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Cooperative’s Sublet Policy Allowing Only Some Shareholders To Sublet Held Invalid

A cooperative’s policy permitting shareholders who purchased their shares before a given date to sublet their apartments, while prohibiting shareholders who purchased after that date from subletting, is invalid because it treats shareholders holding the same class of stock unequally, according to an Appellate Division ruling in Razzano v. Woodstock Owners Corp., 113 A.D.3d 322, 975 N.Y.S.2d 38 (1st Dep’t 2013).


The plaintiff tenant-shareholder purchased her shares in 2009.  At the time of her purchase, she acknowledged that under the Cooperative’s no-subletting policy, she would not be permitted to sublet her apartment.  That policy had been instituted in 2002 because the Board of Directors believed that the Cooperative’s owner-occupancy rate was too low and that a higher rate would assist in refinancing the building’s mortgage.  However, this policy applied only to tenant-shareholders who purchased after the effective date of the policy, while subletting by existing tenant-shareholders as of that date remained subject to a more flexible policy.


A lower court ruled that the Board’s decision to adopt the two-tiered sublet policy was protected by the Business Judgment Rule because the plaintiff was on notice of the policy that would apply to her before she purchased her shares and the plaintiff had not been unfairly singled out for discriminatory treatment.  However, the appellate court reversed the lower court’s decision and invalidated the policy on the ground that it violated New York Business Corporation Law § 501(c), which requires that all shares of the same shares of stock in a New York corporation, including a cooperative apartment corporation, shall have equal rights.