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Boards need to prioritize when shareholders are complaining about a specific resident.
AUTHORSteven R. Wagner, Partner, Wagner Berkow
PAGE #p. 55
Boards need to take complaints seriously, but also allow for a settlement with a badly-behaved shareholder.
There was pot smoke coming out of an apartment, needles in the backyard, music playing at 4 in the morning at sound levels that shook the walls. The board was very busy with several other items and then, remarkably, there was a claim by a guest in the apartment that there was a rape. That was the catalyst for action.
The board members told me about the situation and asked what they should do. I ran through the usual possibilities and recommended that they bring a holdover proceeding, which is where the lease is terminated and they kick the tenant out. It’s an aggressive move. They followed my advice.
This type of case utilizes the 2003 40 West 67th Street v. Pullman decision in which New York’s highest court handed down a ruling upholding a co-op board’s decision to terminate a shareholder’s proprietary lease and to cancel his stock in the co-op. In employing it, a hearing is held before the board. It’s actually a mini-trial, in which the tenant-shareholder is given an opportunity to defend him- or herself, with or without counsel.
We had a stenographer and we presented witnesses to the board, which then decided whether or not that person should be evicted. There’s a bit of preparation involved, but by doing that, the courts will usually say, “If this has been done already and done properly – giving the person notice and an opportunity to be heard – then the court will follow the Business Judgment Rule and not substitute its decision over the board’s.”
It played out quite well. When the shareholder showed up for the hearing, he claimed not to realize how serious the matter was and had no witnesses, but he sat there a while. Multiple tenant-shareholders came in and presented evidence, which was a lot easier because it was done in the building in the evening and not in the courthouse during the day, and the testimony before the board was certainly before a much friendlier crowd than you might get with a judge. Ultimately, his family became involved and was willing to step in and take responsibility for the apartment. The family asked that the objectionable tenant-shareholder be allowed to move out, and requested the board just to allow them to renovate the apartment and to sell it at a fair price – which formed the basis for the settlement.
The board shouldn’t wait and didn’t have to wait. The members were concerned that people wouldn’t want to get involved, but when you have an objectionable tenant and allegations of serious objectionable conduct, people do want to say something and help correct the situation. In this case, correcting the situation meant getting rid of this tenant, so people came forward.
The board’s concerns about being too busy, about not having enough support to do this, about being criticized for throwing somebody out of the building – even though the person was a terrible tenant-shareholder and neighbor – actually worked out well. And the co-op got paid its fees, which was the final concern.