Case Notes in
Stock/Shares
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First published: Oct 2020
Board of Directors of Big Deal Realty on Greene St., Inc. v 60G 133 Greene St. Owner, LLCThere is an important lesson to be learned here. It is currently common for shareholders to request that their shares be transferred into the name of an entity. While in most cases a trust is the entity in question, we have received many requests for transfers to an LLC. Every board should be aware that regardless of the entity, special care should be given to the effect that this latest court decision might have on such a transfer. The board should insist that as a condition to any approval for the transfer to any entity, that it be clear, in a written agreement, that the transfer of the ownership interest or beneficial interest in the entity will be deemed a transfer of the apartment itself. In the case of a transfer to a trust, special care should be taken in regard to the party who has the right to use the apartment. Without this type of agreement, the cooperative risks having a transfer that has not been approved by the board and, perhaps worse, a transfer for which a required transfer fee has not been paid.
Read full articleFirst published: Mar 2020
Bellstell 7 Park Avenue, LLC v. Seven Park Avenue Corp.It used to be that cooperative sponsors were required to transfer shares to individuals within a period of time after conversion, and that those individuals would then be holders of unsold shares. When the Internal Revenue Code was amended in the late 1980s, there was no longer a prohibition against entities owning unsold shares. The reason why this case is important is that it would allow, theoretically, individual unsold shareholders to assign their shares to an entity owned by them. Depending on the language in the lease, this could happen either without board approval or with approval from the managing agent, not to be unreasonably withheld. Principals of the entity could then, theoretically, move into the apartment, live there for a period of years, and then – when they vacate – have the owner/entity maintain its unsold status so that it continued to receive the benefit of special rights. These could include the right to sublet or sell without interference and, possibly, exemption from certain fees. One final note: the cooperative argued that the plain language of the lease – the same language relied on by the holder-LLC – did not permit ownership of unsold shares by an entity because entities do not have families. Thus, plaintiff would have lost unsold-share status in all of the apartments it owned. This decision is being appealed.
Read full articleFirst published: Apr 2018
Koeppel v. 130 East End Avenue Tenants Corp.The court here addressed a provision, typically found in proprietary leases, which is prone to create problems. Certainly, financial wherewithal is important. While not before the court in this action, there can be circumstances in which a family member is financially responsible, but the board may rightly want to reject their application. The proposed shareholder may be litigious, evicted from a prior building because of disruptive or objectionable conduct, or there is something else in his or her history that would make for an undesirable neighbor. It is one thing when an apartment passes, upon death, from one spouse to the other when both have lived in the building. It is another when this provision allows an estate to introduce a completely new individual into the mix. It is for this reason that many boards, when considering whether to propose lease revisions to their shareholders, often consider revisions to this paragraph.
Read full articleFirst published: Jul 2017
Kikis v. 1045 Owners Corp.This case involved a situation where the board asserted that it had a policy in place concerning home equity loans, but the policy did not appear in the proprietary lease or bylaws. If a board resolution was passed, it was very recent. While it is difficult to determine from the decision, it appears as if the form purchase application distributed by the managing agent advised purchasers that HELOCs could not be secured by the shares. In any event, the case raises the question of whether a board can promulgate and enforce a policy even if it is not in the governing documents or house rules. Although the court did not cite or reference the proprietary lease or bylaws, we must presume that the policy did not violate any specific provisions of the documents. Accordingly, the court found that the policy – which was consistently applied to all shareholders – would be upheld in accordance with the Business Judgment Rule. This is consistent with a number of other post-Levandusky cases that have refused to interfere with decisions of boards provided the shareholder did not demonstrate that the board acted beyond its authority or in a way that did not further the co-op’s legitimate purpose or in bad faith. It is also consistent with a pre-Levandusky case reported in this column in the July/August 1985 edition of Habitat. There, we discussed Browne v. 930 Fifth Corporation, where a shareholder wanted to use his shares to secure a loan to purchase real estate in Westchester County. The board refused to sign a recognition agreement, and the shareholder sued. Consistent with the later decision in Kikis, the court dismissed Browne’s complaint as the co-op was not required to execute the recognition agreement. Kikis also reminds us that cases will not be sustained against individual board members absent a showing, with specific allegations, that they committed a tort separate and independent from any action they may have taken in their capacity as board members.
Read full articleFirst published: Dec 2016
Singh v. Turtle Bay Towers Corp.; Graham v. 420 East 72nd Tenants Corp.The Business Judgment Rule is an important tool. It allows boards to operate their cooperatives or condominiums without excessive interference – unless there are acts of wrongdoing or self-dealing, or if there is a contractual obligation to the contrary. But courts will question a board’s actions if those actions defy common sense. It appears that this board offered nothing to explain how it could assert that the purchase price was too low while at the same time offering substantially less money to purchase the apartment itself. The question of whether boards can require a floor price to enhance apartment values in the building has been controversial. The most obvious reason is that some apartments may be newly renovated while others are not. One hopes that in those situations, boards will use their judgment and, where warranted, make exceptions to their own rules. The decision in this case does not address whether this was the first time this board had rejected an application because the sale price was too low, or whether it had adopted a formula to determine acceptable prices. Nor does it address why the board was apparently not influenced by the appraisal. The board in this case may genuinely believe that the purchase price is too low. However, if that were the case, it would have been bound to offer more when it sought to purchase the apartment. Boards can’t have it two ways.
Read full articleFirst published: Jun 2016
Board of Managers, Soundings Condominium v. FoersterIt’s unusual for a co-op or condo board to initiate a legal action based on misrepresentations in the purchase application. The case merely denied Foerster’s motion for summary judgment. Accordingly, there remain many issues and unanswered questions. In this case, the misrepresentations were plain and undeniable. But what happens when the misrepresentation is less obvious? And how long can a person be held to a representation made in a purchase application? Clearly, no one believes that a representation made 20 years earlier should be binding. Another question is whether the Social Services Law requires a condo or co-op to allow a group home to be in place even if the governing documents require that apartments be used only for residential purposes. And what rights – or obligations – will the initial sellers have? We don’t have the answers to all of these questions, but the board’s decision to sue here – and the court’s refusal to dismiss the claim for rescinding the sale – should be taken into account by any purchaser seeking to “put one over” on a board.
Read full articleFirst published: Feb 2015
Ho Foong Shiu Realty Corp. v. PullmanWhile this case addresses a landlord–tenant relationship in a rental building, it serves as a cautionary tale for cooperatives and condominiums as well. If a co-op or condo elects to bring an action against an apartment owner as a result of a barking dog, it should make sure it has more than one occupant backing it up. The board should also know up front whether there are any unrelated harsh feelings among the involved parties. For practical purposes, a managing agent and/or resident manager will typically save all e-mails and letters concerning complaints about a building resident. If a resident calls the door staff to complain, notes are typically made and maintained in the building log, and copies of those pages should be kept with the file for that apartment owner. Before a board makes the decision to begin an action, its counsel may want to speak with those who have complained about the noise. Among other things, counsel will want to know that the people complaining are prepared to participate in any legal action. We have seen several situations where occupants have complained about noise, yet, when asked to participate in a lawsuit (or even when asked to allow the board to identify them in correspondence), they have refused, apparently because they do not want to be put in an adversarial position with their neighbors. Under these circumstances, there is often little a board can do to resolve the problem.
Read full articleFirst published: Oct 2012
CIA Naviera Financiera Aries, S.A. v. 50 Sutton Place South Owners, Inc.This case presents an interesting fact pattern and reminds us that, unless a share transfer is recorded in the corporation’s books and records, the corporation will not be required to acknowledge the transfer. We note that court records reflect that Xenakis’s estate intervened in this action. While this decision is obviously binding on Aries and the cooperative, we do not know whether this decision will be dispositive of claims made by Xenakis’s beneficiaries, if any, against Aries and Anastasakis for the right to receive the proceeds from any sale of the apartment. The lease provision here apparently required the board to “not unreasonably withhold” its consent to a transfer, which is a provision we do not normally see in the context of transfers (more often, boards can withhold consent for any reason or no reason, absent discrimination). Notwithstanding, the court applied the Business Judgment Rule and determined to give deference to the board’s long-standing, yet apparently unwritten, rule that prevented corporations from owning shares. The court also discussed and acknowledged the board’s legitimate reasons for the rule. This case is a good reminder that co-ops need to exert control over their shareholders and, to a degree, those people who are entitled to live in the building. Shares may not be sold freely and shareholders must comply with the provisions of their co-op’s governing documents in order to make sure any transfer is effective for the protection of all shareholders because of their economic interdependence.
Read full articleFirst published: Jul 2011
Kikis v. 1045 Owners Corp.This case involved a situation where the board asserted that it had a policy in place concerning home equity loans, but the policy did not appear in the proprietary lease or bylaws. If a board resolution was passed, it was very recent. While it is difficult to determine from the decision, it appears as if the form purchase application distributed by the managing agent advised purchasers that HELOCs could not be secured by the shares. In any event, the case raises the question of whether a board can promulgate and enforce a policy even if it is not in the governing documents or house rules. Although the court did not cite or reference the proprietary lease or bylaws, we must presume that the policy did not violate any specific provisions of the documents. Accordingly, the court found that the policy – which was consistently applied to all shareholders – would be upheld in accordance with the Business Judgment Rule. This is consistent with a number of other post-Levandusky cases that have refused to interfere with decisions of boards provided the shareholder did not demonstrate that the board acted beyond its authority or in a way that did not further the co-op’s legitimate purpose or in bad faith. It is also consistent with a pre-Levandusky case reported in this column in the July/August 1985 edition of Habitat. There, we discussed Browne v. 930 Fifth Corporation, where a shareholder wanted to use his shares to secure a loan to purchase real estate in Westchester County. The board refused to sign a recognition agreement, and the shareholder sued. Consistent with the later decision in Kikis, the court dismissed Browne’s complaint as the co-op was not required to execute the recognition agreement. Kikis also reminds us that cases will not be sustained against individual board members absent a showing, with specific allegations, that they committed a tort separate and independent from any action they may have taken in their capacity as board members.
Read full articleFirst published: Jul 2007
Sassi-Lehner vs. Chariton Tenants Corp.This decision undercuts the ruling of New York’s highest court in the recent Kralik case, which recognized the broad contractual rights of holders of unsold shares in the face of regulations of the attorney general that sought to limit them. Here, the co-op’s offering plan had been amended in 1990 to require a holder of unsold shares to be designated by the sponsor – a requirement derived solely from the attorney general’s regulations – and this expanded definition in that plan was seized upon by the court to invalidate the claim of holders of unsold shares.
Read full article