Coop Boards and Management Beware – Courts are Whittling Away at Coop Autonomy
The well established business judgment rule provides that a court should defer to a cooperative board’s determination “[s]o long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith”. Courts sometimes try to find ways around the rule in order to justify their decisions aimed at weakening the ability of coop boards to govern themselves without Court interference. Coop boards and management can battle against this loss of autonomy by considering proprietary lease, bylaw and rule amendments that address language issues that Courts and adversaries use against coops.
In the recent case of Christie v. Breezy Point Cooperative Inc. (Index No. 705938/23), a New York judge in Queens decided that a coop board could not require the shareholder/proprietary tenant to remove alterations to the apartment as a condition to the board’s consent to to a sale of the apartment. The tenant, Christie, made alterations to his coop unit in 2013 without obtaining consent from the coop board as required under the proprietary lease. Years later, when seeking to sell, the board demanded removal of these alterations as a condition of approval.
Christie sued for breach of contract, breach of fiduciary duty and reimbursement of his attorney fees.
The judge gave two reasons for allowing Christie to continue his suit and holding that the coop couldn’t condition its consent to assignment upon removal of the unauthorized alterations:
- Lease Language: The lease didn’t specifically give the board power to condition assignments on the correction of unauthorized alterations.
- Unreasonable Delay: It was deemed unreasonable to require the tenant to undo the alterations after such a long time.
The Judge’s decision ignores years of case law in this area and should be a cause for concern for coop boards and management. If Courts move in this direction and require precise language in a proprietary lease to afford the coop the ability to exercise its business judgment and condition assignment of leases on something like this, an unauthorized alteration that is not in the best interest of the cooperative, then coops will have to take steps to amend their leases or suffer similar Court decisions whittling away at coop autonomy.
In addition to a proprietary lease review and amendment proposals, coop boards and management may consider taking action regarding unauthorized alterations earlier than when a shareholder/proprietary tenant is about to sell. This is a difficult task at times because people hide their unauthorized work. Regular inspections may expose these rule violators like Christie and not give him the upper hand in a lawsuit.
Consider that Christie performed an unauthorized alteration which the coop board and management has presumably determined is not in the best interest of the coop and needs to be removed. Christie is selling his apartment and getting away with his unauthorized alteration. The coop is left with the problem and the Court has placed the coop in a position of defending itself and possibly being responsible for Christie’s attorneys’ fees and costs which are claimed in the case.
None of this is right and just and the Court should have dismissed the case and allowed the coop board to exercise its business judgment staying out of the coop’s business. The Court ignored well stabled appellate authority that governing documents like the proprietary lease there placed no express limitation on the board’s authority, and thus the coop board should have had “the absolute right for any reason or no reason to withhold its approval” of a proposed transfer. Rossi v. Simms, 119 A.D.2d 137, 140 (1st Dep’t 1986) (holding that the coop was allowed to condition approval of a sale on purchaser’s “acquiesce[nce] to a surcharge for professional use of [an] apartment”); Young v. 101 Old Mamaroneck Rd. Owners Corp., 211 A.D.3d 771, 773, 775 (2d Dep’t 2022) (complaint didn’t allege “facts [to] support a finding that [cooperative] acted without authority” in conditioning a sale on obtaining authorization for such transfer from court-appointed representative of deceased shareholder’s estate); Black v. Alexander House Residences, Inc., 226 A.D.2d 186, 186 (1st Dep’t 1996) (coop board’s “decision to condition its approval of [shareholder’s] sale of” apartment upon the payment of certain attorneys’ fees was permissible and protected by the business judgment rule).
Considering that Courts like this are chipping away at coop autonomy, coop boards should protect themselves with reviews of their governing documents and appropriate amendments.
Here is the Court decision.
