Scott E. Mollen

Co-Ops—Business Judgment Rule—Board’s Determination to Terminate Proprietary Lease Held To Be Within Its Scope of Authority—Allegations That Tenant Repeatedly Disturbed And/Or Created Unreasonable Noise In the Building Interfering With Other Residents’ Rights and Comfort

This decision involved a holdover proceeding, where a cooperative corporation (co-op) moved for summary judgment on its claims for repossession of an apartment, reasonable attorney fees and disbursements and use and occupancy, for the months that the respondent shareholder held over in the apartment. The co-op sought to terminate the shareholder’s proprietary lease and repossess the apartment, based on the shareholder’s failure to cure several lease violations which were specified in notices to cure (notices), dated May 30, 2012, Aug. 5, 2014, Nov. 25, 2015 and Dec. 15, 2015. The notices asserted, inter alia, that the shareholder had breached paragraphs 13 and 18(b) of the proprietary lease and paragraphs 4, 5 and 25 of the house rules, i.e., “the [shareholder] and/or her guests made or permitted disturbing and/or unreasonable noises in the building or caused unreasonable interference with the rights, comfort…of other…residents or unreasonably annoyed them.”

The notices listed “specific allegations of objectionable behavior and complaints lodged against the [shareholder].” The last notice listed 68 allegations and/or complaints, “some of which required police intervention.” After the shareholder failed to cure the violations, in accordance with the proprietary lease and the co-op’s by-laws, the co-op, by written notice, called a special meeting of its directors to determine whether the shareholder had engaged in “objectionable conduct,” whether “the [shareholder’s] tenancy was undesirable and whether her proprietary lease should be terminated and her shares sold at auction.”

After the shareholder was notified of the board’s special meeting, the shareholder requested an adjournment of the meeting to obtain counsel. The meeting was adjourned. Thereafter, a meeting was held, which was attended by all members of the Board of Directors (board), as well as by the shareholder and her attorney. The shareholder and her attorney were accorded the opportunity to be heard before a vote on the resolution. The board then determined by an affirmative vote of at least two thirds of its board, that the shareholder had “engaged in objectionable conduct” and that her tenancy was “undesirable and that her proprietary lease should be terminated and her shares sold at auction.” The co-op thereafter served the shareholder with “a notice to terminate on March 22, 2016, in which the effective date of termination of the proprietary lease was July 15, 2016.”

The co-op thereafter “inadvertently collected rent/maintenance from [shareholder] for a period of time from July 16, 2016 through September 30, 2016.” The co-op served two more notices to Terminate, but again “inadvertently continued to collect rent/maintenance” after serving those notices. The shareholder was served with a fourth notice of termination, which stated that “the proprietary lease was being terminated as of May 31, 2017.” The shareholder failed to timely vacate the apartment.

The shareholder had submitted an answer to the holdover petitioner, denying that she had engaged in any of the alleged objectionable conduct. The co-op moved for summary judgment, arguing that “the business judgment rule applies to the termination of a proprietary lease by a cooperative.” The co-op argued that it had “acted within the scope of its authority” in accordance with the terms of the proprietary lease, based on the shareholder’s objectionable conduct. The co-op further asserted that it followed the procedures embodied in the proprietary lease and the by-laws, the decision “to terminate the [shareholder’s] proprietary lease was in furtherance of its corporate purpose because defendant’s conduct was interfering with the property rights of its other shareholders” and that its determination had been “made in good faith and in exercise of honest judgment.”

The shareholder denied the allegations and claimed that she had complained about conditions in the apartment and as a result, “the members of the board…have ganged up on her in an effort make her life miserable and to try to force her to move.” She also noted that she had paid her maintenance every month. The court found that no evidence in the record substantiated the shareholder’s allegations.

The court explained that “in the context of cooperative residential dwellings, the business judgment rule provides that a court should defer to a cooperative board’s determination ‘so long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith.’”

The court found that the co-op had “acted within the scope of its authority…in legitimate furtherance of a corporate purpose and in good faith.” The co-op had complied with the procedures contained in the proprietary lease and by-laws with respect to terminating the shareholder’s tenancy. The shareholder had received notice of the meeting to consider termination of her proprietary lease, she was accorded an opportunity to obtain counsel and was given an opportunity to be heard at the meeting prior to the vote. Pursuant to the proprietary lease, the co-op had “acted on a supermajority vote after properly fashioning the issues and questions to be addressed by resolution.”

The board resolution identified “the basis for the board’s action” and listed “specific findings as to the [shareholder’s] specific objectionable behavior.” The court explained that the co-op had demonstrated that “it was furthering its legitimate corporate purpose in maintaining the welfare [of the] cooperative as a whole by removing [shareholder] and her objectionable conduct from the cooperative.” The court cited the notices, as well as the affidavits of several of the board members which supported the co-op’s claims that the shareholder’s “conduct was interfering with the property rights of…other shareholders,” the board’s decision was made in good faith and “its adverse effects” of the shareholder’s conduct “on the cooperative as a whole.”

Thus, the court held that since the board had “acted for the purpose of the cooperative as a whole, within the scope of its authority and in good faith,” it was required to defer the determination made by the board to terminate the shareholder’s proprietary lease.

The initial notice to terminate had provided the shareholder with approximately four months’ notice that her tenancy would expire on July 15, 2016. The court believed that the shareholder had been “provided with ample time to make an orderly transition to another residence.”

However, the court found that the co-op’s “blanket request for attorneys’ fees and disbursements…in the amount of $17,580.43” was “not supported by any documents or other evidentiary proof to substantiate the amount claimed.” Based on “the considerable amount of legal fees sought by [co-op] coupled with the fact that three times [co-op] served [shareholder] with a notice to terminate but then inadvertently collected maintenance from [shareholder], rendering said notices void and thereby incurring additional legal fees through its own error,” the court stated that it would carefully review the legal fees application “before an award of attorney’s fees will be granted.”

With respect to use and occupancy, the court granted the co-op’s motion for summary judgment with respect to repossession of the apartment and its claim for maintenance. Accordingly, the court issued a judgment of possession in favor of the co-op, but provided that the warrant of eviction would be stayed for approximately two weeks, to give the shareholder an opportunity to make arrangements for another residence and to vacate the apartment. Finally, the court directed the co-op to submit an affidavit with respect to its attorney fees.

Fleetwood Commons Inc. v. Fredericks, City Court, Westchester Co., Index No. 1712-17, decided Nov. 28, 2017, Seiden, J.

Landlord-Tenant—Rent Control—Unlike Under Rent Stabilization, An Occupant Entitled to Succession To A Rent Controlled Tenancy, Has No Affirmative Obligation To Do Anything To Assert His Or Her Claim—Difficulty of Identifying Precisely When Tenant In a Nursing Home Maintained Apartment As A Primary Residence—Notice To Admit Is “Not To Reach Ultimate Conclusions,” Which Can Only Be Made After a Full Trial

A tenant of record (tenant) had left her rent-controlled apartment for a nursing home. Her children remained in the apartment and asserted rights to succeed to the apartment. The landlord had commenced a holdover proceeding, claiming the two respondent children were licensees and that the licenses had been terminated when the tenant had surrendered possession.

The tenant had surrendered possession of the apartment pursuant to a stipulation dated Oct. 2, 2015 (stipulation), which settled a prior proceeding between the landlord, the respondents and the tenant. The respondent daughter testified that she had lived in the apartment since 1971 and had never lived anywhere else except for when she was in college. She did not have bank accounts from Nov. 20, 2013 to October 2015. During that period, she had no income and had not filed taxes. The daughter was registered to vote and had a landline telephone. The Con Edison account for the apartment was not in her name. Cable service was provided to the apartment and her co-respondent brother (tenant’s son) and another brother lived in the apartment, but no one else.

The son testified that he had lived in the apartment from the time he was born until 2000. In 2000, he moved to New Jersey, but had moved back to the apartment in 2012. He testified that the tenant was in a nursing home as of 2010 and had never returned to the apartment after she entered the nursing home. The apartment has three bedrooms. The son testified that the tenant wanted to return to the apartment from the nursing home, notwithstanding that she had not returned.

A court in a prior holdover proceeding had found that although the tenant had entered a nursing home in December 2010, she asserted that she intended to return to the apartment and did not consider the nursing home to be her permanent home. In the prior proceeding which had named the tenant’s children, the court found that their succession defenses were “unripe.” In that litigation, the landlord had alleged that the tenant was not a primary resident and had impermissibly sublet the apartment to her children.

The subject court explained that family members who reside with a rent-controlled tenant for at least two years before the “tenant’s permanent vacatur from the rent-controlled dwelling” succeed to the tenancy. The salient issue was whether the children lived with the tenant for two years before the tenant permanently vacated. The documentary evidence supporting the daughter’s claim that she lived in the apartment for her entire life lacked “some of the traditional indicia of her residence, such as income tax returns or a driver’s license.” However, she had some documentation which supported her claim and two neighbors, both disinterested witnesses, “testified credibly…to the same point.”

The court found that the landlord had not rebutted the evidence or the testimony of the daughter’s witnesses. Thus, the court held that she had proven that she lived in the apartment for her entire life, except when she was a full-time student. The court further found that the evidence supported the son’s claim that he also lived in the apartment since March 2012. In the prior case, the court found that the tenant had not permanently vacated the apartment as of Oct. 6, 2014 and the stipulation showed that the tenant had surrendered possession on Oct. 2, 2015.

The court explained:

Family members seeking to succeed to tenancies subject to the Rent Stabilization Law cannot show that they have resided with former tenants if those former tenants did not primarily reside with their family members in the two years before the former tenants permanently vacated, and tenants who have otherwise moved out have not “permanently vacated” if they continue to pay rent and/or sign renewal leases.

 

The landlord argued that the tenant had not primarily resided in the apartment during the subject two-year period and the children did not live with the tenant for the requisite two-year time period. The landlord cited cases which involved succession under the Rent Stabilization Law. In those cases, tenants had moved out, but continued to execute renewal leases and paid rent in their own name. In the subject case, the apartment is subject to the Rent Control Law and not the Rent Stabilization Law and there was no evidence of any deceptive conduct, “such as payment of rent in a departed tenant’s name or the execution of leases in a departed tenant’s name….”

Under the Rent Stabilization Code, a “successor-claimant” has an affirmative obligation to advise the landlord of “his or her status as a successor-tenant upon receipt of a lease renewal offer for a former tenant.” Thus, if a successor claimant fails to do so and misleads the landlord by executing leases in the name of a tenant who has moved out, the successor claimant tenant has acted in a wrongful manner. “In contrast, an occupant entitled to succession to a rent-controlled tenancy has no affirmative obligation to do anything to…assert his or her claim.” If the successor “claimant qualifies to succeed, then he or she merely succeeds if that is his or her choice.” Thus, the court stated that “succession propositions applying” to rent-stabilized tenancies “are not congruent with those applying to tenancies subject to the Rent Control Law.”

The court further noted that Rent Control tenants who do not execute renewal leases, “could still undermine succession claims by deceptive conduct after they move out by, for example, completing forms with the New York State Division of Housing and Community Renewal (DHCR) and retaining counsel to defend nonpayment proceedings…. or by corresponding with their landlords as if they still lived in their apartments, participating in litigation against their landlords to the point of being provided with alternative housing, and by pursuing claims at DHCR.”

In the subject case, the landlord had not alleged or proven any deceptive conduct by the tenant. Rather, “the inherent difficulty of pinpointing a date upon which a rent-regulated tenant in a facility transitions from maintaining his or her apartment as a primary residence to a date of ‘permanent vacatur’ underscores a significant distinction between this matter and cases finding that a tenant’s deception undermined a succession claim.” The record lacked “indicia of deception and prejudice to [landlord]….” Moreover, the stipulation which contained a 2013 index number, had named both the tenant and the respondent children, “compelling the inference that [landlord]” at least had “some knowledge of the occupancy of the…tenant and respondents vis a vis the subject premises in 2013, in between two years and three years after the…tenant was first admitted to the nursing home.”

The court further opined that “confinement of a tenant with Alzheimer’s disease to a nursing home is not, in and of itself, sufficient to prove that the tenant no longer occupies his or her home as a primary residence.” The “intent of a rent-regulated tenant to return to his or her apartment factors in” and “[d]etermining whether a move to a nursing home constitutes a change in primary residence necessitates a ‘careful examination of the facts and circumstances causing the nursing home move,’ potentially requiring ‘expert medical testimony. . . .’”

Although the tenant testified in an Art. 81 court appearance seven months before the tenant had surrendered possession of the apartment, that testimony was “probative,” but not “determinative.” The landlord argued that the prior litigation decision had “preclusive effect.” In fact, the prior court decision found that the tenant “intended to return” to the apartment and she “did not consider the nursing home to be her permanent home.”

The landlord had also argued that the respondents’ “failure to respond to [landlord’s] notice to admit establishes that the…tenant did not maintain the [apartment] as her primary residence for the two-year period.” The court explained that “as a general principle… lay witnesses may testify to facts and not to, inter alia, conclusions drawn from the facts.… As this rule of evidence relates to a notice to admit, the purpose of a notice to admit is only to eliminate from litigation matters which will not be in dispute at trial…, not to reach ultimate conclusions, which can only be made after a…complete trial.” Accordingly, the court held that the “failure to timely respond to an improper notice to admit” was not to be deemed “an admission” of the salient matters.

Thus, the court held that the evidence demonstrated that “the…tenant did not permanently vacate the [apartment] as of the finding of the court on October 6, 2014; that the status of the…tenant transitioned at some point in time after that; that respondents,… occupied the [apartment] for at least two years before the…tenant’s permanent vacatur;” and “neither respondent nor the…tenant engaged in any deceptive conduct….” The court also found that the landlord’s “awareness of the status of respondents” and the tenant’s status “vitiates any purported claim of prejudice on petitioner’s part.” Accordingly, the court held that the respondents are “successors to the prior tenant’s tenancy” and dismissed the holdover proceeding.

90 Elizabeth Apt. v. Eng, Civ. Ct., N.Y. Co., Index No. 53238/2016, decided Nov. 2, 2017, Stoller, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.