Richard Siegler and Dale J. Degenshein in Board Operations on July 17, 2012
Bregman's understanding, however, was not reflected in any documents that she signed. In fact, the court noted that the proprietary leases she did sign specifically contained a provision requiring board authorization for subletting. Indeed, an April 14, 1972, document acknowledged Bregman would be permitted to sublet "provided the consent of the Board... is obtained." While it had language stating Bregman would have the unfettered right to sublet, it the sponsor would use "best efforts" to have the board "not unreasonably withhold" its consent to subletting. In a May 1, 1972, letter, however, the sponsor stated that it could not bind future boards.
Finally, a letter dated June 1, 1972, from the sponsor's co-op coordinator to Bregman's attorney, documented that Bregman's attorney had agreed to the final form of the purchase agreement — in which the phrase "which consent shall not be unreasonably withheld" was deleted. This phrase was added instead: "The owners will use their best efforts to have the Board of Directors not unreasonably withhold their consent to subletting [by plaintiff]."
The Swingin' '70s
After Bregman purchased, she lived in Apartment 6C for two years, during which time she renovated Apartment 10A. During the next 30 years, Bregman sublet both apartments. Bregman claimed she "occasionally" submitted information about her subtenants to the board "as a courtesy," believing her arrangement made board consent unnecessary.
On September 16, 2003, after a board member learned the amount of rent Bregman charged her subtenants, the board adopted a resolution disallowing subleasing for more than two years during any four consecutive year period without board consent otherwise.
The board okayed a sublease for Apartment 10A in August 2003. Two years later, Bregman submitted a new sublease application on that apartment. On November 21, 2005, the managing agent rejected the application, saying, "I am not to accept any sublet packages" for 10A. On February 10, 2006, the board president wrote that under the new sublet policy, the apartment would not be eligible to be sublet again until September 2007. The letter explained that for exceptions to the new sublet policy, "a shareholder must demonstrate that there are extenuating circumstances…."
Bregman asserted that she had special rights. The board requested she provide documentation in that regard. Bregman's counsel responded and questioned the board's reliance on the resolution for its rejection of the application.
When the board took no further steps, Bregman brought this action, calling the board's denial arbitrary and capricious and not a proper exercise of any legitimate business judgment, among other points.
This Action Is Sponsored by....
In July 2010, Bregman retained new counsel, who unsuccessfully tried amending the action to claim interference with ownership rights and to assert that the original board had assumed the contractual obligations of the sponsor, including her perpetual subletting rights. Bregman offered a letter dated February 2, 1983, from the board's counsel stating that, "In view of the arrangements made at the time the building went cooperative and you purchased two apartments on condition that you... be permitted to sublet same, we have investigated your proposed subtenant... and find him suitable."
Bregman also submitted an affidavit on May 8, 2007, from the same counsel, now deceased, stating that he was a principal of the sponsor at the time of the conversion and saying the board at the time of purchase acknowledged it would follow the sponsor's agreement with.
The court, however, found nothing in the documents supporting an unfettered right to sublet. Even if the court could have relied on the 1983 letter and the 2007 affidavit, the documents did not sufficiently support Bregman's claims. In fact, the court noted, they lacked any indication that the sponsor had the ability to bind the board.
The court also reviewed Business Corporation Law Section 501(c) and concluded this statute precluded any special subletting rights. The court also explained that while boards could not single out a shareholder for disparate treatment, if it became aware of a situation that was contrary to the interests of the co-op, it had the right to adopt a resolution to address that situation.
Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan. Dale J. Degenshein is a special counsel for that firm.
Illustration by Liza Donnelly
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