartment that rendered his apartment uninhabitable and damaged adjacent apartments. Hernandez was staying at his daughter’s home in the Bronx, and that’s where the notice was served. The notice stated that if the defaults were not cured within 30 days, the co-op would commence termination proceedings. Nearly a month and a half later, the co-op sent a second notice with identical allegations to the first one, this time stating that if the defaults were not cured within 15 days the co-op would commence termination proceedings. Finally, on July 30, the board president sent notice for a special shareholder meeting to be held on August 20 to take a vote on Hernandez’s tenancy. At that meeting it was decided to terminate his lease.
You Should Know The notice calling for a special shareholder meeting was sent pursuant to the so-called “Pullman” provision found in the proprietary lease. This allows for termination of a proprietary lease if two-thirds of the shareholders determine that because of objectional conduct, the tenancy of the lessee is undesirable. However, the provision also requires that such conduct must continue after the 15-day notice to cure was sent.
In The Court The co-op made a motion for summary judgment, and the court refused to grant the motion. In fact, the court dismissed the cause of action against Hernandez. The co-op appealed, and the appellate court upheld the lower court. The appellate court noted that the board ignored the provisions of the Pullman provision of the lease, which required that in order for conduct to be considered “objectionable” such conduct must continue after the 15-day notice. However, Hernandez was not living in the apartment for months (due to the fire), and there was no allegation that objectionable conduct continued after either the 30-day notice or the 15-day notice. Without new allegations after the 15-day notice, the board acted outside of its authority by holding the meeting, taking the vote, and bringing the action. Because of this the business judgment rule, which provides that the board act within its authority, for a legitimate corporate purpose and in good faith, did not apply.
