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Cooperative Not Allowed to Terminate Proprietary Lease Based on Unauthorized Alterations

A cooperative’s proprietary lease and other governing documents will typically require that a tenant-shareholder obtain the Board of Directors’ approval before making alterations in the apartment. Thus, unauthorized alterations can constitute a breach of the proprietary lease.  However, in Coliseum Tenants Corp. v. Benmark, 75911/2015, NYLJ 1202786328576, 2017 NYLJ LEXIS 1257 (Civ. Ct. N.Y. Co. May 17, 2017), the court held that alleged unauthorized alterations did not constitute a default under the proprietary lease that would allow the Cooperative to terminate the lease.

In this case, the Cooperative alleged that the tenant-shareholder’s apartment had been subdivided from a one-bedroom apartment to a one-bedroom with a separate guest room, in breach of the proprietary lease. The Cooperative served a notice to cure, stating that the proprietary lease would be terminated unless the breach was cured within 30 days.  After receiving the notice to cure, the tenant-shareholder asked the Board for permission to “legalize the alteration.”  The Board denied the request but allowed the tenant-shareholder additional time to remove the alteration.  Thereafter, the Cooperative served a 5-day notice of termination and then commenced a holdover proceeding to recover possession of the apartment.

The tenant-shareholder disputed that any breach had occurred. He asserted that he did not make the alterations, but purchased the apartment in 2007 in its current configuration.  He further alleged that the Cooperative knew of the alteration at the time he purchased the apartment, but had not raised the issue at that time, nor when the apartment was previously sold.  Indeed, “the alteration had been in place for at least 18 years with [the Cooperative’s] knowledge and [the Cooperative] only raised the issue in April 2015.”  Thus, the tenant-shareholder asserted, the Cooperative’s claim was barred by waiver, laches, and unclean hands.

After a trial, the court found that the Cooperative had failed to prove a violation of the proprietary lease. There was no proof the prior owner did not have permission to alter the unit.  The managing agent lacked a complete file for the premises and could not determine whether authorization had been provided.  Thus, the Cooperative could not prove that the alteration violated the proprietary lease.

The court also found that the Cooperative’s claim was barred by laches and waiver. The essential elements of laches – undue delay and prejudice caused to the opposing party by such delay – were established because the tenant-shareholder was placed in the position of having to “dig up evidence, which may or may no longer be in possession of a tenant who resided in the premises over 20 years ago.”  Moreover, the apartment had been marketed based on its current configuration, the tenant-shareholder was approved by the board based on an application that included the floor plans for the apartment as it currently exists, and the value of the premises would be reduced by about $150,000 if the alteration had to be undone.  With respect to waiver, the court observed that the tenant-shareholder “purchased the subject premises with the alteration, [he] was approved by the Board with the floor plan submitted, there were prior sales of the premises with the alteration, and building staff and board members were present at the premises with the visible alteration for years.”  As a result, the Cooperative “waived the right to maintain this proceeding.”