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Offering Plan Is Held Ambiguous Regarding Sponsor’s Right to Surrender Unsold Shares Allocated to Parking Spaces

Ambiguities in the offering plan and proprietary lease precluded summary judgment in favor of a Cooperative in a dispute with its Sponsor over maintenance payments for unsold parking spaces. North Shore Towers Apartments, Inc. v. Three Towers Assocs., 2017 N.Y. Slip Op. 6081, N.Y. App. Div. LEXIS 6029 (2d Dep’t Aug. 9, 2017).

This case involves a Cooperative located in Queens, consisting of three buildings comprising a total of 1,844 apartments and 2,492 parking spaces. The buildings were converted to cooperative ownership in 1986.  Following the conversion, the Sponsor remained the holder of unsold shares corresponding to the unsold apartments and parking spaces that were not purchased by tenants during the conversion.

In 2010, the Sponsor wrote to the Cooperative advising that Sponsor was surrendering ownership of the shares corresponding to 158 parking spaces that remained unsold.  By doing so, the Sponsor sought to avoid paying the maintenance charges for these shares.  The Cooperative sued the Sponsor, alleging that Sponsor’s purported surrender of the shares violated the offering plan and proprietary lease.  The Cooperative sought a declaratory judgment that “the purported surrender of the parking spaces without surrendering the Proprietary Leases for the same number of apartments is null and void.”  A lower court granted summary judgment to the Cooperative, determining that the Cooperative “is not required to accept [the Sponsor’s] surrender of solely unsold shares to parking spaces and that [the Sponsor] is not entitled to cancel the proprietary lease and only surrender the unsold shares to parking spaces.”

On the Sponsor’s appeal, however, the appellate court held that the governing documents were ambiguous regarding the parties’ rights with respect to the parking spaces.  The sample proprietary lease contained in the offering plan provided that “a holder of Unsold Shares shall be entitled to cancel this lease if . . . the Unsold Shares constitute 15% of the [Cooperative’s] outstanding shares, at least five years have elapsed since the closing date and on the effective date of cancellation the holders of Unsold Shares pay to the [Cooperative] a sum equal to 24 times the sum of the then current maintenance charges for the apartments and parking spaces being surrendered.”  While no executed proprietary lease existed for the unsold parking spaces, the Sponsor paid the maintenance for the shares corresponding to those spaces until 2010.  The parties agreed that proprietary lease contained in the offering plan governed the dispute.

The appellate court concluded that “an ambiguity exists as to whether the controlling documents permitted the sponsor to surrender only the unsold shares representing the subject parking spaces.  The aforementioned provisions reasonably could be interpreted to mean that the sponsor can cancel a proprietary lease appurtenant to unsold shares for parking spaces provided that it, among other things, pays the Cooperative 24 months of maintenance for those parking spaces.”  The court disagreed with the Cooperative’s position that the lease provision unambiguously meant “that shares appurtenant to a parking space can only be surrendered in conjunction with the surrender of shares appurtenant to an apartment.”  The court also observed that the Cooperative had acquiesced in the Sponsor’s surrender of shares corresponding to unsold parking spaces on four prior occasions.