New York Law Review

Tag: Co-operative Conversion

  • Consolidated Edison Co. of New York, Inc. v. 10 West 66th Street Corp., 61 N.Y.2d 341 (1984): Corporate Tenant’s Right to Purchase Co-op Shares

    Consolidated Edison Co. of New York, Inc. v. 10 West 66th Street Corp., 61 N.Y.2d 341 (1984)

    A corporate tenant qualifying as a “tenant in occupancy” under the Rent Stabilization Code has the right to purchase co-op shares allocated to its apartment, even if the co-op plan restricts purchases to individuals and the apartment is not the corporation’s primary residence.

    Summary

    Consolidated Edison (Con Ed), a corporate tenant, sought to purchase co-op shares for an apartment it leased for its directors and guests. The co-op conversion plan limited purchases to individuals for personal occupancy. Con Ed, as a “tenant in occupancy” under the Rent Stabilization Code, argued it had the right to purchase. The New York Court of Appeals held that Con Ed, as the tenant of record, possessed the exclusive right to purchase the shares, notwithstanding the plan’s restrictions or the apartment not being a primary residence. The court emphasized that the General Business Law provides tenants in occupancy the right to purchase and the co-op plan could not override this statutory right.

    Facts

    Con Ed leased an apartment for its directors, officers, and guests in a building owned by Park Ten Associates. The lease, last extended in September 1979, was rent-stabilized. Park Ten filed a co-op conversion plan which stated that each tenant in occupancy had the exclusive right to purchase, but also limited share offerings to individuals for personal occupancy. Con Ed submitted a subscription agreement to purchase the shares, which Park Ten rejected based on the individual occupancy restriction.

    Procedural History

    Con Ed sued Park Ten and the co-operative corporation to compel the completion of the subscription agreement. Special Term granted summary judgment to Con Ed. The Appellate Division reversed, holding that a tenant without the capacity to compel lease renewal is not a bona fide tenant in occupancy. The New York Court of Appeals then reversed the Appellate Division and reinstated the Special Term’s judgment.

    Issue(s)

    Whether a corporate tenant, qualifying as a “tenant in occupancy” under the Rent Stabilization Code, is entitled to purchase shares in a co-operative conversion, despite plan restrictions limiting purchases to individuals for personal occupancy, and the apartment not being the corporation’s primary residence.

    Holding

    Yes, because the General Business Law grants tenants in occupancy the exclusive right to purchase their dwelling units or the allocated shares, without distinguishing between individual and corporate tenants. The co-op plan’s restriction is inconsistent with this legislative direction.

    Court’s Reasoning

    The Court of Appeals relied on Section 352-eeee (subd 2, par [d], cl [ix]) of the General Business Law, which states that “tenants in occupancy on the date the attorney general accepts the plan for filing shall have the exclusive right to purchase their dwelling units or the shares allocated thereto.” The court noted the absence of a definition of “tenant in occupancy” that excludes corporations in the General Business Law, Rent Stabilization Law, or Rent Stabilization Code. The court also cited McKinney’s Unconsolidated Laws § 8605, highlighting that a landlord must seek decontrol of a premises based on non-primary residence before offering a co-op plan. The landlord’s failure to do so, and their subsequent renewal of Con Ed’s lease, cemented Con Ed’s rights as a tenant in occupancy. The court dismissed the co-op plan’s restriction to individual purchasers as inconsistent with the General Business Law. The court also found unpersuasive the argument that Internal Revenue Code Section 216 necessitated individual tenant shareholders, citing Richards v. Kaskel, 32 NY2d 524, 540. The court emphasized that the statutory right of a tenant in occupancy to purchase cannot be restricted by the sponsor’s offering plan. The court stated, “[T]enants in occupancy on the date the attorney general accepts the plan for filing shall have the exclusive right to purchase their dwelling units or the shares allocated thereto…which makes no distinction between individual and corporate tenants.”

  • Park East Apartments, Inc. v. 233 East 86th Street Corp., 60 N.Y.2d 644 (1983): Interpreting Tenant Purchase Requirements in Co-op Conversions

    Park East Apartments, Inc. v. 233 East 86th Street Corp., 60 N.Y.2d 644 (1983)

    In co-operative conversions under the Rent Stabilization Law and Code, the declaration of effectiveness requires purchase agreements from at least 35% of all tenants in occupancy, including those in rent-stabilized and rent-controlled apartments.

    Summary

    This case concerns the validity of a co-operative conversion plan for Alwyn Court. The central issue was whether the sponsor met the 35% tenant purchase requirement under the Rent Stabilization Law and Code when filing the declaration of effectiveness. The New York Court of Appeals held that the 35% requirement must include tenants in both rent-stabilized and rent-controlled apartments. Because the sponsor failed to meet this requirement, the declaration of effectiveness was annulled. The decision emphasizes a strict interpretation of the law to protect tenants during co-op conversions.

    Facts

    The 233 East 86th Street Corp. sought to convert Alwyn Court into a co-operative. The Attorney-General accepted the filing of the declaration of effectiveness of the eviction plan for cooperative conversion. Park East Apartments, Inc., representing tenants, challenged the validity of the conversion, arguing that the sponsor had not met the required 35% tenant purchase threshold. The dispute centered on which tenants should be included in the base for calculating the 35%.

    Procedural History

    The case originated in the Supreme Court. The Appellate Division reviewed the Supreme Court’s decision and later granted leave to appeal to the Court of Appeals, although it did not express an opinion on the critical issue of the 35% requirement. The Court of Appeals then heard the case to resolve the dispute.

    Issue(s)

    Whether, on the date the declaration of effectiveness of the eviction plan for co-operative conversion was filed, a sufficient number of tenants in occupancy of Alwyn Court had agreed to purchase their residential apartments to warrant the declaration’s effectiveness under the Rent Stabilization Law and Code, specifically regarding the base group for calculating the 35% requirement.

    Holding

    No, because the 35% threshold for tenant purchase agreements must include all residential apartments in the building, encompassing both rent-stabilized and rent-controlled units. The sponsor failed to meet this requirement.

    Court’s Reasoning

    The Court of Appeals focused on interpreting Section 61(4)(a) of the Code, which states, “In establishing a base for computing the required 35 percent all residential apartments in the building shall be included”. The court interpreted this sentence to mean that the base must include all tenants in occupancy of residential apartments, regardless of whether they are subject to rent stabilization or rent control. The court acknowledged inconsistencies in the Attorney-General’s interpretations and a lack of clarity in the law and code sections. However, it concluded that a strict interpretation was necessary. The court stated that the quoted sentence should be read as “mandating at least that there be agreements to purchase on the part of 35% of the tenants in occupancy of all residential apartments in the building, including apartments subject to rent stabilization and apartments subject to rent control.” Since the sponsor did not meet this requirement, the court found the declaration of effectiveness invalid. The court also noted that the enactment of chapter 555 of the Laws of 1982 largely resolved these issues for the future, making it unnecessary to address other questions raised by the parties. The practical impact of this decision is that sponsors of co-op conversions must accurately calculate the 35% requirement, including all tenants, to ensure the validity of their conversion plans. This protects tenants’ rights and ensures compliance with the Rent Stabilization Law and Code.

  • Richards v. Kaskel, 36 N.Y.2d 524 (1975): Enforceability of Co-op Conversion Plans Under Rent Stabilization Laws

    Richards v. Kaskel, 36 N.Y.2d 524 (1975)

    A co-operative conversion plan can be challenged in court if the sponsor used misrepresentations to achieve the required tenant approval, potentially invalidating the plan and protecting tenants under rent stabilization laws.

    Summary

    This case addresses the enforceability of a co-operative conversion plan under New York City’s Rent Stabilization Law. Non-purchasing tenants challenged the conversion, alleging the sponsor misrepresented the level of tenant approval to induce further purchases. The Court of Appeals held that tenants can challenge the validity of a co-op conversion plan if it was achieved through misrepresentations, and that a class action is appropriate in such cases. This ruling emphasizes the importance of fair dealing and good faith by co-op sponsors, protecting tenants from deceptive practices designed to circumvent rent stabilization laws.

    Facts

    The Estate of Alfred L. Kaskel, as sponsor, proposed a co-operative conversion plan for an apartment building. The plan required 35% of tenants to purchase shares to become effective. After initial slow sales, the sponsor offered several inducements, including a buy-back option. When the initial deadline passed without reaching 35%, the sponsor extended the deadline by two days. In those two days, a significant number of tenants signed purchase agreements. The tenants later claimed these sales were secured through misrepresentations by the sponsor’s agents regarding the plan’s approval status.

    Procedural History

    The tenants brought a class action in the Supreme Court seeking a declaratory judgment that the co-op plan was improperly declared effective. The Supreme Court found the sales on the extended days were tainted by false statements and ruled in favor of the tenants. The Appellate Division modified the judgment, declaring the plan properly effective and disallowing the class action. The Court of Appeals reversed the Appellate Division’s decision and reinstated the Supreme Court’s judgment.

    Issue(s)

    1. Whether a co-operative conversion plan can be invalidated if the sponsor obtained the requisite tenant approval through material misrepresentations.
    2. Whether a class action is appropriate for non-purchasing tenants challenging a co-operative conversion plan based on allegations of misrepresentation.

    Holding

    1. Yes, because tenants have the right to challenge the methods by which purchase agreements were procured, and the plan’s effectiveness can be invalidated if those agreements were obtained through misrepresentations.
    2. Yes, because the issue of whether the co-op plan was wrongfully declared effective is a question of common interest affecting all non-purchasing tenants, making a class action appropriate.

    Court’s Reasoning

    The Court of Appeals reasoned that co-operative conversion plans are subject to judicial supervision to prevent frustration of rent control policies. Quoting People ex rel. McGoldrick v. Sterling, 283 App. Div. 88, 96, the court emphasized that “co-operative apartment plans are subject to [judicial] supervision if their effect may be to frustrate the policy of the State in controlling maximum rents and evictions.” The court found substantial evidence that the sponsor’s agents misrepresented that the plan had already reached the 35% threshold, inducing tenants to purchase shares out of fear of eviction. The court noted that tenants testified they would not have purchased if not for these misrepresentations. The court further emphasized that promoters of co-operative schemes are held to “the most rigid standards of fair dealing and good faith toward tenants” (quoting Gilligan v. Tishman Realty & Constr. Co., 283 App. Div. 157, 162). Because the sponsor failed to rebut the evidence of misrepresentation, the court concluded the sales during the critical two-day period should not be included in calculating the 35% approval. The Court distinguished this case from fraud cases requiring individual reliance, emphasizing that the focus was on the sponsor’s conduct and its impact on the validity of the co-op plan, not individual damages. The Court reasoned that all non-purchasing tenants were injured in the same way by the sponsor’s actions, making a class action appropriate.