Cooperatives & Condominiums

(4-1 decision; memorandum opinion; dissenting opinion by Saxe, J.)

In an action by the estate of deceased co-op unit owner for breach of the proprietary lease, the co-op appealed from Supreme Court's grant of summary judgment to the estate on the claim for breach, and the estate cross-appealed from Supreme Court's denial of its summary judgment motion on its claim for attorneys' fees. The Appellate Division modified to award fees, but otherwise affirmed, holding that the co-op had acted unreasonably in refusing to consent to an assignment to the deceased owner's sons.

Deceased owner and her husband had lived in two adjacent apartments in the building since 1955, and had bought the units in 1986, shortly after the building was converted to co-operative ownership. Their sons were born and raised in the unit. Deceased owner's husband died before her, and when deceased owner died in 2010, her sons Robert and Michael inherited her shares. Robert moved back into the unit, and the sons made a joint application to have the shares and proprietary lease transferred to them. The co-op board denied the application and gave Robert six months to vacate. The board concluded that Robert was financially unqualified, and was unwilling to rely solely on Michael's financial condition because Michael lived in Pennsylvania and had no plans to live in the apartment. The estate then brought this action for breach of the proprietary lease, and Supreme Court awarded summary judgment to the estate.

In agreeing with Supreme Court that the co-op corporation had breached the proprietary lease, the Appellate Division majority relied on paragraph 16(b) of the lease, which provides that “consent shall not be unreasonably withheld to an assignment of the lease and shares to a financially responsible member of the Lessee's family.” The court indicated that this provision was included to make it easier for a coop owner to devise the coop unit, and observed that Michael, who had offered to personally guarantee all financial obligations pertaining to the unit, was clearly financially qualified to buy the apartment. As a result, the majority concluded that the co-op had acted unreasonably. The court then relied on Real Property Law section 234 to conclude that Supreme Court had erred in denying attorneys' fees to the estate.

Justice Saxe, dissenting, argued that the co-op's decision was not unreasonable. He noted that paragraph 16(b) requires consent to “a” financially responsible family member, and observed that in this case, the estate sought assignment to two family members, only one of whom was financially responsible. Moreover, he argued that it was reasonable for the co-op to reject an assignment to two family members if occupation by both of them with their spouses would violate co-op occupancy rules.

COMMENT

Co-op boards need not permit assignment of a deceased tenant's proprietary lease to a family member who lacks financial capacity to maintain the apartment, even if the proprietary lease imposes a requirement that the board consent to a reasonable assignment to a family member. For instance, in Chapman v. 2 King Street Apartments Corp., 8 Misc.3d 1026(A) (2005), the court dismissed an article 78 proceeding brought by the deceased lessee's daughter, holding that the board acted reasonably in light of the daughter's current annual income of $12,082 from Social Security, and total assets of $21,000.The court also concluded that the Board had acted reasonably in disregarding the daughter's speculative statement that she expected to begin a job in the near future. Similarly, in Gleckel v. 49 West 12 Tenants Corp., 52 A.D.3d 469 (2008), the court held that the cooperative board acted reasonably in withholding consent to an assignment of a lease to decedent's nephew when the nephew's tax returns included no salaries or wages, the nephew provided no copies of W-2 forms, and the board was unable to verify whether the nephew's reported assets were held individually or jointly with others. On the other hand, in a case where the board denied assignment to a surviving family member who demonstrated substantial income and assets, the Appellate Division held that Supreme Court had improperly granted summary judgment to the board. In Stowe v. 19 East 88th Street Inc., 257 A.D.2d 355 (1st Dep't 1999), a physician with $900,000 in assets sought an assignment of the shares and proprietary lease of his deceased brother. When the board denied the assignment, he sought a declaration as to his rights under the lease, and the board moved to dismiss, citing the business judgment rule. The Appellate Division held that questions of fact precluded dismissal, concluding that the board's justifications for denying assignment were largely based on unproven allegations. For example, the board cited the physician's chronic arrears in maintenance payments as a reason for its denial, but the physician had submitted checks, which management held and refused to cash. The court held that trial was necessary to evaluate the other reasons cited by the board, including untimely submission of an application to transfer the apartment to his name, occupancy without consent, and an unproven allegation of arrears in meeting electrical utility charges

None of the decided cases, however, have dealt with the issue in Del Terzo: Must a board consent to an assignment based on the financial strength of a non-resident co-owner when the resident co-owner does not have assets or income sufficient to maintain the apartment?

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