Cooperatives & Condominiums

Board Did Not Timely Exercise Right of First Refusal

Board of Managers, Kingsley Condominium v. Villinvestment

NYLJ 8/27/03, p. 18, col. 6

Supreme Ct., N.Y. Cty

(Tolub, J.)

In an action by condominium board to compel unit owner to sell its unit to the board, unit owner and prospective purchaser sought summary judgment dismissing the complaint and permitting their sale to proceed. The court granted the summary judgment motion, holding that the board had not timely exercised its right of first refusal.

The condominium bylaws provide that any unit owner who receives a bona fide purchase offer that he/she intends to accept must give notice of that intention to the board, and must give the board the opportunity to purchase the unit on the same terms. The bylaws provide, however, that the board must notify the unit owner of its decision to purchase within 20 days after receipt of the notice provided by the unit owner. In this case, unit owner contracted to sell the unit on May 8, 2002, and provided the board's managing agent with its notice of intent to sell on May 23. The managing agent requested additional information, which unit owner supplied on May 31. On July 22, prospective purchaser received a letter, dated July 19, indicating that the board had decided to exercise its right of first refusal. The board later attempted to exercise its right to purchase, and commenced this action when unit owner returned the board's down payment check. The board contended that it had timely exercised its right of first refusal, because the managing agent had not distributed the notice to individual board members until July 3, 2002.

In granting summary judgment to unit owner and prospective purchaser, the court held that even if the board's managing agent lacked authority to exercise the right of first refusal, he did have authority to accept the notice on behalf of the board. In light of that authority, the board did not have authority to redefine receipt of the notice of intent to sell to mean that the board had 20 days from the time that its authorized agent transmitted the papers to the board. In particular, the court rejected the board's argument that the business judgment rule permits it to determine when the notice was received. The court also rejected the board's argument that equity should intervene to preserve the board's right of first refusal, noting that the board had made no investment in the subject unit to warrant the intervention of equity.

Co-Op Board Owes No Fiduciary Duty to Prospective Transferees

Simon v. 160 West End Avenue Corp.

NYLJ 9/3/03, p. 18, col. 3

Supreme Ct., N.Y. Cty

(Edmead, J.)

In an action by rejected co-op transferees against the co-op corporation, the corporation moved to dismiss the complaint. The court granted the motion, holding that the corporation owed no fiduciary duty to the rejected transferees.

In June 1999, White, the owner of the shares associated with the subject apartment, applied to transfer the shares to a lawyer and an investigator as joint tenants with right of survivorship. A director of the co-op corporation, acting based on information furnished by the building's management company, complained to the First Department's disciplinary committee that the lawyer, with the investigator's help, was attempting to induce the elderly tenant to turn the property over to the lawyer and the investigator. Based on the director's allegations, the co-op board disapproved the transfer. The disciplinary committee later dismissed the complaint against the lawyer. Tenant's will named lawyer as executor and left the apartment to lawyer and investigator. The estate then applied for a transfer, which the board again disapproved, allegedly based on false accusations. Lawyer and investigator then brought this action against the director and the broad, alleging breach of fiduciary duty.

In dismissing the complaint for failure to state a claim, the court acknowledged that co-op boards have a duty to shareholders to act in a reasonable manner, but the court concluded that because neither plaintiff was a shareholder at the time of the allegedly improper behavior, neither the board nor the director owed them any fiduciary duty. Moreover, the court rejected the contention that the board breached a fiduciary duty to the deceased unit owner, noting that the complaint advanced no argument that the board had treated this unit owner differently from other similarly situated unit owners. The court emphasized a co-op board's absolute right to withhold approval of an applicant, so long as it does not act in bad faith or for discriminatory reasons. Finally, the court noted that the complaint sounded principally in defamation, but that the defamation claims were barred by the 1-year statute of limitations.

Board Did Not Timely Exercise Right of First Refusal

Board of Managers, Kingsley Condominium v. Villinvestment

NYLJ 8/27/03, p. 18, col. 6

Supreme Ct., N.Y. Cty

(Tolub, J.)

In an action by condominium board to compel unit owner to sell its unit to the board, unit owner and prospective purchaser sought summary judgment dismissing the complaint and permitting their sale to proceed. The court granted the summary judgment motion, holding that the board had not timely exercised its right of first refusal.

The condominium bylaws provide that any unit owner who receives a bona fide purchase offer that he/she intends to accept must give notice of that intention to the board, and must give the board the opportunity to purchase the unit on the same terms. The bylaws provide, however, that the board must notify the unit owner of its decision to purchase within 20 days after receipt of the notice provided by the unit owner. In this case, unit owner contracted to sell the unit on May 8, 2002, and provided the board's managing agent with its notice of intent to sell on May 23. The managing agent requested additional information, which unit owner supplied on May 31. On July 22, prospective purchaser received a letter, dated July 19, indicating that the board had decided to exercise its right of first refusal. The board later attempted to exercise its right to purchase, and commenced this action when unit owner returned the board's down payment check. The board contended that it had timely exercised its right of first refusal, because the managing agent had not distributed the notice to individual board members until July 3, 2002.

In granting summary judgment to unit owner and prospective purchaser, the court held that even if the board's managing agent lacked authority to exercise the right of first refusal, he did have authority to accept the notice on behalf of the board. In light of that authority, the board did not have authority to redefine receipt of the notice of intent to sell to mean that the board had 20 days from the time that its authorized agent transmitted the papers to the board. In particular, the court rejected the board's argument that the business judgment rule permits it to determine when the notice was received. The court also rejected the board's argument that equity should intervene to preserve the board's right of first refusal, noting that the board had made no investment in the subject unit to warrant the intervention of equity.

Co-Op Board Owes No Fiduciary Duty to Prospective Transferees

Simon v. 160 West End Avenue Corp.

NYLJ 9/3/03, p. 18, col. 3

Supreme Ct., N.Y. Cty

(Edmead, J.)

In an action by rejected co-op transferees against the co-op corporation, the corporation moved to dismiss the complaint. The court granted the motion, holding that the corporation owed no fiduciary duty to the rejected transferees.

In June 1999, White, the owner of the shares associated with the subject apartment, applied to transfer the shares to a lawyer and an investigator as joint tenants with right of survivorship. A director of the co-op corporation, acting based on information furnished by the building's management company, complained to the First Department's disciplinary committee that the lawyer, with the investigator's help, was attempting to induce the elderly tenant to turn the property over to the lawyer and the investigator. Based on the director's allegations, the co-op board disapproved the transfer. The disciplinary committee later dismissed the complaint against the lawyer. Tenant's will named lawyer as executor and left the apartment to lawyer and investigator. The estate then applied for a transfer, which the board again disapproved, allegedly based on false accusations. Lawyer and investigator then brought this action against the director and the broad, alleging breach of fiduciary duty.

In dismissing the complaint for failure to state a claim, the court acknowledged that co-op boards have a duty to shareholders to act in a reasonable manner, but the court concluded that because neither plaintiff was a shareholder at the time of the allegedly improper behavior, neither the board nor the director owed them any fiduciary duty. Moreover, the court rejected the contention that the board breached a fiduciary duty to the deceased unit owner, noting that the complaint advanced no argument that the board had treated this unit owner differently from other similarly situated unit owners. The court emphasized a co-op board's absolute right to withhold approval of an applicant, so long as it does not act in bad faith or for discriminatory reasons. Finally, the court noted that the complaint sounded principally in defamation, but that the defamation claims were barred by the 1-year statute of limitations.