Phillips Nizer, Partner
Marc A. Landis
The client’s tale. The board of directors of a co-op corporation was pleased to learn that a resident-shareholder in good standing was interested in purchasing another apartment that had been on the market for some time. The shareholder entered into a purchase agreement, her financial condition was satisfactory to the board, and she sailed through her admissions interview with her long-time neighbors.
There was only one catch. The building’s proprietary lease contains a requirement – reinforced by provisions in the corporation’s underlying loan documents as well as applicable governmental regulatory authority – mandating that apartments must be occupied as a “primary residence.” The definition of primary residence is detailed in the applicable legal documents, and it is impracticable, if not impossible, for the shareholder to meet this standard for two apartments at the same time.
Our law firm, which serves as the corporation’s counsel and transfer agent, received a copy of the purchase agreement and identified the purchaser as an existing shareholder. We contacted the corporation’s board of directors. The members had not realized that the primary residence requirement might derail this otherwise desirable transaction.
Thankfully, all parties were committed to completing the sale and were willing to work together to ensure that it would not result in a breach of the corporation’s legal obligations. The board and the purchaser also understood that the transaction could not be allowed to serve as a precedent to override the proprietary lease requirements.
We crafted a supplemental agreement, which served as a notice of default to the shareholder, and set forth a plan to cure the default by constructing a strict requirement for the shareholder to sell one of the apartments by a certain date. If she fails to meet that requirement, the co-op corporation will be appointed to sell the apartment on her behalf and at her expense.
The lawyer’s take. Co-op and condo boards, like other consumers of legal services, are concerned about escalating and unpredictable legal costs. Our lawyers have responded to this concern by offering alternative billing arrangements that give boards the comfort of predictable legal fees, while assuring boards and managing agents that it is a sound business decision to “run it by the lawyer” before taking action.
Case closed. As always, the board should not be reluctant to consult with counsel whenever dealing with any situation that might be out of the ordinary. Often, the corporation’s attorney will be familiar with the requirements in the building’s governing documents and able to provide prompt and cost-efficient advice.