Imagine a small, self-managed co-op. All of the shareholders pitch in, doing everything from mopping floors to dealing with brokers and lawyers. Then a shareholder dies. Two years later, the apartment is still empty. Financially, this is not a problem for the co-op, since the estate pays the maintenance.
But the shareholders are unhappy. They’re part of a community, and they want someone living in that apartment – and also helping in the upkeep and management of the property. The estate is dragging its feet on either selling the unit or installing a new resident. Can the co-op – which has a residency clause in its proprietary lease – force the estate to sell?
“The residency clause is the first thing that could create a potential lever for the co-op to take action,” says attorney Ken Jacobs, a partner at Smith, Buss & Jacobs. “The real intent of a residency clause is to avoid somebody subleasing [the apartment] or using it as a pied-à-terre. Until somebody actually moved in, like the executor or a relative of the deceased, you couldn’t claim that there was a violation of the residency clause. It’s what you have to live with when you’re winding up an estate.”
If the apartment is sold, the co-op must then face the possibility that the new shareholder is unwilling to contribute to the upkeep of the property. “Are any of these obligations in the bylaws or the proprietary lease?” asks Jacobs. If residents’ responsibilities are not laid out in the governing documents, a shareholder’s refusal to participate is not legal grounds for a complaint. “It appears that the real issue is they want another body,” Jacobs says. “I would be focusing on imposing additional obligations, either by amending their occupancy agreement or proprietary lease, or possibly imposing a house rule.” An amendment to the lease is the best option. If the entire building votes on such an amendment, says the attorney, “essentially it’s a community contract, as opposed to a regulation that appears to be directed against one shareholder.”