Council of New York Cooperatives & Condominiums
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Legal Issues

Publication Date: Autumn 1998

CNYC thanks Marc J. Luxemburg, Esq., for this column. A partner in the law firm of Snow Becker Krauss, Mr. Luxemburg was a founder of CNYC and serves as its president. His workshop discussing legal decisions of the prior year is featured at each year's Cooperative Housing Conference.

Paikoff v. Harris, NYLJ, 9/30/98, p.28, c.1(Civ.Ct. Kings Co.) may affect the continuing battle between cooperatives and sponsors to require sponsors to complete the conversion. In this case, a Housing Court held: (i) that the tenant, who rented an apartment from the sponsor five years after the closing of the conversion, was a "non-purchasing tenant" and thus was entitled to renewal leases, so long as the tenant was not in default of the obligations under the lease; and (ii) that the tenant could not be subjected to "unconscionable rental increases." In other words, whenever a sponsor rents an apartment, the tenant may not thereafter be evicted unless the tenant violates the lease terms, and the tenant must be offered a renewal lease with "not unconscionable" increases. The result is the tenant is given non-eviction status with limited rent-increase protection.

The facts of the case were simple. The sponsor leased the apartment to the tenant 5 years after the conversion. At the expiration of the second lease entered into between the parties, the sponsor offered a third lease, which was rejected. The sponsor thereupon moved to evict on the grounds that the tenant was a holdover. The court found that the tenants were "non-purchasing tenants" within the meaning of the Martin Act because the Act does not require that the tenant be in occupancy at the time of the offering plan. The action was dismissed, subject to a new action being brought to raise the issue of whether the rent increase offered by the sponsor was or was not "unconscionable", an issue which the court declined to rule on in the existing proceeding.

The long-term effects of this case are unclear. If the principle is upheld by higher courts, the case may deter sponsors with vacant apartments from further renting, on the theory that they will thereafter be unable to obtain possession of the apartment in order to sell it, and that this will induce sponsors to sell apartments rather than rent them. On the other hand, for those apartments that have already been rented at so-called free market prices, or where the sponsor is not concerned about the long term effects of the rental, the decision will inhibit the sponsor?s ability in the future to vacate and sell apartments and thereby complete the conversion. It remains to be `seen whether a higher court will agree with this interpretation of the law.

In Thompson v. 490 West End Apts. Corp. , 676 NYS2d 73 (1st Dept. July 16, 1998), and in Merioz v Strang, Sup. Ct. NY Co., Index Nol. 600942/98, decision of August 3, 1996 (NYLJ QDS 22206005), the court found that an owner of multiple apartments who did not occupy one of the apartments and who had leased it out, did not thereby become a "Holder of Unsold Shares", entitled to the benefits given a "Holder" under the proprietary lease. Each court held that the owner did not qualify as a Holder of Unsold Shares for the reason that it was not designated by the sponsor as a Holder, and supplied no documentary evidence in support of its claim. The result of these decisions is that the burden is on the person claiming the status of Holder of Unsold Shares to produce evidence to support the claim, and in the absence of such evidence the benefits under the proprietary lease will not avail them. The court in Strang also held that the co-op board did not waive its rights because it had treated other lessees as Holders of Unsold Shares.

In 684 East 189th Street HDFC v Catrone, Civ. Ct. Bx.Cty., Index No. 85841/97, decision of 5/6/98 (NYLJ QDS 36700250) a three-day nonpayment demand required by the RPAPL was sent by the attorney for the cooperative. The court dismissed the action on the grounds that the three day demand did not comply with the Federal Fair Debt Collection Practices Act and that a summary proceeding cannot be maintained based upon a notice that violates the federal act. The court held that the RPAPL?s three-day demand requirement conflicts with the federal statute in any case in which the demand is sent by an attorney rather than by the party.

The bottom line in this case is that all legal notices to shareholders regarding nonpayment of maintenance must be signed by an officer of the cooperative, and not by the attorney or the managing agent - unless the attorney or agent is an officer of the Corporation and is signing in such capacity.


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