Client Advisory - January, 2004 PDF Foreclosure of a Co-Op Apartment Does Not Necessarily Mean Free Access In Trepel v. Diop, NYLJ October 20, 2003, p. 23, col. 3 (S.D.N.Y.), the United States District Court in Manhattan ruled that a judgment creditor who had successfully foreclosed on the debtor's apartment could not force the cooperative corporation to give him a key or free access to the apartment. The plaintiff had obtained a judgment against the tenant/shareholder for fraud in connection with art transactions. To satisfy the judgment, the apartment was sold by the county sheriff at public auction, at which the plaintiff was the only bidder. The cooperative corporation agreed to issue stock and a proprietary lease to the plaintiff, without the necessity of an interview and approval by the Board of Directors, on the understanding that he would use it only for purposes of resale. However, the corporation then refused to issue him a key and insisted that he not enter the apartment without an escort. Arguing that such limits unduly restricted his ability to sell the apartment, the plaintiff sued the Corporation in Federal Court, where his judgment had been obtained. The Court held that the plaintiff's economic interest in the apartment was subject to the right of the Board of Directors to screen and approve persons who seek to become members of their community. Although plaintiff had a right to visit the apartment, on reasonable notice, and to bring realtors and prospective purchasers with him, the court denied him an injunction directing that he be provided keys. The Board could insist on an employee accompanying him, so long as the employees were made aware of his rights and provided reasonable access and accompaniment when requested. Cooperative Corporation Recovers Legal Fees from Shareholder in Contempt Another dispute between a cooperative corporation and one of its tenant/shareholders that found its way to Federal Court is 178 East 80th Street Owners, Inc. v. Jenkins, NYLJ December 30, 2003, p. 24, col. 3 (S.D.N.Y.), in which the corporation claimed that the shareholder, who now lived in England, was renting out her two apartments in the building in violation of her proprietary lease. After earlier litigation, the parties had entered into a settlement agreement, "so ordered" by the Court, in which the shareholder agreed not to have overnight guests in her apartments for more than two weeks in any six month period, and then only if she was "contemporaneously physically there." The corporation now claimed that the shareholder had violated the agreement and should be held in contempt of court. Based on the testimony of the doorman, the Court agreed. However, the Court held that it could not base an award to the corporation of its attorneys' fees based on the proprietary lease, although that document provided for such relief, because the contempt proceeding had alleged only the violation of the settlement agreement, which contained no provision for attorneys' fees. Nevertheless, the Court found a basis for awarding legal fees in Local Civil Rule 83.9(a) of the Federal Court in Manhattan, which permits such fees to be included in a fine, which may be imposed to reflect the damage to the injured party arising from a contempt of court. The Court in the Jenkins case fined the former shareholder (who had sold her apartments during the litigation) approximately $37,000 for the corporation's legal fees and disbursements. Elimination of Storage Space Not a Basis for Rent Reduction In the 1980's, a landlord turned basement storage space that had been used by some of the tenants in an Upper West Side building into a laundry room. After more than twenty-three years of litigation, the Supreme Court has now ruled that the loss of storage space did not warrant a rent reduction under the Rent Stabilization Code. When the tenants first complained to the Division of Housing and Community Renewal ("DHCR") in 1990, they argued that the elimination of their storage facilities, which they contended had been provided since they moved in, constituted a diminution of services entitling them to a rent decrease. Their landlord countered that access to a storage area had never been included in the leases or in the building's services registration, had never been authorized by the landlord (although some tenants used it) and, in any event, the basement space was too small to accommodate storage for all of the thirty-six units in the building. In Matter of Schoberle v. Division of Housing and Community Renewal, NYLJ November 26, 2003, p. 29, col. 3 (Sup. Ct., N.Y. Co.), after more than two decades of proceedings, the Supreme Court has held that the tenants failed to show any contract right to the storage space, or that its removal had any adverse impact on their enjoyment of their apartments. Moreover, they had waited more than four years to complain of the termination of the service, thus creating a presumption that it had minimal effect on such enjoyment. The Court relied on the guidelines now codified in the Rent Stabilization Code, 9 NYCRR §§ 2523.4(e) and (f), which provide that the elimination or reduction of storage space is deemed "de minimis" (i.e., not rising to the level of a failure to maintain a required service) unless there is a specific lease rider (not a general clause in a standard form lease) providing for such space, or unless the tenant has complained about it within four years after the termination of the service. Although the regulations involved in Schoberle relate to rent stabilized apartments, similar issues and litigation can arise in cooperatives or any other rentals where the lease does not provide clear guidance. To avoid claims of right acquired by long usage, as in Schoberle, proprietary and other leases should include a provision to the effect that any shareholder use of space outside his or her apartment is pursuant to a revocable license granted by the owner. Such a clause was enforced in a case handled by this firm, 1050 Fifth Avenue, Inc. v. May, 247 A.D.2d 243, 668 N.Y.S.2d 600 (1st Dep't 1998), to dismiss a tenant-shareholder's claim that she was the owner of the roof area adjoining her apartment after openly using it for thirty years. IMPORTANT NOTE: The material in this newsletter is provided for information purposes only and should not be construed as legal advice. Because the particular facts and circumstances of every situation differs, you should not act or refrain from acting on the basis of this information without consulting an attorney |
