E. Cooperatives and Condominiums Cooperatives and Condominiums

JurisdictionNew York

E. Cooperatives and Condominiums

1. Cooperatives Generally

Cooperative apartments are a form of property ownership that borrows elements from both fee ownership and a rental tenancy. A cooperative corporation holds a building in fee simple but enters into long-term leases, called proprietary leases, with the corporation's shareholders, granting the right to occupy a particular apartment. Rather than owning the apartment itself, the "owner" of a cooperative apartment owns shares of the corporation that owns the entire building. The owner of the shares appurtenant to a particular apartment enters into a proprietary lease for that apartment with the cooperative corporation, thereby creating a landlord-tenant relationship governed by the basic principles of landlord-tenant law.537

A cooperative corporation can be formed under the Business Corporation Law.538 Many cooperatives include provisions in their articles of incorporation for a board of directors vested with the powers necessary to manage the cooperative,539 but the authority may also be vested in the proprietary lessees.540 A cooperative corporation is bound by the articles of incorporation and its bylaws, the terms of the proprietary leases, and the cooperative's rules and regulations.541 A cooperative board may not enact a house rule or take any other board action that conflicts with or amends any term of a proprietary lease or the cooperative's governing documents.542 A cooperative corporation owes its shareholders fiduciary duties. Under BCL § 626(a), cooperative shareholders may commence a derivative action against the cooperative corporation if it breaches these duties.

The proprietary lease will provide for the payment of rent, called maintenance charges, for upkeep of the premises, but maintaining the apartment's interior is usually the proprietary lessee's responsibility.543 Typically, the proprietary lease allocates which aspects of the apartment are the cooperative corporation's responsibility to maintain and repair and which are the responsibility of the proprietary lessee.544 While the Appellate Division, Second Department, prohibits the shift of the warranty of habitability to the unit owner in the proprietary lease, the First Department permits it.545 Proprietary leases may be drafted to grant the cooperative's Board broad powers, such as the power to impose new fees without first seeking the consent of a majority of the shareholders.546 The proprietary lease may be amended to accommodate changes in maintenance costs.547 The proprietary lease may be amended to accommodate changes in maintenance costs.548 Real estate taxes are levied on the entire property and paid by the cooperative corporation. The corporation then assesses the proprietary lessees according to their proportionate ownership in the cooperative. 549

Cooperative apartments occupied by their proprietary lessees are not covered by rent regulation.550 Tenants in occupancy at the time of a cooperative or condominium conversion receive the protections afforded of both regulated551 and nonregulated552 tenancies. However, non-regulated tenants whose leases expired before the New York State Attorney General's acceptance of the offering plan have no protection under GBL § 352-eeee.553 The Appellate Terms for the First and Second Department have different views on whether tenants who rent in buildings after the date a cooperative or condominium conversion has been declared effective are protected under § 352-eeee. The First Department has held that § 352-eeee protection does not attach to post-conversion renters.554 The Second Department has held that when the tenant rents from the sponsor of the offering plan, § 352-eeee protection attaches.555

In a building converted to cooperative ownership under a non-eviction, rent-controlled or rent-stabilized plan, a tenant who chooses not to buy into the cooperative corporation may continue in possession of the unit. A tenant may lease directly from the corporation or become the landlord of the regulated unit.556 If someone purchases the appurtenant shares and enters into a proprietary lease for the apartment, that shareholder is a proprietary lessee under the regulation as a rent controlled or rent stabilized tenant. 557

Housing Court has jurisdiction over disputes concerning cooperative apartments. The relationship between the cooperative board and the proprietary lessee is akin to that of landlord and tenant in many respects, such as in the context of rent (or maintenance), even though the proprietary lessee is a shareholder in the cooperative corporation. This landlord-tenant relationship provides the jurisdictional predicate by which a cooperative corporation may bring a summary eviction proceeding against a proprietary lessee, such as a holdover proceeding based on a breach of the proprietary lease or a nonpayment proceeding based on the proprietary lessee's failure to pay rent, or "maintenance." In addition, a holdover proceeding may be brought to enforce rules peculiar to cooperatives, such as occupancy by persons other than the shareholder in the shareholder's absence.558 Nevertheless, the relationship between the cooperative board and the proprietary lessee is different from the ordinary landlord-tenant relationship in some holdover contexts.

In 40 West 67th Street v. Pullman,559 the Court of Appeals held that something akin to the business-judgment rule applies to proceedings brought under RPAPL 711, but subsequent cases have not clarified this principle. Unless the shareholders of a cooperative corporation act in bad faith, outside the scope of their authority, or in a way that does not legitimately advance the corporate purpose, deference should be given to a vote by the cooperative corporation's shareholders in determining whether a shareholder's conduct is objectionable under RPAPL 711. Courts have extended the Pullman holding to votes made by cooperative boards, noting that "procedurally proper cooperative board votes that terminate a shareholder's tenancy for objectionable conduct are entitled to deference under the business-judgment rule." 560

2. Cooperative and Condominium Conversions

Conversions to cooperative or condominium ownership are governed by § 352-eee of the GBL for cities, town and villages located in Nassau, Westchester and Rockland counties which choose to adopt it.561 In New York City, conversions are governed by GBL § 352-eeee, the Martin Act. Both statutes, which are substantially similar, provide for two types of offering plans—eviction plans and non-eviction plans. Under HSTPA, in the City of New York, a non-eviction plan may not be declared effective until written purchase agreements have been executed and delivered for at least 51% of the dwelling units by the bona fide tenants in occupancy or bona fide purchasers who represent that they or an immediate family member intend to occupy the unit when it becomes vacant.562 Outside New York City, a non-eviction plan may not be declared effective until at least 15% of bona fide tenants in occupancy have executed and delivered purchase agreements.

In New York City, an eviction plan may not be declared effective until at least 51% of the bona fide tenants in occupancy on the date the offering plan is accepted for filing (excluding eligible senior citizens and disabled persons in determining the number of bona fide tenants) have executed and delivered purchase agreements.563Under HSTPA, there may not be an eviction plan unless it was submitted before June 14, 2019.564 Outside New York City, agreements to purchase under an eviction plan must be received from 51% of the bona fide tenants in occupancy, excluding from the number of bona fide tenants eligible senior citizens and disabled persons, and 35% of the bona fide tenants in occupancy, including eligible senior citizens and disabled persons in the number of bona fide tenants. 565

A tenant who elects not to purchase when a building is converted under a non-eviction plan cannot be evicted based on the mere expiration of the tenancy but can only be evicted for cause, such as nonpayment of rent, illegal use or occupancy or breach of a substantial obligation of the lease.566 An owner's intention to use the apartment for personal use is not considered good cause in this regard.567 Non-eviction protection extends only to the nonpurchasing tenants, not their remaining family members. Rent-regulated tenants, however, retain the protections and benefits of rent regulation,568 including those relating to family member succession rights. 569

The rents paid by nonpurchasing tenants, whose tenancies are not protected by any other form of rent regulation, may not be "subject to unconscionable increases beyond ordinary rentals for comparable apartments." 570

A tenant who elects not to purchase when the building is converted under an eviction plan is protected against eviction until the expiration of the lease or three years after the plan is declared effective, whichever is later.571 Eligible senior citizens572 (tenants who are 62 on the date the plan is declared effective and their spouses) and eligible disabled persons573 may never be evicted based solely on expiration of the tenancy and may not be subject to unconscionable rent increases.574 Non-purchasing tenants under eviction plans who are subject to rent regulation remain subject to regulation but are subject to eviction under the same terms as other nonpurchasing tenants—after the expiration of leases or three years after the plan is declared effective, whichever is later.575 The First and Second Departments are split on whether a tenant who rents from the sponsor after the transfer of title to the cooperative corporation is protected as a nonpurchasing tenant under the Martin Act.576 Unregulated tenants of condominium apartments whose leases expired prior to the acceptance for filing of a non-eviction conversion plan do not qualify for eviction protection as...

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