As discussed in previous issues of this Client Advisory, most proprietary leases for cooperative apartments allow the cooperative, by vote of a specified percentage of either the board of directors or the shareholders, to terminate the proprietary lease of a tenant-shareholder who has engaged in “objectionable conduct.” While most cooperatives will treat this option as a last resort in dealing with difficult tenant-shareholders, because the process can be time-consuming and often leads to litigation, the courts typically uphold a cooperative’s decision to terminate a proprietary lease where the decision to terminate the lease is supported by evidence and the appropriate procedures have been followed. The Court of Appeals’ decision in 40 West 67th Street Corp. v. Pullman, 100 N.Y.2d 147 (2003), is considered the leading case in this area.
In the July 2014 issue of this Client Advisory, we reported on a lower-court decision upholding a Pullman termination of a proprietary lease. The ousted tenant-shareholders appealed from that decision, but the appeals court has now also upheld the termination. Gordon v. 476 Broadway Realty Corp., 2015 N.Y. Slip Op. 5259 (1st Dep’t June 18, 2015).
This dispute stemmed from an alleged decade-long leak problem at the cooperative. To address the leaks, the cooperative arranged and paid 60% of the cost of an extensive exterior waterproofing project. During the project, one tenant-shareholder couple refused necessary access to their apartment and refused to pay maintenance and assessments arising from it, only to then turn around and blame the cooperative for the leaks and for failing to remedy them. Ultimately, the cooperative held a shareholder meeting, at which the shareholders voted to terminate the couple’s proprietary lease. The couple then brought suit seeking to overturn the termination.
In upholding the cooperative’s decision, the appeals court found that the tenant-shareholders “failed to raise an issue of fact as to whether the cooperative acted in bad faith, outside of its authority, or for an illegitimate corporate purpose by terminating plaintiffs’ tenancy on the ground of objectionable conduct. The record shows that, after notice and an opportunity to be heard, all shareholders, except plaintiffs, voted to terminate plaintiffs’ tenancy based on, among other things, their interference with waterproofing testing and repair work in the apartment.”
The couple also argued that the cooperative’s termination of their proprietary lease constituted unlawful retaliation for their having complained about conditions in their apartment. The appellate court rejected this argument, stating that “[t]he statutory presumption of retaliation does not apply here, since the cooperative terminated plaintiffs’ tenancy based on their alleged violation of the terms and conditions of the proprietary lease. Moreover, as noted, there is no evidence of bad faith on the cooperative’s part.” Finally, the court determined that “[p]laintiffs are not entitled to a stay of their eviction in order to cure their alleged breach of the lease, as the cooperative validly terminated the lease on the ground of their pattern of objectionable conduct.”