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Council of New York Cooperatives & Condominiums
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Legal Issues

Published: Autumn 1996

THE COURTS CONTINUE TO CHIP AWAY AT THE POWERS OF THE BOARD BUT SUSTAIN PAYMENT FOR HOUSING

CNYC thanks Marc J. Luxemburg, Esq. for this regular column. A partner In the law firm of Snow Becker Krauss, Mr. Luxemburg was a founder of CNYC and serves as its president.

Foreclosure Sale Stalled

In McMillan v. Park Towers Owners Corp., 640 N.Y.S., 2d 144 (2d Dept., March 25, 1996), the court enjoined the cooperative from conducting a foreclosure sale of a defaulted apartment pursuant to the Uniform Commercial Code (UCC). The cooperative had served the shareholder with a 10-day Notice to Cure seeking arrears in excess of $20,000 and, upon failure of the shareholder to pay, it served a notice of termination. The Second Department held that the existence of a proprietary lease does not establish an enforceable Security Agreement, to which the UCC applies. It also said the preservation of the status quo was essential, otherwise the cooperative would be able to divest the shareholders of their ownership interest without any judicial determination of defenses or counterclaims. Accordingly, the cooperative was enjoined from auctioning the apartment until after a determination on the merits of the amount due to the cooperative. The shareholder was required to post a bond in excess of the value of the unpaid maintenance to secure the injunction.

Subterfuge Triumphs

Another judge has ruled that the word "and" is the legal equivalent of the word "or". In Fifth 912 Corporation, Inc. v. Krupinski, Sup. Ct., N.Y. Co. NYLJ, 9/24/96, p.23, col. 2, a purchaser submitted an application stating that he and his spouse would live in the apartment. The board granted approval. After performing extensive alterations, the purchaser and his spouse did not move into the apartment, and instead the daughter and son-in-law moved in. The cooperative sought to rescind the consent because it was procured by fraud, and to terminate the proprietary lease because the apartment was not being occupied by the lessee.

The court (Justice S. Cohen) dismissed the complaint, finding that the facts did not show that the statement in the application was fraudulent, and that the clause of the proprietary lease stating that the apartment shall not be occupied or used other than as a private dwelling for "the lessee, the lessee's spouse and children, and, provided that the lessee is also in occupancy, the lessee's domestic employees" was clear and unambiguous, and permitted the lessee's children to occupy the apartment whether or not the lessee was also in occupancy. In other words, the court found that although the proprietary lease said that apartment was to be occupied by the "lessee... and children", this was the equivalent of saying that the apartment could be occupied by the lessee "or" the lessee's children.

Business Judgment Rule Misapplied

In Salmansohn v. Fourth Avenue Owners Corp., Sup. Ct., N.Y. Co, NYLJ 9/11/96, p. 21, col. 4, in order to improve the security of the building, the board of directors had bars installed over the plaintiff's windows. The plaintiff complained that the view was of substantial value to her apartment, and the bars substantially diminished the value of the apartment. She also asserted that the security could be provided without depriving her of her view.

The cooperative moved for summary judgment claiming that the decision to put bars on the windows was a matter of business judgment. The court (Justice Arber), however, found that it was up to the court to determine whether the actions by the board were "reasonable", and that the case required a factual determination as to whether the shareholder was treated equally, and whether the cooperative could have employed some less intrusive means to accomplish the same goal. Summary judgment was denied and the matter was set down for trial.

It seems very difficult to square this decision with the rule set down by the Court of Appeals in the Levandusky case, which said that the business judgment of the cooperative should not be interfered with unless the shareholder can claim bad faith or malice. BUT...

Residents Must Pay Common Charges

On the good side of the ledger, in Foxwood Square Condominium I v. Albert, Civ. Ct., Richmond Co., NYLJ 5/15/96, p. 28, col. 6, the court ruled that a tenant of a defaulting unit owner could be compelled to pay use and occupancy in the amount of the monthly carrying charges directly to the condominium. Although the court held that General Business Law Section 352-e 2(d) did not apply, because the definitions set forth in the statute only covered situations where the tenant was in residence at the time the plan was declared effective, the court did hold that, since the tenant had not paid rent to the unit owner and was occupying the unit and obtaining the use of heat and utilities without any payment whatsoever, there had been an unjust enrichment, and accordingly awarded use and occupancy against the tenant in the amount of the common charges.

 
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