A Cooperative is Permitted to Treat a Single Shareholder Differently

Well...That actually is not the law. As a general matter cooperatives are free to exercise their business judgment in passing rules and regulations governing the operation of their buildings and Courts are not permitted to substitute their judgment for that of the cooperative's governing boards. An exception to this rule is when a cooperative board treats a shareholder differently than the other shareholders in the subject building. In other words, a cooperative board can pass rules that deal with the behavior of a single shareholder but the cooperative board may not deliberatively single out individuals for harmful treatment. The Appellate Division recently released a decision that walks the line between a situation where the cooperative board seems to have it out for an individual shareholder and a situation where the board passes a rule to deal with a situation in need of remedy. The case is Bregman v. 111 Tenants Corp., 2012 N.Y.Slip Op. 03545 (1st Dept. 2012).Cornelia Sharpe Bregman was a rent control tenant in 1972 when the owner of the building wanted to convert it to a cooperative. Without enough interested purchasers the owner approached Ms. Bregman and asked her to purchase a penthouse apartment. She agreed with the understanding that she would be able to sublet the penthouse apartment and her own apartment because she could not live in both places. The lawyers sent the purchasing documents back and forth and eventually entered into an agreement in which it was agreed that she could sublet the apartments so long as she received the consent of the Board. For the next 30 years (that's right - 30 years!) she sublet both apartments. Occasionally she would notify the Board of her sublets but never formally sought consent. In 2003 one of the members of the Board learned how much Ms. Bregman was earning by subletting her apartments. That Board member decided that a resolution needed to be adopted preventing anyone from subletting an apartment for more than two years in any four year period. Ms. Bregman sued claiming that this resolution was specifically directed to her. A lawsuit was born. Ms. Bregman claimed that the Board acted improperly by singling her out due to the profits she was earning subletting her apartment - as she had done for the previous 30 years. Her claims were particularly validated because when the managing agent received her latest sublet information he rejected it explaining that he had been directed by the Board to reject all sublet applications from her. The Appellate Division held that the Board was permitted to single Ms. Bregman out for this treatment. While acknowledging that the conduct seemed geared toward her the Court held that because the Board retained the right to deny any sublet for any reason or no reason, Ms. Bregman could not complain that she was being singled out. Any other shareholder could be treated the same way she was being treated. This decision is a bit surprising to the author because Ms. Bregman's attorney apparently did a capable job of connecting the dots and showing that the Board was acting solely in response to Ms. Bregman - and that Ms. Bregman was then the only person impacted by the Board's conduct. Yet, it seems that Courts continue to be reluctant to substitute their judgment for that of any cooperative board. A lesson to be learned - if you choose to buy a cooperative you can enjoy community and cooperative living.....But...You could also be subject to the arbitrary whims of the Board.