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First Department Reaffirms Its Interpretation of Occupancy Requirements of Proprietary Lease

A standard provision of proprietary leases for cooperative apartments governs the question of who may occupy the apartment. Article 14 of many proprietary leases provides that “[t]he Lessee shall not, without the written consent of the Lessor on such conditions as Lessor may prescribe, occupy or use the apartment … for any purpose other than as a private dwelling for the Lessee and Lessee’s spouse, their children, grandchildren, parents, grandparents, brothers and sisters and domestic employees….  The Lessee may also allow one (1) unrelated party, and that party’s dependent children to occupy the apartment without the prior written consent of the Lessor.”

Historically, the Appellate Division for the First Department – which covers Manhattan and the Bronx – has interpreted this language to mean that family members of the tenant-shareholders may reside in the apartment together with the tenant-shareholders, but may not replace the tenant-shareholders as residents while the tenant-shareholders reside elsewhere, unless Board approval is obtained.  On the other hand, the Appellate Division for the Second Department – which includes Brooklyn, Queens, Staten Island, Nassau, Suffolk, Westchester, and four other counties – has held that Article 14 is ambiguous and does not expressly require that Board approval be obtained for a tenant-shareholder’s family member to reside in an apartment while the tenant-shareholder is not in residence.

In Chiagkouris v. 201 West 16 Owners Corp., 2018 N.Y. Slip Op. 2428, 2018 N.Y. App. LEXIS 2413 (1st Dep’t Apr. 10, 2018), a case arising in the First Department, the plaintiff tenant-shareholder allowed a friend to occupy the cooperative apartment while the plaintiff was absent from the apartment.  The Board of Directors determined that plaintiff had violated Article 14 and terminated plaintiff’s proprietary lease, and the First Department upheld the Board’s decision.

The First Department observed in its decision that “[w]e have previously held that article 14 ‘permit[s] occupancy by the listed persons other than the lessee only if the lessee maintains a concurrent occupancy.’”  Plaintiff argued that the prior rulings did not apply to his situation, because they interpreted the sentence of Article 14 governing occupancy by family members, while plaintiff was relying on the separate sentence authorizing occupancy by one unrelated party, which the court had not previously interpreted.  Rejecting this argument, the court held that “reading Article 14 as a whole, as we must, with no single sentence isolated, we find that [the court’s prior] interpretation … is the only reasonable interpretation of the article.  Therefore, plaintiff was not permitted to allow [his friend] to occupy his apartment without maintaining a concurrent occupancy.”

In addition, the plaintiff failed to show that [the Board] acted outside the scope of its authority, in a way that did not legitimately further its corporate purpose, or in bad faith.”  Therefore, the Board’s decision to terminate his tenancy was protected by the Business Judgment Rule.