Opinion
No. CV–28943–2014.
03-17-2016
200 EAST 90TH STREET OWNERS CORP., Plaintiff and Counterclaim Defendant, v. Matthew WEBER and Kim Morrissey, Defendants and Counterclaimants.
Kaufman Borgeest & Ryan LLP by Jonathan Bruno represented plaintiff/Counterclaim Defendant and defendants/counterclaim plaintiffs proceeded pro se.
Kaufman Borgeest & Ryan LLP by Jonathan Bruno represented plaintiff/Counterclaim Defendant and defendants/counterclaim plaintiffs proceeded pro se.
DAVID B. COHEN, J.
Upon the foregoing cited papers, the decision/order on this motion for summary judgment and cross motion pursuant to CPLR 3212 is as follows:
200 East 90th Street Owners Corp. (“plaintiff”) is a cooperative corporation and the landlord of the building located at 200 East 90th Street. Matthew Weber and Kim Morrissey (“defendants”) are shareholders of the cooperative and pursuant to a proprietary lease executed by defendants, are the tenants of Apartment 23FG. On October 23, 2012, plaintiff, through its management company, sent a notice to all tenants that the Board of Directors of plaintiff had instituted a monthly sublet fee equal to 10% of maintenance payed by the prime tenant on all subleases. On May 1, 2013, defendants subleased their apartment from May 1, 2013 through June 30, 2014. The monthly sublet fee for those months was $377.49 for a total of $5,284.86.
On November 13, 2014, plaintiff filed the Verified Complaint, and alleged that for the entire sublease period, defendants failed to pay the sublet fee and sought $5,284.86 for defendants' breach of lease and $2,500.00 in legal fees. In their answer dated April 10, 2015, defendants denied their obligation to pay the sublet fee and asserted several counterclaims. Defendants allege that the imposition of the sublet fee was not permitted by the proprietary lease and that plaintiff (1) is in breach of the proprietary lease, (2) has breached the implied covenant of good faith and fair dealing, (3) has acted negligently and grossly negligent in the discharge of its duties under the proprietary lease, and (5) has breached its fiduciary duties towards the defendants by imposing the sublet fee. On June 25, 2015, plaintiff filed the instant motion seeking summary judgment and on July 30, 2015, defendants filed their opposition and motion for partial summary judgment.
Summary judgment is a drastic remedy that should not be granted where there exists a triable issue of fact (Integrated Logistics Consultants v. Fidata Corp., 131 A.D.2d 338 [1st Dept 1987] ; Ratner v. Elovitz, 198 A.D.2d 184 [1st Dept 1993] ). In deciding a summary judgment motion, the Court must view all evidence in a light most favorable to the non-moving party (Rodriguez v. Parkchester South Condominium Inc., 178 A.D.2d 231 [1st Dept 1991] ). The moving party must show that as a matter of law it is entitled to judgment (Alvarez v. Prospect Hosp., 68 N.Y.2d 320 [1986] ). The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case (Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851 [1985] ). After the moving party has demonstrated its prima facie entitlement to summary judgment, the party opposing the motion must demonstrate by admissible evidence the existence of a factual issue requiring a trial (Zuckerman v. City of New York, 49 N.Y.2d 557 [1980] ).
Sublet fees imposed by landlords have long been held to be a valid exercise of authority by a board of directors (Zuckerman v. 33072 Owners Corp., 97 A.D.2d 736 [1st Dept 1983] ). The key question as to the validity of a sublet fee is whether the fee is permitted to be imposed pursuant to the proprietary lease and/or by-laws of the Corporation (445/86 Owners Corp. v. Haydon, 300 A.D.2d 87 [1st Dept 2002] ). Courts have broadly read proprietary leases and by-laws in determining a board's authority to impose a sublet fee (id. at 88 ; Jones v. Southgate Owners Corp., 289 A.D.2d 73 [1st Dept 2001] ). A sublet fee that bears no relationship to the number or class of shares owned and which is strictly dependent upon the rent/maintenance charged, does not fall within the purview of section 501(c) of the Business Corporation Law and does not violate the discriminatory prohibition of “each share shall be equal to every other share of the same class” stated therein (McCabe v. Hoffman, 138 A.D.2d 287 [1st Dept 1988] ). In this matter, the material facts are not in dispute. Plaintiff has imposed a sublet fee and defendants have not paid it, alleging that the fee is not allowed. Both sides argue that their positions are supported by the corporate documents. The Court must determine as a matter of law whether plaintiff's Board of Directors has the authority to impose the sublet fee and if so, did it impose the fee in a proper manner.
Paragraph 15 of the proprietary lease entitled Subletting provides:
Subject to paragraph 38, anything contained in this Lease to the contrary notwithstanding, the Lessee shall have the right to freely sublet the whole but not a part of the apartment or extend any existing sublease without obtaining the consent or authorization of the Directors or shareholders. However, the sublessor shall be required to provide thirty (30) days prior written notice of any sublet as herein provided to the Lessor. In addition, a charge determined by the Board of Directors may be collected to cover reasonable legal fees and other expenses of the Apartment corporation, including charges of the then Managing Agent. Said notice shall contain the name of the sublessees and all occupants of the apartment, the expiration and commencement dates of the sublease, the amount of rent being charged, and details of any options to purchase or the like. Together with said notice, a copy of the sublease agreement and an affidavit sworn to by the sublessor and the sublessee that the statements contained in said notice are true and complete, shall be submitted to the Board of Director as provided herein. Prior to the commencement of any sublet as herein provided, the Sublessor shall be required to post with the Managing Agent an amount equal to two (2) months maintenance charges, or such other sum as may be determined by the Lessor, to be expended by the Managing Agent, on Sublessor's behalf to the extent performance of services exceed the services the Lessor is required to provide as set forth herein. In the event the Managing Agent is forced to draw upon said funds as aforesaid, then the sublessor, upon written notice of the Managing Agent, shall replenish such funds in a timely fashion. The minimum term of any sublease shall be one (1) year. All sublets as provided herein shall be limited to only (1) family.
Article V, Section 5 of the by-laws provides:
Fees on Assignment: The Board of Directors shall have authority before an assignment or sublet of a proprietary lease or reallocation of shares takes effect as against the Corporation as lessor, to fix a reasonable fee to cover actual expenses and attorneys' fees of the Corporation, a service fee of the Corporation and such other conditions as it may determine, in connection with each such proposed assignment or sublet.
Although defendants argue that the proprietary lease only permits plaintiff to charge for certain expenses in connection with a sublet, under the corporate documents, plaintiff has the general authority to impose fees in connection with sublets. Also, shareholders may freely, without consent of plaintiff, sublet their apartments subject to some notice requirements and the submission of certain documents and security deposit to plaintiff. Defendants also argue that even if there exists some authority to charge sublet fees, plaintiff has exceeded its authority (1) in the manner in which the Board of Directors amended the by-laws to permit a sublet fee, (2) by imposing new conditions on the permissibility of subletting in contravention of paragraph 15 of the proprietary lease, and (3) by charging sublet fees that go beyond the scope of what is permitted by the corporate documents. In furtherance of this argument, defendants contend that the flat 10% fee charged, in addition to certain expenses charged by plaintiff, is a disallowed disproportional charge of rent/maintenance to those who sublet purusuant to Paragraph 1 of the proprietary lease. Defendants also separately counterclaimed that plaintiff is charging a “per se ” unreasonable amount of expenses in connection with the approval of the sublease.
Although defendants expend considerable time and effort describing the procedures for amendments to the by-laws and proprietary lease and that such procedures were not followed here, neither corporate document has been amended with respect to the imposition of the sublet fee. Specifically, pursuant to the affidavit of David Parker, a director of plaintiff, paragraph 15 of the proprietary lease and Article V, Section 5 of the by-laws have not been amended. Although in connection with defendants' email communications with plaintiff's managing agent regarding the sublet fee, defendants were informed that the by-laws had been amended, the section that was in fact changed, was not related to the sublet fee and thus, not relevant to this matter. In any event, the proprietary lease, of which no part was amended, also provides plaintiff with the authority to impose a sublet fee. Thus, defendants' argument that plaintiff wrongfully changed the by-laws and proprietary lease to give itself permission to impose the fee is without merit.
Defendants' contention that plaintiff breached the proprietary lease by imposing new consent requirements on defendants' ability to sublet is not properly before the Court. Defendants did not include such allegations in their amended counterclaims and is only raising this issue now for the first time. In any event, defendants do not support their contention that plaintiff has imposed new consent requirements on sublets in any meaningful way. Defendants state repeatedly, in conclusory fashion, that there are new consent requirements without listing a single requirement. Defendants do attach an email from plaintiff approving defendants most recent sublet in 2015, which also contains a general statement that “sublets are not renewable without the prior written consent from the Board.” Yet, despite having just undergone the sublease process and alleging some new requirements, defendants did not describe any new requirements in getting the new sublease approved. Under the proprietary lease, while defendants may freely sublet their apartment, prior to doing so, defendants must comply with certain obligations and must satisfy certain notice requirements, document submission requirements and security deposit requirements that are submitted to the Board of Directors of plaintiff. If a shareholder complies with all of the valid requirements, said shareholder may freely sublet their apartment. Without defendants actually articulating a new restriction or impediment on sublets imposed by the Board of Directors of plaintiff, the Court finds that the letter approving defendants' sublease, although perhaps inartfully worded, did not impose any new consent requirements on subletting that would rise to a level of a breach of the proprietary lease. Additionally, said email was sent on June 29, 2015 and clearly could not have been a part of the basis for defendants amended counterclaims filed April 10, 2015.
This Court makes no ruling as to any current requirements under the by-laws, except as to the sublet fee.
Defendants also argue that plaintiff breached the proprietary lease by charging a disproportionate amount of maintenance to those who sublet, in contravention to Paragraph 1(a) of the proprietary lease. Paragraph 1(a) provides:
The rent (sometimes called maintenance) payable by the Lessee for each year, or portion of a year, during the term shall equal that proportion of the Lessor's cash requirements for such year, or portion of a year, which the number of shares of the lessor allocated to the apartment bears to the total number of shares of the lessor issued and outstanding on the date of the determination of such cash requirements. Such maintenance shall be payable in equal monthly installments in advance on the first day of each month, unless the Board of Directors of the Lessor (hereinafter called “Director”) at the time of its determination of the cash requirements shall otherwise direct. The Lessee shall also pay such additional rent as may be provided for herein when due.
Defendants argue that the sublet fee is a form of maintenance; that plaintiff may only charge a shareholder rent/maintenance that is a shareholder's proportional amount of cash requirements; and that the only time a shareholder may have a charge over this amount is if listed in the proprietary lease such as additional rent. Defendants contend that the sublet fee charged to them is (1) a disproportionate charge to those who sublet as opposed to residents and (2) not permitted to be charged, even as additional rent, because sublet fees are not specifically defined as additional rent in the proprietary lease, unlike other places in the lease; and in any event is beyond the scope of permitted cost reimbursement allowed.
Defendants' specific argument is “conversely and equally explicitly, if the term additional rent' is not used in a particular clause of the proprietary lease, then it follows that any such additional rent' is not authorized in that circumstance and cannot be charged to a lessee.”
Defendants' arguments are not persuasive. First, paragraph 1(a) is clearly limited by future grants of authority in the proprietary lease, including paragraph 15, which permits sublet fee charges. Similarly, the by-laws, to which all shareholders are subject, also permit additional fees in connection with subleases. In addition, the sublet fee applies to all shareholders equally and the fee is not being charged to any shareholder or class of shareholder discriminatorily. Any shareholder, no matter what class of shares held would be required to pay such a separate fee. Thus, plaintiff's sublet fee is clearly not maintenance but is a separate charge permitted by the corporate documents.
Further, as stated by the McCabe Court sublet fees that bear no relationship to the number or class of shares owned and which are strictly dependent upon the amount of rent charged, do not violate the discriminatory prohibition of “each share shall be equal to every other share of the same class” (McCabe, 138 A.D.2d at 290 ). Additionally, “the absence of the phrase “as additional rent” in paragraph 15 of the proprietary lease, though that phrase appears elsewhere in the lease where the board is authorized to charge fees above maintenance, does not preclude the board from charging a sublet fee. The clear import of the broad language employed is that the board may impose any lawful conditions, including monetary conditions” (Zuckerman, 97 A.D.2d at 737 ).
Similarly, the by-laws and proprietary lease do not impose the narrow limitations as read by defendants in determining how much may be charged. The by-laws offer plaintiff several options including “a reasonable fee to cover actual expenses and attorneys' fees of the Corporation, a service fee of the Corporation and such other conditions as it may determine” (emphasis added). The proprietary lease permits a charge determined by the Board of Directors to be collected to cover reasonable legal fees and other expenses of the Apartment corporation, including charges of the then Managing Agent. While defendants ask the Court to read these grants of authority narrowly as permitting only reimbursement type of charges, a plain reading clearly includes multiple options. The by-laws permit the imposition of “any other conditions” as determined by the Board of Directors and the proprietary lease permits the fee to broadly cover “other expenses of the Corporation.” Neither document limits the sublet fee charge to only the expenses directly related to the sublet (see Boland v. 70–80 Gibson Blvd. Owners, Inc., 2009 WL 5172478 [Sup Ct 2009] [“other conditions” have been interpreted to include sublet fees] citing Rackowsky v. Excelsior 57th Corp., 167 Misc.2d 476 [Civ Ct 1995] ; 445/86 Owners Corp. v. Haydon, 300 A.D.2d 87 [1st Dept.2002] ; Jones v. Southgate Owners Corp., 289 A.D.2d 73 [1st Dept.2001] ;19 N.Y. Jur 2d Condominiums, § 155; see also Nielsen v. 35–21 79th St. Tenants Corp., 2011 WL 197731 [Sup Ct 2011] ).
For all of the above reasons, plaintiff's motion for summary judgment is granted on its first cause of action, as the sublet fee was permitted by the corporate documents and does not violate paragraphs 1(a) and 15 of the proprietary lease. All of defendants' counterclaims which relate to plaintiff's actions in its imposition of the valid sublet fee, including the breach of fiduciary duty claim, the negligence claim and the gross negligence claim, are dismissed and defendants' cross-motion for partial summary judgment is denied. However, one of defendants' counterclaims remains as the parties have not addressed it in their papers. In their amended answer and counterclaims, defendants alleged that plaintiff is charging a “per se ” unreasonable amount of expenses in connection with the approval of the sublease. Defendants' contend that aside from the flat 10% sublet fee, the amount of expenses charged for processing the sublet has gone up so dramatically that it is per se unreasonable. As neither party addressed the law on this issue, it remains. As the case is not entirely disposed, plaintiff's motion for attorneys' fees is denied without prejudice. Parties shall appear in Room 325 at 9:30 a.m. on April 28, 2016 for a pre-trial conference on the remaining issues.
This constitutes the decision and order of the Court.