In DeSoignies v. Cornasesk House Tenants’ Corp., the court upheld a co-op board’s absolute right to control subletting as provided in the co-op’s proprietary lease, although subletting rules adopted by the board that limited the right to sublease and imposed a surcharge were held to be an impermissible amendment of the proprietary lease requiring shareholder approval.
In 1972, 1973, and 1980, DeSoignies purchased the shares allocated to three co-op apartments at 238 East 84th Street, a building owned by the co-op. She never lived in any of the apartments and had subleased them for over 25 years. DeSoignies claimed that before this litigation, she uniformly submitted applications to the board of directors before entering into sublet agreements. For example, in July 1997, DeSoignies sublet Apartment 2B for one year, with the board’s approval. That subtenant remained in possession of Apartment 2B as a month-to-month tenant. In March 2001, DeSoignies sublet Apartment 113, also with the board’s approval, and thereafter extended that subtenancy for an additional year. In January 2000, DeSoignies sublet Apartment 5A for one year, with the co-op’s approval. This subtenancy was extended for a period of time on a month-to-month basis. DeSoignies sublet Apartment 5A on May 25, 2002, to another subtenant without the board’s approval and, similarly, sublet Apartment 1B without board approval on October 23, 2002.
On August 1, 2001, the board adopted new subletting rules, effective January 1, 2002. Among other things, the 2002 rules restricted the subletting of apartments to two of every four years and imposed a 10 percent surcharge on every sublet. DeSoignies was served with 10-day notices to cure for the three apartments in May 2002, alleging that she was in violation of the proprietary leases in that she had sublet the apartments without the co-op’s consent.
DeSoignies began the action in June 2002, seeking a declaration that she had an unconditional right to sublet the apartments based on a December 11, 1972 letter she received from the chairman of the co-op board. That letter stated: “This will confirm our conversations whereby we stated that the shareholders of the Cornasesk House Tenants Corporation are allowed to sublet unconditionally their apartment(s) for the duration of their ownership.”
Both parties moved for summary judgment. In support of its motion, the co-op argued that the actions of a co-op board are protected by the Business Judgment Rule. Also, the co-op asserted that the 1972 letter conflicted with the provisions of the proprietary leases, and violated Business Corporation Law, Section 501(c). Paragraph 15 of the proprietary leases states: “ ... the Lessee shall not sublet the whole or any part of the Apartment or renew or extend any previously authorized sublease, unless consent thereto shall have been duly authorized by a resolution of the Directors, or given in writing by a majority of the Directors or, if the Directors shall have failed or refused to give such consent, then by lessees owning at least 65% of the then issued shares of the Lessor.... There shall be no limitation on the right of Directors or lessees to grant or withhold consent, for any reason or for no reason, to a subletting.”
However, the court determined that, to the extent the 2002 rules limited subleasing to two out of four years and imposed a 10 percent surcharge on sublets, they were invalid. On that issue, the court stated: “Paragraph six of the leases provides that the ‘form’ of the lease cannot be changed unless the change is authorized by 75 percent of the lessor’s shares then issued.”
Article 5.01 of the bylaws, entitled “Form of Lease,” included subletting. Article 5.04, “Fees on Assignment,” which also included subletting, stated that the board may impose “the proper fees of its attorneys and managing agent for services in connection therewith.” There was no provision for a surcharge. The court found that the 2002 rules, to the extent that they restricted the subletting of apartments to two (out of four) years and imposed a 10 percent surcharge on subletting, represented an unauthorized change to the form of the leases and were in violation of paragraph six of the leases and Articles 5.01 and 5.04 of the bylaws.
However, paragraph 15 of the proprietary leases accorded the co-op board discretion to withhold consent to any sublease for any reason or no reason at all. This language afforded the board unfettered rights with respect to consideration of sublet applications and, unless there was a showing of a breach of fiduciary duty, the Business Judgment Rule precluded judicial inquiry into the reasonableness of its decisions. According to paragraph 15 of the proprietary lease, any tenant whose application had been denied by the board had the right to obtain approval of a sublet by seeking the consent of “lessees owning at least 65 percent of the then issued shares of the lessor.” This option was not pursued.
Comment: This case illustrates the ongoing conflict between a board’s power to enact house rules and shareholders’ rights to control fundamental changes that amount to a proprietary lease amendment requiring shareholder approval. It suggests that rule-making may be counterproductive when subletting requests can be reviewed and approved on a case-by-case basis without a lease amendment.
May a condominium unit owner install a satellite dish on a patio adjacent to the unit that was a limited common element? In Board of Managers of Holiday Villas Condominium I v. Bautista, the question was answered in the negative, despite federal legislation that was designed to encourage the reception of television broadcast signals.
The defendants owned premises at 8 Lynn Court on Staten Island, and, as such, were members of the plaintiff condominium and subject to the bylaws, covenants, and restrictions affecting that development and premises. As the unit-owner, the defendant physically acquired title to the “area enclosed horizontally by the unexposed faces of the dry walls forming the exterior walls of the unit and vertically by the upper face of the sub-floor of the unit to the unexposed face of the dry wall forming the ceiling of the unit.” In other words, the defendant did not acquire any title to exterior portions of the unit. Those areas remained with the condominium, as a common element. The board alleged that Ruel Bautista installed a satellite dish on the patio in front of the premises without the consent of the condominium board. It was conceded that the patio area was part of the common elements, but was designated as a limited common element and assigned to the defendants by the terms of the covenants and restrictions filed when the condominium was formed.
The board’s witness, its managing agent, testified that in August 1999 the board put into effect a “house rule” that permitted unit-owners to install exterior antennas and satellite dishes on the common elements. Prior to that date, all such installations were prohibited. The board rule included an “installation agreement,” to be signed by the unit-owner, that specified, among other things, that the satellite dish could not be larger than 18 inches in diameter and must be installed on the upper roof of the building. The managing agent testified that in May 2001, while making an inspection of the property with members of the condominium board, he observed a satellite dish on the defendants’ patio.
Bautista testified that he indeed had a satellite dish that he had purchased and installed in 1997. The size of the dish was roughly 33 inches in diameter. He stated that he required a “dish” of that size in order to receive broadcasts from his native country, the Philippines. Bautista asserted that, in 1997, he contacted the condominium board to request that the “dish” be placed on the roof. The condominium denied his application because they felt the “dish” was too big for the roof. Bautista did not have a copy of his written request in that regard nor the condominium’s response. The current managing agent had no record of the correspondence either, as it was not representing the condominium at that time.
The managing agent also testified that, starting in June 2001, letters were sent to the defendants asking them to remove the satellite dish from the patio as it was in a common area and had not been approved by the condominium board. Defendants ignored these requests and in December 2003 the board began assessing a weekly penalty of $100. These fines continued to be assessed and the plaintiff contended that a total of $6,700.00 was due though March 31, 2005. In addition, Bautista sought to be reimbursed for attorney’s fees incurred as permitted in the bylaws and house rules.
As the defendant resided in a condominium, the court said that the bylaws, rules, and regulations provided a method for the members of the condominium to amend those documents. Bautista had not shown that he made any attempt to bring the issue before the other unit-owners and amend the bylaws to permit the installation of satellite dishes and other telecommunication devices. Since a condominium is just about as close as possible to the heralded direct democracy of ancient Athens or the New England town meeting, the court said that it seemed safe to conclude that, prior to asserting that the board had acted in violation of the law or Bautista’s rights, Bautista should have at least exhausted the remedies available to him under the bylaws of the condominium.
The court held that Bautista was premature in seeking to have the court system intervene in the situation without having exhausted the remedies available to him under the condominium bylaws or establishing that such a process would be futile. There was no showing that he made any attempt in that regard and therefore even if the action had been commenced within the limitations period, it would have to be denied.
The condominium board was entitled to a judgment in the amount of $505 representing fines for failing to remove the satellite dish for the months of December 2003 through April 2005 at $25 a month and late charges of $5 a month for December 2003 through March 2005. In addition, the condo was entitled to recover legal fees to be established by an affirmation from counsel.
Bautista’s claim that a federal statute (the “Preemption of Restrictions That Impair the Ability to Receive Television Broadcast Signals, etc.” ) was applicable to the facts of the case was denied on the grounds that Bautista had failed to establish that he had exclusive control of the patio area where the satellite dish was installed. As such, the court held that Bautista had the choice of (a) removing the satellite dish or (b) installing one of smaller size in the location assigned by the condominium board.
Comment: While the federal government may be seeking to facilitate the transmission of TV signals, the legislation to achieve this result limits the right of a subscriber to install a satellite dish to areas under the exclusive control of the subscriber. The law seeks to balance the right of the subscriber to receive the signal with the right of the condominium to control the use of common areas for the benefit of all unit-owners.