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Council of New York Cooperatives & Condominiums
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Legal Issues

Publication Date: Autumn 1999

CNYC president Marc J. Luxemburg, Esq. is an attorney specializing in cooperative and condominium law. In each issue of the CNYC Newsletter he reviews recent court cases that have the potential to answer questions commonly faced by boards of directors as part of their responsibilities. At CNYC's November 14th Housing Conference, Mr. Luxemburg will present his annual review of the year's Significant Legal Decisions.


SPONSOR PRIVILEGES
In SUSSER v 200 EAST 36TH OWNERS CORP., 692 NYS 2d 334 (App. Div. 1, Dept.6/24/99), the appellate court affirmed the lower court's dismissal of a challenge to the enforceability of sublet regulations by a shareholder who claimed the regulations were in violation of Business Corporation Law Section 501(c) since the sponsor was exempted from the application of such regulations.

The court held that the exemption from restrictions and fees in favor of the holder of unsold shares was properly imposed pursuant to the Offering Plan and was justified by the special obligations imposed upon the Sponsor by the General Business Law, with respect to requiring the Sponsor to continue leasing the apartments to non - purchasing tenants . The court stated that sublet restrictions serve numerous legitimate ends of the cooperative, and found no basis to conclude that the failure to afford shareholders the same exemptions as the sponsor deprived the shareholders of equal treatment. The Court, however, distinguished a prior case in which the differential treatment affected similarly situated tenant shareholders, and thus left the door open for continued application of a fiduciary standard of treating all shareholders equally. (CNYC had submitted an amicus brief supporting the cooperative's position in this case.)

SECURITY SERVICES
In NOVIKOVA v GREENBRIAR OWNERS CORP., 1999 WL 639935 (App. Div. 2d Dept. 8/23/99) the issue presented was whether the defendant's failure to have provided a 24- hour-a-day doorman at a residential apartment building constituted a breach of the duty to provide minimal precautions against allegedly foreseeable criminal acts of third parties. The court held that it did not.

A visitor to the building had entered the outer vestibule at 2:30 AM and was in the process of opening the interior door when he was shot as part of an attempted mugging. He sued, the corporation for insufficient security. The court found that the lighting systems, locks and intercom system all worked, and that the crime occurred in the entrance vestibule to the building. The court held that the failure to provide a 24-hour doorman was not a basis for liability.

DIPLOMATIC IMMUNITY
In PARK TOWER HOLDING CORP v BOARD OF MANAGERS OF 500 PARK TOWER CONDOMINIUM, NYLJ, 8/5/99, P. 26, C 5 (Sup Ct NY CO.) the issue was whether a condominium could require a diplomat to waive his diplomatic immunity as a prerequisite to being permitted to lease an apartment in the building. The unit owner submitted to the board a proposed lease for a tenant who was an ambassador to the United Nations. The board rejected the proposed lease because it was not in the required form and because the proposed tenant had diplomatic immunity. The unit owner claimed this was discriminatory and constituted a breach of fiduciary duty. The court held that the refusal to consent the renting of the apartment unless the proposed tenant waived diplomatic immunity did not violate the N.Y.C. Administrative Code restriction against discrimination based on lawful occupation, and was within the rights of the condominium board.

BOARD CONSENT QUESTIONED
In WOO v. IRVING TENANTS CORP., NYLJ, QDS 22701440 sl480 (Sup Ct N.Y.C. 8/5/99), an apartment was owned by the Resolution Trust Corporation (RTC) as a result of a mortgage default and a bank failure. The RTC entered into a contract to sell the apartment to Woo, who applied to the board for consent. The application was rejected because Woo had not provided requested information. Although the board apparently subsequently reversed this decision, and agreed to the transfer, the seller canceled the contract.

The purchaser brought an action, seeking damages from the cooperative for wrongful disapproval and tortious interference. The purchaser claimed that Paragraph 17 of the Proprietary Lease did not give the board the right to consent. However, since the purchaser was not a party to the Proprietary Lease, he was held to have no standing to enforce its terms.

The court further held that since the contract required that the purchaser obtain board approval, the seller voluntarily gave up its rights under the Proprietary Lease to sell the Apartment without board approval, and that the seller was therefore entitled to cancel when the purchaser failed to obtain the approval. No facts were submitted to show that the Board wrongfully or intentionally procured a breech of the contract. The case was dismissed.

 
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