Cooperatives & Condominiums

Unit owners began to build an enclosure on their balcony without the prior written consent of the co-op corporation. The corporation objected, and demanded that unit owners remove the enclosure framework. Unit owners then brought this action for declaratory relief, and for a preliminary injunction preventing the co-op corporation from compelling them to remove the already constructed enclosure framework. Supreme Court granted the preliminary injunction, and the corporation appealed.

In modifying, the Appellate Division started by noting that Supreme Court's grant of a preliminary injunction would upset, rather than maintain, the status quo, and would in effect grant the ultimate relief unit owners sought. The court also held that unit owners were not entitled to a preliminary injunction preventing the co-op from requiring removal of the already installed framework, because unit owners had not demonstrated irreparable injury; money damages could compensate them if they were ultimately to prevail in their action. The court then held that the co-op corporation was entitled to dismiss of the claim of unequal treatment under section 501(c) of the Business Corporations Law.

Unit owners contended that the co-op corporation had permitted other unit owners to enclose balconies without obtaining written permission, but the court held that even if unit owners were correct, this was not the type of differential treatment contemplated by section 501(c). At the same time, however, the court held that the co-op corporation was not entitled to dismissal of the remainder of the complaint, even though it was conceded that unit owners had never obtained written permission, because questions of fact remained about whether the doctrines of part performance or equitable estoppel precluded the co-op corporation from relying on the absence of written permission.

COMMENT

Business Corporation Law 501(c) provides that “each share shall be equal to every other share of the same class,” subject to an exception for co-op flip taxes. In the only appellate case to address the statute's application to unequal treatment of permit applications, the court held that shareholders stated a claim under BCL 501(c) when they alleged that denial of an alteration permit left them as the only shareholders with a single mode of egress. In Pilipovic v. Laight Co-op Corp., 137 A.D.3d 710, the court affirmed Supreme Court's denial of the co-op's motion to dismiss shareholders' 501(c) cause of action alleging unequal treatment by denying a permit to alter a loading dock adjacent to shareholders' apartment.

With respect to residential apartments, courts have held that differential sublet restrictions based on duration of ownership violates BCL 501(c), but sublet distinctions between holders of unsold shares and other shareholders do not violate 501(c). In Razzano v. Woodstock Owners Corp., 111 A.D.3d 522, a board enacted a policy that allowed shareholders who had owned their shares before a specific date to sublet their apartments, but disallowed those who had purchased them after the date. The court struck down the policy and held that it violated BCL 501(c), as it did not treat equal shares equally. However, in Susser v. 200 E. 36th Owners Corp., 262 A.D.2d 197, the board exempted holders of unsold shares from subletting restrictions, and the other shareholders challenged the policy.

The court held that the differential restrictions did not violate 501(c) and was justified as reasonable because holders of unsold shares had obligations that did not apply to other shareholders — in particular, the obligation to provide renewal leases to non-purchasing tenants who remain in possession pursuant to a non-eviction plan. The court emphasized that complying with the obligation to provide renewal leases would be impossible if the sponsor, as the holder of unsold shares, were subject to the subleasing restrictions.

Because commercial shareholders are more likely to present individualized challenges for co-op corporations, courts are unlikely to find 501(c) violations based on alleged differential treatment. In Cohen v. 120 Owners Corp., 205 A.D.2d 394, the court upheld a surcharge imposed on one commercial shareholder, but not another. The surcharge was imposed pursuant to a contract rider, and the court explained that the agreement was likely reached under market conditions that did not apply to the other shareholder.

Questions of Fact Remain About Right to Enclose Balcony

Moltisanti v. East River Housing Corp.
NYLJ 4/20/17, p. 22, col. 6 AppDiv, First Dept. (memorandum opinion)

In co-op unit owners' action for a declaration that they are entitled to complete a balcony enclosure they had started, the co-op corporation appealed from Supreme Court's grant of a preliminary injunction preventing the corporation from interfering with construction and implicit denial of the co-op corporation's motion to dismiss the complaint. The Appellate Division modified to deny the preliminary injunction, but also held that questions of fact precluded dismissal of the complaint.

Unit owners began to build an enclosure on their balcony without the prior written consent of the co-op corporation. The corporation objected, and demanded that unit owners remove the enclosure framework. Unit owners then brought this action for declaratory relief, and for a preliminary injunction preventing the co-op corporation from compelling them to remove the already constructed enclosure framework. Supreme Court granted the preliminary injunction, and the corporation appealed.

In modifying, the Appellate Division started by noting that Supreme Court's grant of a preliminary injunction would upset, rather than maintain, the status quo, and would in effect grant the ultimate relief unit owners sought. The court also held that unit owners were not entitled to a preliminary injunction preventing the co-op from requiring removal of the already installed framework, because unit owners had not demonstrated irreparable injury; money damages could compensate them if they were ultimately to prevail in their action. The court then held that the co-op corporation was entitled to dismiss of the claim of unequal treatment under section 501(c) of the Business Corporations Law.

Unit owners contended that the co-op corporation had permitted other unit owners to enclose balconies without obtaining written permission, but the court held that even if unit owners were correct, this was not the type of differential treatment contemplated by section 501(c). At the same time, however, the court held that the co-op corporation was not entitled to dismissal of the remainder of the complaint, even though it was conceded that unit owners had never obtained written permission, because questions of fact remained about whether the doctrines of part performance or equitable estoppel precluded the co-op corporation from relying on the absence of written permission.

COMMENT

Business Corporation Law 501(c) provides that “each share shall be equal to every other share of the same class,” subject to an exception for co-op flip taxes. In the only appellate case to address the statute's application to unequal treatment of permit applications, the court held that shareholders stated a claim under BCL 501(c) when they alleged that denial of an alteration permit left them as the only shareholders with a single mode of egress. In Pilipovic v. Laight Co-op Corp. , 137 A.D.3d 710, the court affirmed Supreme Court's denial of the co-op's motion to dismiss shareholders' 501(c) cause of action alleging unequal treatment by denying a permit to alter a loading dock adjacent to shareholders' apartment.

With respect to residential apartments, courts have held that differential sublet restrictions based on duration of ownership violates BCL 501(c), but sublet distinctions between holders of unsold shares and other shareholders do not violate 501(c). In Razzano v. Woodstock Owners Corp. , 111 A.D.3d 522, a board enacted a policy that allowed shareholders who had owned their shares before a specific date to sublet their apartments, but disallowed those who had purchased them after the date. The court struck down the policy and held that it violated BCL 501(c), as it did not treat equal shares equally. However, in Susser v. 200 E. 36th Owners Corp., 262 A.D.2d 197, the board exempted holders of unsold shares from subletting restrictions, and the other shareholders challenged the policy.

The court held that the differential restrictions did not violate 501(c) and was justified as reasonable because holders of unsold shares had obligations that did not apply to other shareholders — in particular, the obligation to provide renewal leases to non-purchasing tenants who remain in possession pursuant to a non-eviction plan. The court emphasized that complying with the obligation to provide renewal leases would be impossible if the sponsor, as the holder of unsold shares, were subject to the subleasing restrictions.

Because commercial shareholders are more likely to present individualized challenges for co-op corporations, courts are unlikely to find 501(c) violations based on alleged differential treatment. In Cohen v. 120 Owners Corp., 205 A.D.2d 394, the court upheld a surcharge imposed on one commercial shareholder, but not another. The surcharge was imposed pursuant to a contract rider, and the court explained that the agreement was likely reached under market conditions that did not apply to the other shareholder.