Another recent decision has upheld a Cooperative’s right to terminate the proprietary lease of a tenant-shareholder who engaged in a pattern of objectionable conduct. The decision, Matter of Perry v. 61 Jane Street Tenants Corp., 2011 WL 1841930, 2001 N.Y. Slip Op. 31244(U) (Sup. Ct. N.Y. Co. May 10, 2011), provides guidance to cooperatives seeking to terminate a tenant-shareholder’s proprietary lease for objectionable conduct, a right recognized under most proprietary leases and in the Court of Appeals’ landmark Pullman ruling.  

The petitioner in this case had been the subject of frequent complaints by fellow residents and building staff to the Cooperative’s Board of Directors. The complaints concerned petitioner's disruptive actions both in and around her apartment as well as several disturbances in the building lobby. During one of these incidents, it was alleged that petitioner physically and verbally accosted a doorman, requiring the police to be called. In another incident, petitioner asserted a right to sleep all night on the couch in the lobby “in protest” against the building. Residents and staff members also reported various confrontations with petitioner during which she allegedly screamed at residents and staff, blocked residents’ egress from the elevator, and otherwise behaved erratically. 

The Cooperative addressed these complaints to petitioner and her counsel in at least eight letters written over the course of more than one year. Despite assurances that petitioner would modify her behavior, incidents of objectionable conduct continued.  Finally, in December 2010, the Cooperative notified petitioner and her counsel that a Board meeting had been scheduled to discuss the potential termination of petitioner’s proprietary lease. Petitioner and her attorney were invited to the meeting and allowed to present their position.  

The Board voted unanimously to terminate petitioner’s proprietary lease and cancel the shares appurtenant to her apartment, and issued a notice of termination. Instead of vacating her apartment, petitioner brought an Article 78 proceeding against all the members of the Board, seeking to set aside the Board’s decision. The Cooperative counterclaimed for a judgment of possession and a warrant of ejectment. The Cooperative also requested that it be substituted as the respondent in the case, in place of the individual board members, to avoid potential consequences to the board members resulting from their being sued under their individual names. The court granted this request.

 The court denied the tenant-shareholder’s petition and granted judgment in the Cooperative’s favor on its counterclaim. The court’s decision recognized that a cooperative may terminate the proprietary lease of a tenant-shareholder who engages in objectionable conduct, so long as the requirements of the proprietary lease (here, a two-thirds vote of the Board) are satisfied.  Such a decision, the court held, is ordinarily protected under the business judgment rule. In this case, the Cooperative’s decision was protected and entitled to deference. Petitioner had continued in her course of objectionable conduct after receiving multiple notices that she needed to stop her objectionable conduct. The court also held that the termination was in furtherance of a legitimate corporate purpose, that the Board had a fiduciary duty to act in the interests of the Cooperative and its shareholders, and that the Board had not acted “lightly” but only after making numerous efforts to resolve its concerns through less drastic means. Finally, the court rejected petitioner’s claim that provisions of her proprietary lease and the Pullman decision violated her constitutional rights.   

Ganfer & Shore, LLP represented the respondent Cooperative in this case, both in the events leading up to the termination of the tenancy and in the ensuing litigation.

It often occurs that a property owner disputes the amount that a lender claims is owed to pay off a mortgage. For example, the lender may be claiming default interest and attorneys’ fees, while the owner denies that any default occurred. In Lispenard, LLC v. Kenmare Square LLC, Index No. 850032/2010 (Sup. Ct. N.Y. Co. Apr. 21, 2011), the court permitted the owner to refinance its property while placing the disputed amount into escrow until the dispute was resolved, defeating the lender’s attempt to hold the property hostage in a foreclosure action and refuse to deliver an assignment or satisfaction of mortgage, thereby compelling the owner to pay money that the court may ultimately determine is not owed. 

The plaintiff in this case, a single-purpose entity, had purchased the mortgage on defendant’s property approximately four months before its scheduled maturity date. Plaintiff almost immediately began giving notice of alleged defaults, and ultimately declared a default based on alleged arrears in defendant’s payments of real estate taxes on the property. Defendant owner asserted that no default had occurred because the taxes were covered by an agreement with the City and a check in payment of the taxes had been mailed to the City, and asserted in the alternative that any alleged default was de minimis and excusable. Plaintiff nonetheless sought to characterize the alleged tax arrears as a default and instituted a foreclosure proceeding seeking to foreclose on the property. At the outset of the proceeding, plaintiff also filed a notice of pendency against the property, clouding title.

In the meantime, the owner sought financing from a third-party lender so that it could pay off the mortgage. Plaintiff refused to provide an assignment of mortgage unless the owner paid substantial default interest at a rate of 24% per annum. The owner sought a preliminary injunction requiring plaintiff to provide the owner with an assignment of mortgage and vacate the notice of pendency so that the refinancing could occur, with the disputed default interest to be placed in escrow until the underlying dispute over whether plaintiff was entitled to default interest was resolved. 

The Court granted the injunction, finding that otherwise, the owner would be forced to make one of two “equally untenable choices.” One choice would be for the owner to pay plaintiff all the disputed default interest plaintiff claimed. At this point, plaintiff could immediately distribute the funds and thereby render itself judgment proof in the event that the court later determined that it was not entitled to default interest. The other choice would be for the owner to refuse to pay the default interest, in which case plaintiff would not allow the mortgage to be assigned, the owner would lose its financing with no assurance that it would be able to obtain new financing, and the owner might ultimately lose the property. The Court held that the owner had demonstrated a likelihood of success on the merits of the case and that the balance of equities favored the owner. Accordingly, the Court found, the preliminary injunction sought by the owner was warranted.  

Ganfer & Shore, LLP represented the defendant property owner in this case.