It’s not uncommon for co-op boards to pursue the ultimate remedy in disputes with a shareholder by terminating the proprietary lease. But as Tomfol Owners Corp. v Hernandez illustrates, boards had best be careful to follow all of the proper steps.
In 2006, Ismael Hernandez purchased a co-op apartment in the East Village. According to the board, from April 2018 to February 2019, Hernandez and/or his guests engaged in objectionable conduct, including four incidents of drug use in public areas and four incidents of stolen packages. In February there was also a fire in Hernandez’s apartment that damaged his apartment as well as some adjacent apartments. A fire department incident report stated that a smoke detector had alerted the occupants, but they failed to respond, and that there was a delay in reporting the fire. According to the board, the tenant and a friend were so intoxicated that they had to be dragged out of the apartment by the responding firefighters.
The next month, on March 19, a 30-day notice of default was issued and served on Hernandez. It listed all of the conduct noted above and demanded a cure within the 30-day period. On April 23, another fire incident report stated that the February fire was caused by an electrical writing insulation problem in Hernandez’s ceiling. On May 7, the board sent out a 15-day notice to cure which listed the same allegations as those listed in the prior notice, and provided that if the defaults were not cured within 15 days, the co-op would commence proceedings to terminate the lease.
Two months later, the board gave notice to all shareholders that a special meeting would be held at which they would vote to determine whether the behavior of Hernandez and his visitors was objectionable. The shareholders voted that it was and that the lease should be terminated. A five-day notice was sent, reflecting the allegations of the two prior notices and requiring Hernandez to vacate the apartment and surrender possession.
In October 2019, an eviction action was brought by the board based on the provisions of its proprietary lease, which provided that an affirmative vote of shareholders owning two-thirds of all shares could deem a tenancy undesirable based on objectionable conduct by the lessee. This clause, common in all proprietary leases, is sometimes referred to as the Pullman provision. It is named after the tenant who was involved in the landmark 2003 case that established the guidelines for how and when the right to terminate a proprietary lease is available to a co-op board when a tenant exhibits objectionable behavior.
A paragraph in the Tomfol Owners Corp. proprietary lease stated that repeatedly violating or disregarding the rules would be deemed to be objectionable conduct if such conduct continues after a 15-day notice to cure. [If not cured, the lessor would send a second notice stating that the lease will be terminated at the end of an additional 5 days].
The co-op made a motion for summary judgment, which is typical when a Pullman action is brought. This is because under the so-called business judgment rule, courts will not second guess the decisions of a board — unless it acted outside the scope of its authority, in bad faith or did not legitimately further the co-op’s interests. After reviewing the facts, the court not only denied the co-op’s motion for summary judgment, but dismissed the eviction claim altogether.
The court had little choice, since the lease provided that once there was a vote of the shareholders deeming the tenancy undesirable due to objectionable conduct, the co-op had to send a notice of default. However, the lease provided that conduct is deemed objectionable only “if it continues after the … 15-day notice of default.” The problem was that Hernandez did not reside in the building after February 17, 2019 (due to the fire), and thus the conduct alleged in the 15-day notice sent in May did not (and could not) continue within the 15 days following service of that notice. Therefore, his conduct would not be “objectionable” within the meaning of the lease. The court held that by bringing the case without following the precise language of the lease, the board acted outside its authority. The decision was appealed, and the Appellate Division agreed with the lower court that the eviction action should be dismissed.
It should be noted that although the eviction action in this case was unsuccessful, it was rejected for technical reasons. It’s extremely important to remember that eviction is an extreme and drastic remedy, and that every step required by the lease must be followed. Even today, some 20 years after the Pullman decision, lawyers are very careful when they attempt to evict a shareholder based upon objectionable behavior. Following every step outlined in the lease, and even going beyond the requirement to establish that there was no bad faith involved in the process, is essential to winning a Pullman eviction action.