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Perspectives

Co-Op Board’s Denials of Purchase Application and Application to Amend Stock Lease Are Upheld

Plaintiff is the tenant-shareholder for a cooperative unit.  In 2020, plaintiff entered into a contract to acquire the stock and lease for a second unit in the same cooperative.  The purchase was subject to board approval, and the Board rejected the application.  Two months later, plaintiff submitted a separate application to add his son to the stock certificate and proprietary lease for his original apartment.  The Board rejected this request as well.  The Board did not provide the reasons for its decisions.  Plaintiff then filed an Article 78 proceeding challenging the Board’s rejection of both of his applications.

The court observed that review of the Board’s actions was governed by the Business Judgment Rule unless an exception to that rule applied.  With respect to the disapproval of plaintiff’s purchase application, the courts have repeatedly held that “in general, and in the absence of illegal discrimination, a cooperative corporation is not restricted in withholding its consent to the transfer of an apartment.”  Here, By-Laws also confirmed the Board’s broad discretion to decide on purchase applications.  Accordingly, “the party seeking to negate a co-op board’s reliance on the business judgment rule bears the burden of raising a triable issue of fact by submitting evidence that the board acted in bad faith.”  The court held that plaintiff here failed to meet that burden.  The board’s failure to provide plaintiff with a written explanation of its reasons for denying the application did not constitute evidence that the denial was arbitrary or in bad faith.  There was no basis on which the court could compel the board to provide a written explanation of its reasons for the denial.

The court reached the same conclusion with respect to the Board’s denial of plaintiff’s request to add his son to the stock and lease.  Plaintiff cited several decisions in which courts applied a “heightened standard of reasonableness” to board decisions denying succession rights under proprietary leases.  However, those cases arose in the context of share transfer applications submitted by family members after a tenant-shareholder had died, and did not apply to a request by a living tenant-shareholder.  Fitterman v. Seward Park Housing Corp., 2022 N.Y. Misc. 3723, 2022 N.Y. Slip Op. 31911(U) (Sup. Ct. N.Y. Co. June 17, 2022).