CO-OP CASE LAW UPDATE
Significant Legal Decisions of 2018
For Board Members of Long Island
Cooperative Corporations
1.COMMON ELEMENTS
Fairmont Tenants Corp. v. Braff – Supreme Court, New York County
Michael Braff was an owner of a co-op apartment in Fairmont Tenants Corp. Braff had been
using a setback portion of the building’s roof since he purchased the apartment in 1989. Written
permission was never given by the Board to use the roof. In December 2007, the Board sent a
letter to Braff requesting that he remove his belongings from the roof. It was the Board’s
position that Braff’s use of the roof was unauthorized use of the co-op’s space. Braff claimed
that his use of the roof was authorized by his proprietary lease.
The Board brought an action against Braff seeking a declaratory judgment from the Court that
Braff was not authorized to use the portion of roof at issue. The Court reviewed the offering
plan for the co-op and Braff’s proprietary lease. The Court noted that apartments with terraces
were marked in the offering plan with a “T”. Braff’s apartment did not have a “T” next to the
share allocation in the offering plan. The Court, therefore, found that Braff did not have the
exclusive right to use, occupy or enjoy the roof.
Takeaway – Know your documents, to the letter.
2. TRANSFER OF APARTMENTS
Koeppel v. 130 East End Avenue Tenants Corp. – Supreme Court, New York County
Thomas Koeppel’s father, Neil Koeppel, bought a co-op apartment in 130 East End Avenue
Tenants Corp. in 1972. When Neil Koeppel died in June 2016, he left the apartment to his son in
his will. The proprietary lease for the apartment provides that in the event a shareholder dies, the
Board shall not unreasonably withhold consent to an assignment of the shares and the lease to the
immediate family of the Lessee. Thomas Koeppel submitted his application to the Board for the
transfer of the apartment. The application raised concerns about Koeppel’s personal holdings
and income, inheritance, and expectation of future earnings. Since it was estimated that repairs
to make the apartment habitable would cost at least $185,000, the Board was concerned that
most of Koeppel’s expected future income was tied up in family real estate holdings. Koeppel
was interviewed by the Board in March 2017, but the interview did not alleviate the Board’s
concerns about Koeppel’s financial situation. The Board denied Koeppel and would not
reconsider when Koeppel offered to escrow two years of maintenance payments.
Koeppel then brought an action against the Board seeking a declaratory judgment that Koeppel is
financially qualified to assume the shares and leases and that the Board unreasonably withheld its
consent to the transfer. Koeppel brought an order to show cause seeking to occupy the apartment
during the pendency of the action. In order for the Court to grant the preliminary injunction,
Koeppel had to show (1) likelihood of success on the merits; (2) irreparable harm if an injunction
is not granted; and (3) a balance of equities in favor of granting the injunction. Koeppel argued
that he is likely to succeed on the merits because he has a net worth exceeding the value of the
apartment. The Court denied Koeppel’s application for a preliminary injunction since there are
questions about Koeppel’s assets and financial qualifications. The Court also found that there
was no irreparable harm if the injunction was not granted since Koeppel would not have been
able to move into the apartment immediately anyway since it required over $185,000 in
renovations.
Takeaway – Boards may withhold their consent to a transfer when finances are at issue.
3. BUSINESS JUDGMENT RULE v. REASONABLENESS
Perrault v. Village Dunes Apt. Corp. – Appellate Division, Second Department
Philip Perrault purchased a co-op unit in Village Dunes Apartment Corp. in 2003. In 2013,
Perrault submitted a proposal to the Board to raise the ceiling height in a portion of his unit by
enclosing unfinished common area space above his unit for his exclusive use and replacing an
existing window with a window of another size. Perrault’s proprietary lease states that the Board
cannot unreasonably withhold its consent to a proposed alteration in the unit or building. The
Board denied Perrault’s proposed alterations. Perrault then brought an action against the Board
for breach of contract.
The Court noted that the business judgment rule did not apply in this case since the proprietary
lease provided that the Board’s actions in giving consent to alterations to the unit or building are
to be reviewed under a reasonableness standard. A Board’s actions are considered reasonable
where they are related to the welfare of the corporation. The Court dismissed the complaint
finding that the Board had demonstrated that withholding its consent to Perrault’s proposed
alterations was reasonable.
Takeaway – A Board’s actions will not be protected by the business judgment rule if the
proprietary lease provides for a different standard, but a reasonableness standard will not render
the Board powerless.
4. OBJECTIONABLE CONDUCT
340 East 93rd Street Corp. v. Kasachkoff
Alisa Kasachkoff was the owner of three co-op apartments in 340 East 93rd Street Corp. After
she repeatedly rented out one of the units to short-term visitors, the Board brought an action to
terminate her lease. The Board was required to demonstrate that the shareholder had engaged in
objectionable conduct. Courts must defer to co-op Boards in determining what constitutes
objectionable conduct. Here, the Board voted that Kasachkoff had engaged in objectionable
conduct. The Court held that a Board’s decision to terminate a lease for objectionable conduct
can only be challenged if the shareholder can show that the Board violated the business judgment
rule. Kasachkoff claimed that the Board should not have acted since she was willing to evict her
sub-tenants and list the apartment for sale. The Court found that her last minute offer to sell did
not address her repeated rental of the unit without the Board’s approval.
Takeaway – Short term rentals can be considered objectionable conduct.
5. FINES
Zyuz v. The Board of Directors of 313-23 Owners Corp. – Supreme Court, Kings County
The co-op Board terminated the shareholder’s lease due to a failure to pay sublet fees,
maintenance charges and fines (related to an improperly installed air conditioner and alleged
occupancy violations). The shareholder commenced this action against the co-op Board, asking
the Court to stop the Board from evicting her, claiming the fees were improper, without
authorization, and were issued without proper notice.
The Court found that neither of the parties had established whether the Board had the authority to
fine, what notice was required, or whether an opportunity to cure existed. The case will continue
until the Court resolves these questions to its satisfaction.
Takeaway – Boards need to act in strict accordance with the provisions of the Proprietary Lease
or risk the consequences.
6. OCCUPANCY RULES
Chiagkouris v. 201 W. 16 Owners Corp. – Appellate Division, First Department
The shareholder allowed a friend to occupy the co-op apartment in his absence. The Proprietary
Lease stated that the apartment was to be occupied “the Lessee and Lessee’s spouse, their
children, grandchildren, parents, grandparents, brothers and sisters and domestic employees…
The Lessee may also allow one unrelated party, and that party’s dependent children to occupy
the apartment without the prior written consent of the Lessor… but no guests may occupy the
apartment unless one or more of the permitted adult residents are then in occupancy or unless
consented to in writing by the Lessor.”
The Court held that occupancy by the shareholder’s friend was only permitted “if the lessee
maintains a concurrent occupancy.” The Board’s termination of the Lease was upheld.
Takeaway – Shareholders need to act in strict accordance with the provisions of the Proprietary
Lease or risk the consequences.
7. REPAIRS
De Socio v. 136 East 56 th Street Owners, Inc. – Civil Court of the City of New York
Shareholder suffered water leaks in her apartment over a period of ten years due to infiltration
from the exterior of the building, resulting in damages and mold in the apartment. The Board
performed some of the repairs, but at times, repair efforts were hampered or prevented by the
shareholder’s failure or refusal to provide access to the apartment. The Court found that once it
became clear that the shareholder was not cooperating, the Board had an obligation to seek a
Court order compelling the shareholder to provide access to the apartment.
Takeaway – A board should not be idle if there is work to be done.
