Opinion
SCK 5507/2004.
Decided February 14, 2005.
Plaintiff, a shareholder in a cooperative apartment building, initiated this action against his cooperative board for breach of contract. Plaintiff purchased the shares entitling him to occupy the unit in question in 1995. The shares were purchased from a bank, and a tenant was in possession of the premises at the time of the sale. Plaintiff has never resided in the unit, despite the fact that on his application to purchase the property he stated that it was his intent to use the apartment as his principle residence. The unit has been continuously sublet since 1995.
Pursuant to the cooperative's proprietary lease, any subletting must be authorized by the written consent of the lessor (now the cooperative board), and that consent "shall not be unreasonably withheld" (paragraph 19). However, such consent is not needed for the owner of unsold shares, purchasers for investment and first time owners (paragraph 50).
In February of 1997, the board of directors, in what it styled as the exercise of its sound business judgment, resolved not to "consent to the sublet of an apartment by any shareholder for a period of one year from the date that the shareholder acquires shares in the corporation, and the board reaffirmed that it would not consent to the sublet of an apartment by a shareholder for a period in excess of one year, nor would it consent to an extension of that one year period in the absence of a demonstration of compelling hardship or necessity."
On March 3, 2003, the managing agent for the cooperative board sent Plaintiff a letter informing him that he would not be permitted to sublet his apartment again without the prior written consent of the board. At a meeting of the board on August 5, 2003, the board denied another shareholder's request to sublet and further instructed the managing agent to notify Plaintiff and two other shareholders that any sublets of their units must be terminated and the occupants removed.
Plaintiff contends that the board has breached the proprietary lease by demanding that he terminate his sublease. At trial it was admitted that Plaintiff's subtenant left after the termination of his sublease and the apartment remains vacant. Plaintiff seeks $4480.00 in damages as the rent he will lose from not being able to sublet his unit.
Defendant maintains that it has acted in good faith and in accordance with the proprietary lease, and is seeking attorney's fees incurred in defending this action. Further, Defendant has moved to dismiss this action, alleging that Plaintiff has not suffered any recognizable damages.
Three distinct questions are before the court:
1. Whether Plaintiff qualifies as a holder of unsold shares or a purchaser for investment, thereby exempting him from the necessity of obtaining board approval prior to subletting his unit?
2. Whether the board unreasonably and without authority refused to consent to the sublease of Plaintiff's unit?
3. Whether Plaintiff has suffered any damages by the board stating that it will not consent to a further sublet of his unit?
13 NYCRR sec. 18.3(w)(1) defines "a holder of unsold shares" as
the sponsor or any individual designated to hold unsold shares by the sponsor. Such shares shall cease to be unsold shares when purchased by a purchaser for occupancy.
None of the papers submitted indicate that Plaintiff was designated by the sponsor to hold unsold shares, and in his application to the cooperative board Plaintiff affirmatively stated that he purchased the unit in order to dwell therein. Therefore, Plaintiff does not qualify as a holder of unsold shares exempting him from the requirement of obtaining board approval in order to sublet his apartment. See Gandelman v. 150 Burns Apartment Corp., 784 N.Y.S. 2d 391, 2004 NY App. Div. Lexis 14194 (2nd Dept. 2004).
13 NYCRR sec. 18.3(x) defines a "purchaser for investment or resale" as:
a purchaser who purchases shares allocated to three or more apartments, which are not for occupancy by such purchaser or persons related by blood, marriage or adoption to such purchaser.
In the instant case, Plaintiff only purchased one unit which he stated was for his own occupancy, and consequently he does not qualify as a purchaser for investment which would negate the necessity of board approval in order to sublet the unit. Kralik v. 239 East 79th Street Owners Corp., 4 AD3d 144, 771 N.Y.S. 2d 518 (1st Dept. 2004).
As stated by the Court of Appeals in Levandusky v. One Fifth Avenue Apartment Corp., 75 NY2d 530, 554 N.Y.S. 2d 807 (1990), a cooperative association is a quasi-government a little democratic society of necessity; the proprietary lessees consent to be governed, in certain respects, by the decisions of the board. In this respect, a governing board may significantly restrict the bundle of rights a property owner normally enjoys. However, such rules and regulations adopted by a cooperative board must be reasonable and related to the care, cleanliness, safety, and general good order of the building. Garrison Apartments, Inc. v. Sabourin, 113 Misc 2d 674, 449 N.Y.S. 2d 629 (New York County 1982).
In its resolution of February, 1997, by which the board decided to limit a shareholder's ability to sublet, the board stated that its decision was based on its mortgage interest rate which would be reduced if the number of apartments being sublet were reduced. Generally, the courts will not interpose their judgments on the decisions of a cooperative board of directors if it can be shown that the board's actions fall within the dictates of the corporate business judgement rule. Levandusky, op. cit. In this instance, the board has indicated a valid financial reason for limiting its approval of subletting units. However, the evidence adduced at trial demonstrated that the number of sublessees in the building, in fact, has had no impact on the cooperative's mortgage or mortgage interest rate.
The implication of the board's action is to limit a shareholder's right to sublet to a single one year period unless undue hardship can be shown. This, argues Plaintiff, is violative of the proprietary lease.
Paragraph 19 of the proprietary lease does not limit the number of years in which a unit may be sublet. Paragraph 12 of the proprietary lease states that any change in the proprietary lease requires the approval of at least 66-2/3% of the lessees. Plaintiff maintains that the board's resolution not to permit subletting for more than one year is, in effect, a change in the proprietary lease that has not been approved by the requisite percentage of lessees. The court agrees.
From the very outset of his acquisition of the unit Plaintiff has sublet the apartment. He has continued to sublet the apartment for six years after the board resolution in question was passed. In fact, Plaintiff is only one of several lessees who have continued to sublet their units. At trial, Defendant stated that it decided to enforce the resolution in order to have fewer "strangers" in the building and because new purchasers wished to reduce the number of sublessees.
This action of the board is not authorized anywhere in the proprietary lease. By reducing the number of times a lessee may sublet, the board has changed the rights of the shareholders without first seeking approval of the shareholders as mandated by the proprietary lease. Consequently, the court finds that it would be unreasonable if Defendant withheld its consent to permit Plaintiff to sublet his apartment based on the reasons enunciated above.
In his complaint, Plaintiff asks for damages in the amount of $4480.00, representing his lost rental income. However, at trial Plaintiff admitted that he currently has no prospective sublessee, nor has he had a subtenant actually rejected by the board. Therefore, his damages are speculative and non-enforceable.
Further, because Plaintiff never in fact requested approval for a new sublease, and does not currently have a sublessee on the premises, the relief asked for constitutes a request for a declaratory judgment.
The function of a declaratory judgment is to determine justiciable controversies between parties which either are not yet ripe for adjudication by conventional forms of remedy, or which, for other reasons, are not conveniently amenable to the usual remedies. The general purpose of the declaratory judgment is to serve some practical end in quieting or stabilizing an uncertain or disputed jural relation either as to present or prospective obligations. Kreiger v. Kreiger, 25 NY2d 364, 306 N.Y.S. 2d 441 (1969). The procedures for seeking declaratory relief are detailed in section 3001 of the CPLR. Pursuant to CPLR 3001, the supreme court has the jurisdiction to render declaratory judgments. The New York City Civil Court lacks the jurisdiction to grant such relief. Buck v. Civil Court of the City of New York, 88 AD2d 597, 449 N.Y.S. 2d 774 (2nd Dept. 1982)
In the case at bar, Plaintiff has not sought to have the board consent to a sublease of his unit. At the present time he does not even have a prospective sublessee awaiting approval. Under these circumstances, the relief sought, however phrased by the parties, is in truth a request for the court to determine future obligations, i.e., a request for declaratory relief. Under these circumstances, the court must grant Defendant's motion to dismiss for lack of subject matter jurisdiction of this court.
This represents the decision of the court.