Amendment to Proprietary Lease Is Held Invalid Where Procedures for Amendment Were Not Followed
An amendment to a cooperative’s proprietary lease was held null and void because the required procedures for amending the proprietary lease were not followed. Wahrsager v. Paterline, 2016 N.Y. Misc. LEXIS 2390, 2016 N.Y. Slip Op. 31215(U) (Sup. Ct. N.Y. Co. June 27, 2016).
In this case, the plaintiff owns one of six units in the cooperative; the defendants own the other five units. Defendants notified plaintiff that the proprietary lease had been amended to, among other things, give the cooperative a right of first refusal over transfers; require board approval for transfers to relatives upon death and delete a requirement that such approval not be unreasonably withheld; impose a flip tax on transfers; and bar certain persons from entering the building without board approval. The amendment was allegedly passed by written consent of more than two-thirds of the shareholders.
Plaintiff sued to declare that the amendment had not been properly adopted because there was never a meeting at which it was discussed and voted upon, in violation of the By-Laws, which provide that each shareholder is entitled to attend meetings and to vote, unless action is taken by unanimous written consent of all shareholders. The Cooperative asserted that the amendment was valid because the proprietary lease authorizes adoption of amendments by agreement of two-thirds of the shareholders.
The court sided with the plaintiff and held the amendment invalid. Construing the By-Laws and the proprietary lease, the court held that the proprietary lease provision requiring two-thirds approval for amendments set a minimum requirement for the vote required to adopt an amendment, but did not supplant the procedures set forth in the By-Laws governing how corporate actions are to be taken. The court further observed that if the provisions of the By-Laws and proprietary lease did conflict, an amendment would have to comply with both. Because this amendment was neither adopted at a duly noticed meeting nor consented to by all shareholders, it was invalid and never took effect. Having reached this conclusion, the court did not need to address plaintiff’s alternative claim that the changes to the proprietary lease were coercive and were intended to force her to sell her apartment to defendants.
The defendants have asked the court to reconsider this decision, arguing that it is inconsistent with a 1993 Appellate Division decision. If the decision stands, cooperatives may wish to consider amending their governing documents to address its implications.