New York's Cooperative and Condominium Community
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When a sweetheart lease is transferred, the board should look for new opportunities.
Eventually any commercial tenant with a sweetheart lease will need and benefit from a cooperative relationship with its landlord – the co-op.
Brill & Meisel, Partner
Allen H. Brill
The client’s tale. We represent a loft building that was converted to a residential co-op in the late 1970s. As part of the conversion, the commercial space, which included four movie theaters that made up the Quad Cinema, was retained by the sponsor under a long-term lease on very favorable terms. Over the years, the normal operations of the Quad produced a pronounced negative impact on the residential apartments. Large air handling and condenser units caused the walls and floors to vibrate while the sound of the movies traveled unimpeded to neighboring apartments. There was talk of fixing the problems, but without a lawsuit, the co-op had little leverage.
The tenant-owner of the commercial space advised the co-op that it was negotiating to sell and transfer its lease to a group that planned to remodel the theaters and continue their operation. Members of the co-op saw this as an opportunity to address longstanding issues and build a mutually beneficial relationship with the new theater owner.
The co-op’s president, board members, and affected residents formed a committee and, with our assistance, developed a plan to ensure that adequate repairs and remediation would be undertaken while not delaying the transaction.
The tenant-owner and the prospective purchaser agreed to hire acoustical and structural experts to prepare condition reports with recommendations, oversee the remediation work, and recommend fixes should the initial work fail to correct the problems. Both parties also agreed to address security and access issues to the elevator and basement space used by the commercial tenant. Finally, to have a smooth transfer process, the purchaser agreed to accommodate the needs of one of the resident-owners most affected by the noise and vibrations. As a performer scheduled to open in a Broadway play in the late fall, she needed a quiet living/working space for several months. At our direction, the purchaser agreed to schedule outside work in the early fall and postpone interior renovations to the following spring.
The lawyer’s take. While the terms of a sweetheart commercial lease in a co-op are unlikely to permit the co-op, as landlord, to have any meaningful effect on the use or operations of the commercial space, eventually the commercial tenant will need and benefit from a cooperative relationship with its landlord, as happened here, in connection with a sale and assignment.
Case closed. These are long-term relationships, and our work is often most effective when cooperating is made a priority and negotiating is the means.
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