PURCHASER OF COOP SHARES BOUND
The plaintiffs-holders of unsold shares initiated this action against the defendant coop corporation to restrain the corporation from repossessing the plaintiffs’ cooperative apartments, to restrain the corporation from dissolving the coop and/or canceling the proprietary leases of the plaintiffs, to restrain the defendants from entering into agreements, obtaining new financing, transferring funds, etc. other than for the normal course of managing the coop building, to restrain defendants from using building funds for payment of their legal counsel fees, to compel the production of books and records of the coop corporation for inspection by plaintiffs, to compel the turning over of management responsibilities to a management company chosen by plaintiffs and to direct the formation of a board of directors for the coop corporation which is controlled by the plaintiffs-holders of unsold shares. This proceeding was long and drawn out and at the initial hearing of the motion, the court granted the plaintiffs a temporary restraining order directing the relief sought in the motion other than the restructuring of the board of directors or the changing of the management company. Several months earlier, the court issued an interim decision which granted plaintiffs’ request for a temporary restraining order and at that time, the court issued a 10-page decision detailing the contentions of the parties. This motion addressed the remaining issues, the most important of which was whether the holder of the unsold shares was, in fact, bound by the original sponsor’s obligations under the proprietary lease. The central question decided by this court was whether the plaintiffs, as purchaser of approximately 80% of the shares in the coop in 1998, from a holder of unsold shares, now stands in the place of the original sponsor and the subsequent holder of unsold shares and as such, does the plaintiff retain all rights and is subject to all obligations of the original sponsor and subsequent holder of unsold shares. The court determined that the plaintiff was, in fact, bound by the obligations of the original sponsor in that it “must make efforts to place cooperative shares for sale so as to increase the percentage of owner occupants in the interest of developing a viable coop building.” In addition, control of the board was to be turned over to the coop corporation as the five-year period for such turnover has long since past. The NYS Attorney General filed an amicus Curiae brief in support of the coop corporation’s position and utilized the Court of Appeals decision in 511 West 232nd Owners Corp. v. Jennifer Realty Co. in which that court held that “a sponsor undertakes a good faith duty to timely sell as many shares as necessary to create a fully viable coop.” Furthermore in that case, the court criticized the sponsor’s retention of a majority of the shares as “inimical to the proper functioning of a coop after its conversion…If a sponsor can rid itself of the critical obligations to sell its block of shares by simply finding a bulk buyer, the obligation of the sponsor will be rendered illusory. It cannot be argued that the statutory and regulatory scheme, as interpreted by the Court of Appeals, is a mere sham, capable of being circumvented merely at will.” In this decision, the court did not believe it was reasonable to assume that the transfer of a sponsor’s interest to a holder of unsold shares can circumvent the requirement in the offering plan that transfers control of the coop board of directors after the first five years of sponsor ownership. “Having failed to disclose, the sponsor, and now the holders of unsold shares, are precluded from withholding apartments from sale and from retaining a stranglehold on board power. Any other result would render the disclosure requirement toothless.” Even the offering plan provided “that the rights granted under it may not be abrogated or reduced. This provision should have been apparent to a bulk purchaser such as the holder of unsold shares, which presumably performed due diligence prior to purchase.” Cole v. 1015 Concourse Owners Corp, Supreme Court, Bronx County (NYLJ 12/1/2008) Courtesy of Alfred M. Fazio, Esq., Capuder Fazio Giacoia LLP, 90 Broad Street, New York, New York 10004 (212) 509-9595
Visit our website at CFGNY.com for copies of recent articles as well as other areas of interest to the real estate community.
|
||||