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Residence in Cooperative Apartment by Shareholders’ Adult Children Held Not to Breach Proprietary Lease

A cooperative corporation’s lawsuit against a tenant-shareholder couple, seeking to eject them from the building for allowing their adult children to reside in their apartment, has been dismissed. 50 Sutton Place South Owners, Inc. v. Fried, 2016 N.Y. Misc. LEXIS 2618, 2016 N.Y. Slip Op. 31326 (Sup. Ct. N.Y. Co. July 14, 2016).

The Cooperative sued the two tenant-shareholders, claiming that they breached the proprietary lease by allowing their two adult daughters to reside in the apartment, at times when the tenant-shareholders were not present, after having failed to list them on their purchase application as persons who would be in residence.  The Cooperative sought a declaratory judgment that the tenant-shareholders were in breach of the proprietary lease, an order ejecting them from the building for disobedience of a notice to cure the breach, and damages for their having fraudulently induced the Cooperative’s approval of the application.

The court held that the Cooperative had failed to plead a valid cause of action.  The Cooperative’s complaint alleged that the tenant-shareholders maintain their residence in New Jersey and that they “do not primarily reside in the Apartment” in New York, rendering their daughters’ presence a violation of the proprietary lease.  The Cooperative relied on 445/86 Owners Corp. v. Haydon, 300 A.D.2d 87, 751 N.Y.S.2d 456 (1st Dep’t 2002), which held that paragraph 14 of a customary form of proprietary lease authorizes occupancy of a cooperative apartment by certain relatives of the tenant-shareholder only if the tenant-shareholder also “maintains a concurrent occupancy.”  Thus, tenant-shareholders are in breach of paragraph 14 of the proprietary lease if they allow relatives to reside in their apartment while the tenant-shareholders themselves reside elsewhere.

However, the court found the case before it to be distinguishable from Haydon.  Here, the Cooperative alleged only that the tenant-shareholders did not primarily reside in the cooperative apartment, whereas in Haydon the tenant-shareholders did not reside in their apartment at all.  The proprietary lease does not require tenant-shareholders to maintain their “primary residence” in the cooperative apartment, and the court declined to apply the concept of “primary residence,” derived from cases involving rent-regulated apartments, to cooperatives.  The court further stated that proprietary lease does not require that the tenant-shareholders be on the premises at any time their adult children are home.

The court also found that no fraud had been pleaded in connection with the purchase application.  Under New York law, “the essential elements of a cause of action for fraud include the representation of a material existing fact.”  Here, the court found, “[t]here [was] no allegation in the complaint that at the time the application was submitted defendants’ adult daughters were residing with them and thus, any statement that their adult daughters would reside with them in the apartment in the future, as [the Cooperative] asserts defendants should have stated, would have been mere speculation rather than an actionable statement of present intention and therefore its omission is not an actionable misrepresentation.”

The court ruled that the shareholder-tenants could recover their reasonable attorneys’ fees incurred in the litigation.  The proprietary lease, as is typical, provides that the Cooperative may recover its attorneys’ fees in any litigation asserting a breach by the shareholder-tenants.  Under Real Property Law § 234, this provision is automatically interpreted reciprocally, so as to authorize an attorneys’ fee award in favor of the tenant-shareholders against the Cooperative where, as here, the tenant-shareholders are the prevailing parties.