Cooperatives & Condominiums

Commercial Tenant Entitled to Make Alterations When Co-Op Could Not Point to Irreparable Injury

542 Holding Corp. v. Prince Fashions, Inc.

NYLJ 1/5/09, p. 29, col. 2

AppDiv, First Dept.

(memorandum opinion)

In an action by co-op corporation for injunctive relief and money damages against a commercial tenant, tenant appealed from the Supreme Court's award of injunctive relief, reasonable expenses, and attorney's fees. The Appellate Division modified to vacate the portion of the order that directed removal of partitions and that granted the co-op expenses and attorney's fees.

The commercial tenant had been using its unventilated basement space for spray-painting furniture, leading fumes to permeate the basement, causing discomfort to residents. As a result of this behavior, the co-op board brought this action, and the Supreme Court awarded injunctive relief, and also ordered the tenant to restore the premises to their prior condition, which would have required removal of partitions and other structural alternations. The Supreme Court also awarded the co-op expenses for the repair of damaged property, and costs and attorney's fees.

In modifying, the Appellate Division agreed that the co-op was entitled to injunctive relief against hazardous activity not permitted by the certificate of occupancy. But the court also noted that the lease explicitly authorized the tenant to make non-structural alterations. As a result, the court found no basis to require removal of those alterations, especially when the co-op could point to no irreparable injury. The court also noted that the co-op had not sought expenses for the repair of damaged property, and held that the Supreme Court had improperly awarded such expenses. Finally, the court indicated that because tenant had not engaged in frivolous conduct, the co-op corporation was not entitled to costs or attorney's fees.

Holder of Unsold Shares May Make Alterations
Without Consent

Katsam Holdings, LLC v. 419 West 55th Street LLC

NYLJ 1/12/09, p. 26, col. 5

AppDiv, First Dept.

(memorandum opinion)

In an action by a co-op unit owner for a declaration that it was entitled to make alterations to its commercial unit without the consent of the co-op board, the board appealed from the Supreme Court's order and judgment declaring the unit owner to be a holder of unsold shares entitled to make alterations without consent, and reforming the proprietary lease to eliminate its prohibition on commercial use and its prohibition on alterations without the board's consent.

The sponsor's offering plan for the co-op building designated the lower level for commercial use, and the plan's bylaws permitted any legal use with the exception of defined adult uses. The plan gave the sponsor a right to designate a holder of unsold shares, and provided that the holder of unsold shares could make alterations to the unit without the co-op board's consent. The sponsor then contracted to sell the unit to the current owner's assignor for use as a veterinary clinic. The contract provided that residential use was not permitted, that the sale was subject to the co-op board's consent to alterations necessary for the clinic, and that if the board did not consent within 60 days, the sponsor would designate the current unit owner a holder of unsold shares. When the board did not consider unit owner's application, the sponsor declared the unit owner a holder of unsold shares at the closing of the sale contract. At that closing, however, the unit owner signed a proprietary lease that prohibited use of the unit for any non-residential purpose, and that required the co-op board's consent to alterations. When the co-op board then made numerous demands as a condition for its consent to alterations, unit owner brought this declaratory judgment action. The Supreme Court declared that the unit owner was entitled to make alterations without the board's consent, and reformed the lease to eliminate the prohibition on commercial uses.

In affirming, the Appellate Division started by focusing on the offering plan, and concluded that the lease provisions reflected a mutual mistake by the parties, who used a residential proprietary lease when they recognized that the unit in question was a commercial unit. As evidence of the mutual mistake, the court emphasized that the subject unit was unsuitable for residential occupancy. Finally, the court rejected the board's argument that the unit owner could not be a holder of unsold shares because the sponsor had not guaranteed the unit owner's obligations, as required by the plan and the proprietary lease. The court noted that neither the plan nor the lease required that the guarantee be separate from the designation of unit owner as a holder of unsold shares, and noted in any event that the sponsor had filed a plan amendment that both designated the unit owner as a holder of unsold shares and mentioned the required guarantee.

Co-Op Purchase Entitled to Return of Deposit Despite Anticipatory Repudiation

Alter v. Levine

NYLJ 1/12/09, p. 33, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by a co-op seller for breach of contract and for a judgment that the seller is entitled to return purchasers' deposit, the seller appealed from the Supreme Court's grant of summary judgment to the purchasers on their counterclaim for return of the deposit. The Appellate Division affirmed, holding that even if the purchaser had anticipatorily repudiated the contract, the co-op board's refusal to consent to the sale made performance impossible, and discharged purchaser from any breach consisting of anticipatory repudiation.

The sale contract provided that if the co-op board refused to approve the purchase of the apartment, purchasers would be entitled to return of their down payment, unless the board's refusal to approve was due to purchasers' bad faith. When the co-op board refused to approve the purchasers, sellers brought this action for breach, seeking to retain the down payment. The sellers alleged first that the purchasers had submitted data to the board that included misrepresentations and falsehoods, and that this data had led the board to disapprove the purchasers. The sellers alleged that refusal to approve was due to purchasers' bad faith. They also alleged that the purchasers' lawyer had sent a letter to the seller's lawyer that constituted anticipatory repudiation of the contract because it sought to change carrying cost and time-is-of-the-essence terms in the contract. The Supreme Court nevertheless awarded summary judgment to purchasers on their counterclaim for return of the deposit, and the seller appealed.

In affirming, the Appellate Division first held that purchasers had advanced nothing more than conclusory allegations of bad faith, which were not enough to defeat a summary judgment motion. In particular, the court emphasized that the seller had offered no evidence to suggest that the board's rejection of the purchasers was due to any bad faith by the purchasers. The court then held that even if the letter from the purchasers' lawyer constituted anticipatory repudiation of the contract, the co-op board's refusal to approve the purchaser had rendered performance impossible. The court acknowledged that generally, if performance becomes impossible after a party has breached, the impossibility does not excuse the breach, but held that impossibility does discharge a prior breach if that prior breach consists merely of anticipatory repudiation. As a result, the purchaser was entitled to return of the deposit.

Commercial Tenant Entitled to Make Alterations When Co-Op Could Not Point to Irreparable Injury

542 Holding Corp. v. Prince Fashions, Inc.

NYLJ 1/5/09, p. 29, col. 2

AppDiv, First Dept.

(memorandum opinion)

In an action by co-op corporation for injunctive relief and money damages against a commercial tenant, tenant appealed from the Supreme Court's award of injunctive relief, reasonable expenses, and attorney's fees. The Appellate Division modified to vacate the portion of the order that directed removal of partitions and that granted the co-op expenses and attorney's fees.

The commercial tenant had been using its unventilated basement space for spray-painting furniture, leading fumes to permeate the basement, causing discomfort to residents. As a result of this behavior, the co-op board brought this action, and the Supreme Court awarded injunctive relief, and also ordered the tenant to restore the premises to their prior condition, which would have required removal of partitions and other structural alternations. The Supreme Court also awarded the co-op expenses for the repair of damaged property, and costs and attorney's fees.

In modifying, the Appellate Division agreed that the co-op was entitled to injunctive relief against hazardous activity not permitted by the certificate of occupancy. But the court also noted that the lease explicitly authorized the tenant to make non-structural alterations. As a result, the court found no basis to require removal of those alterations, especially when the co-op could point to no irreparable injury. The court also noted that the co-op had not sought expenses for the repair of damaged property, and held that the Supreme Court had improperly awarded such expenses. Finally, the court indicated that because tenant had not engaged in frivolous conduct, the co-op corporation was not entitled to costs or attorney's fees.

Holder of Unsold Shares May Make Alterations
Without Consent

Katsam Holdings, LLC v. 419 West 55th Street LLC

NYLJ 1/12/09, p. 26, col. 5

AppDiv, First Dept.

(memorandum opinion)

In an action by a co-op unit owner for a declaration that it was entitled to make alterations to its commercial unit without the consent of the co-op board, the board appealed from the Supreme Court's order and judgment declaring the unit owner to be a holder of unsold shares entitled to make alterations without consent, and reforming the proprietary lease to eliminate its prohibition on commercial use and its prohibition on alterations without the board's consent.

The sponsor's offering plan for the co-op building designated the lower level for commercial use, and the plan's bylaws permitted any legal use with the exception of defined adult uses. The plan gave the sponsor a right to designate a holder of unsold shares, and provided that the holder of unsold shares could make alterations to the unit without the co-op board's consent. The sponsor then contracted to sell the unit to the current owner's assignor for use as a veterinary clinic. The contract provided that residential use was not permitted, that the sale was subject to the co-op board's consent to alterations necessary for the clinic, and that if the board did not consent within 60 days, the sponsor would designate the current unit owner a holder of unsold shares. When the board did not consider unit owner's application, the sponsor declared the unit owner a holder of unsold shares at the closing of the sale contract. At that closing, however, the unit owner signed a proprietary lease that prohibited use of the unit for any non-residential purpose, and that required the co-op board's consent to alterations. When the co-op board then made numerous demands as a condition for its consent to alterations, unit owner brought this declaratory judgment action. The Supreme Court declared that the unit owner was entitled to make alterations without the board's consent, and reformed the lease to eliminate the prohibition on commercial uses.

In affirming, the Appellate Division started by focusing on the offering plan, and concluded that the lease provisions reflected a mutual mistake by the parties, who used a residential proprietary lease when they recognized that the unit in question was a commercial unit. As evidence of the mutual mistake, the court emphasized that the subject unit was unsuitable for residential occupancy. Finally, the court rejected the board's argument that the unit owner could not be a holder of unsold shares because the sponsor had not guaranteed the unit owner's obligations, as required by the plan and the proprietary lease. The court noted that neither the plan nor the lease required that the guarantee be separate from the designation of unit owner as a holder of unsold shares, and noted in any event that the sponsor had filed a plan amendment that both designated the unit owner as a holder of unsold shares and mentioned the required guarantee.

Co-Op Purchase Entitled to Return of Deposit Despite Anticipatory Repudiation

Alter v. Levine

NYLJ 1/12/09, p. 33, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by a co-op seller for breach of contract and for a judgment that the seller is entitled to return purchasers' deposit, the seller appealed from the Supreme Court's grant of summary judgment to the purchasers on their counterclaim for return of the deposit. The Appellate Division affirmed, holding that even if the purchaser had anticipatorily repudiated the contract, the co-op board's refusal to consent to the sale made performance impossible, and discharged purchaser from any breach consisting of anticipatory repudiation.

The sale contract provided that if the co-op board refused to approve the purchase of the apartment, purchasers would be entitled to return of their down payment, unless the board's refusal to approve was due to purchasers' bad faith. When the co-op board refused to approve the purchasers, sellers brought this action for breach, seeking to retain the down payment. The sellers alleged first that the purchasers had submitted data to the board that included misrepresentations and falsehoods, and that this data had led the board to disapprove the purchasers. The sellers alleged that refusal to approve was due to purchasers' bad faith. They also alleged that the purchasers' lawyer had sent a letter to the seller's lawyer that constituted anticipatory repudiation of the contract because it sought to change carrying cost and time-is-of-the-essence terms in the contract. The Supreme Court nevertheless awarded summary judgment to purchasers on their counterclaim for return of the deposit, and the seller appealed.

In affirming, the Appellate Division first held that purchasers had advanced nothing more than conclusory allegations of bad faith, which were not enough to defeat a summary judgment motion. In particular, the court emphasized that the seller had offered no evidence to suggest that the board's rejection of the purchasers was due to any bad faith by the purchasers. The court then held that even if the letter from the purchasers' lawyer constituted anticipatory repudiation of the contract, the co-op board's refusal to approve the purchaser had rendered performance impossible. The court acknowledged that generally, if performance becomes impossible after a party has breached, the impossibility does not excuse the breach, but held that impossibility does discharge a prior breach if that prior breach consists merely of anticipatory repudiation. As a result, the purchaser was entitled to return of the deposit.