Case Notes in


First published: Dec 2020
Francis v. Kings Park Manor, Inc.

The Kings Park decision is a warning to all co-op boards that no complaint between neighbors should be ignored. In the past, many boards took the position that these were personal disputes and that the neighbors should work out a solution between themselves. While this might be the ultimate solution, the board (and management) should not take this stance immediately. The board should take every complaint seriously, and some investigation should take place. While it might be difficult to take action, a co-op board has a few remedies available. Most proprietary leases have provisions that require tenants to act in a cooperative manner and not do anything to disturb or interfere with other tenants’ enjoyment of their homes. Some leases even provide for fines in the event of certain violations of the lease. And, importantly, most leases have a provision (sometimes referred to as the Pullman clause) that states that the board may terminate the lease if it deems actions of the tenant to be objectionable. This advice does not apply only to complaints relating to racial or religious matters. If a tenant objects to noise or smoke from another apartment and the board refuses to get involved, the complaining neighbor might seek a partial abatement of maintenance due to a breach of the warranty of habitability (even though the condition was not caused by the co-op). No court would be sympathetic to the co-op board if it did nothing to investigate or attempt to remedy the problem. Finally, directors are fiduciaries who should be acting in good faith for the good of the co-op and its tenant-shareholders. To fully ignore any complaint is not acceptable. While it may not be necessary to act every time a complaint is received, the best practice is for a board to consider the complaint and to do some investigating in an effort to understand the validity of the complaint, the degree of the problem and possible solutions.

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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, LLC

There 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.

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First published: Sep 2020
Board of Managers of Fishkill Woods Condominium v. Gottlieb

Once again, we are reminded that the declaration and bylaws of a condominium constitute a contract between the unit-owner and the condominium association. While courts will occasionally look to the Business Corporation Law (which governs cooperatives), when it comes to governance issues in a condominium, the courts rely on the contract itself – the governing documents – when reviewing issues such as those raised in this case.

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First published: Jul 2020
Salvator v. 55 Residents Corp.

The court’s ruling as to trespass is instructive. The court declined to adhere to form over substance. The decision’s implication is that had the corporation served the plaintiff in accordance with the proprietary lease – by registered mail to the apartment – the plaintiff never would have known that the corporation’s agent was going to enter the apartment, since he did not live there. Also instructive is the court’s ruling on breach of fiduciary duty. By making the claim only against the board, the plaintiff was able to avoid having the claim dismissed. As to infliction of emotional distress, there was nothing to indicate that the corporation’s conduct was “outrageous.” Now that the court has sorted out what appear to be the final pleading issues, it is anticipated that the case will go to trial – more than five years after it was commenced.

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First published: May 2020
Tomfol Owners Corp. vs. Walker

In this case, the court relied on two new statutes. Specifically, the Business Corporation Law, under which many cooperatives are formed, recently added a provision that allows boards to permit shareholders to participate in meetings electronically. (This article is being written while there is an executive order in place that, among other things, bans annual meetings from taking place in person.) It used to be that only board members could join board meetings by conference call or video. Now, if the board allows it, shareholders can come to meetings electronically – and ballots can be cast electronically. Many buildings use what are called “directed proxies,” that is, a proxy in which the shareholder checks off the candidate(s) he or she wants the proxy holder to vote for. Some have proxies that allow the proxy holders to vote any way they choose. Either way, proxies can always be revoked by the shareholder attending the meeting and issuing a ballot. The new statute allows boards to accept electronic ballots so that shareholders do not have to be physically present at the meeting. Another new statute invoked is the Housing Stability and Tenant Protection Act, which, unless it is amended as to cooperatives, allows eviction proceedings to be commenced for “rent” but not for any other monies that a tenant, or shareholder, may owe. This means, as was the case here, that if the shareholder owes rent in addition to fines, the cooperative will have to make a choice. It can either maintain two separate actions: one for rent in housing court, where, if the court determines rent is owed but remains unpaid, a judgment of eviction can issue; and another in a separate court seeking money damages for the non-rent portion of what the cooperative claims is owed. Alternatively, cooperatives can commence one non-housing-court action for all monies due, including rent, but without the threat of eviction. It seems that these decisions will need to be made on a case-by-case basis by the board after consulting with counsel, and they may depend on the amount and duration of the arrears.

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First 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.

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First published: Feb 2020
Wachtel v Park Ave & 84th St., Inc.

This case raises a number of interesting issues for both boards and purchasers. As a purchaser, it is important that you do your due diligence, although it is not clear typical diligence could have helped these purchasers. There are representations that should be requested in a contract, but there is no indication here that the seller even knew there was an issue with the entrance or with the share allocation. Moreover, it is unlikely that any lawyer would seek to look at minutes going back 40 years, nor is it very likely that a managing agent would provide them. Having said that, the ADA-non-compliant step was obviously in place, and the purchaser could have inquired about it and retained an architect to look into DOB records. Although it is somewhat beside the point of this case, it is important to remember that someone purchasing a even a small home outside of Manhattan will have a home inspection, yet someone buying a far more costly apartment will often do no physical or architectural diligence at all. While it may cost more in the short term, asking an architectural professional to look at an apartment and public records might save money in the long term. As to the share-allocation issue, the court was able to rely on the business judgment of the board in part because the board had records that showed that the determination concerning the share allocation was made in accordance with proper corporate governance. This is important. Boards should make determinations at board meetings; minutes of those meetings should accurately reflect what took place; and those minutes should be maintained.

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