HABITAT

CO-OP/CONDO BUYERS

Surreptitious Subleasing Could Lose You Your Apartment

Lawrence H. Wertheim in Co-op/Condo Buyers

Different co-ops have different rules regarding subleases, but one thing's constant: The law's not on your side if you try to sublet without the board's knowledge. Obviously. But did you know you can get your proprietary lease terminated and your shares forfeited back to the co-op simply because you didn't following the formal approval process?

That's what happened in the 2001 New Jersey case Spiegelman v. 2100 Linwood Avenue Owners Inc. Here, the shareholder had surreptitiously sublet his apartment to several different people over the course of several years, in violation of the house rules. Afterward, however, the shareholder contacted the management office seeking permission both to sublet and to bypass the application process and the associated fees.

The board rejected these requests, and Spiegelman sued, claiming the board's actions were unreasonable. After a trial, the court found that Spiegelman was in default of his obligations under the proprietary lease, and deemed the board's actions reasonable.

During the course of the trial, the co-op initiated a claim for a termination of the lease and a forfeiture of the shares. The court allowed the co-op to bring this up as a separate case within 60 days of the termination of the trial.

What the Appeals Court Found

The first case then went to the appellate division, which affirmed the trial judge's opinion. The appeals court specifically cited the language of the trial judge, which found the shareholder to be in default of his obligations under the proprietary lease. The shareholder then sought certification from the state supreme court, which consolidated the two cases' appeals process.

The appellate division again affirmed the trial judge and the motion judges, and indicated that the law does not prohibit associations from requiring tenants to comply with properly adopted rules, and that the shareholder in this matter had failed to do so. The shareholder understood that the association required shareholders to complete standard applications and pay established fees. By failing to comply with the formal application procedure, he thereby breached the lease.

The appeals court noted that the pertinent statute makes it clear that while unreasonable restrictions are contrary to public policy, reasonable restrictions are enforceable. The court further noted that the shareholder brought his problems on himself because he failed to follow the established procedure and went ahead with subleasing his unit anyway. He then brought suit against the cooperative and forced the cooperative to incur attorneys' fees. Under the terms of the proprietary lease, the cooperative was entitled to reimbursement for those fees.

Affirmation and Attorney's Fees

The appellate division then affirmed the termination of the proprietary lease and the forfeiture of the shares, based upon the provision in the proprietary lease that sets forth the lessor's rights after a lessee's default. The court determined that once the proprietary lease is terminated as a result of a shareholder's default, the shareholder must surrender his shares to the association.

In affirming the motion judge's award of attorneys' fees, the court relied on Mulligan v. Panther Valley Property Association, wherein it quoted the court as follows: "If the community, however, is compelled to shoulder higher legal expenses because of the intransigence of a small number, we cannot consider it unfair or unreasonable for the association to seek to lessen the burden upon its other members by seeking to have the uncooperative member contribute to the attorneys' fees required to vindicate the association's rights." Accordingly, the appellate division found that the more appropriate remedy was to require the shareholder to be responsible for the attorneys' fees and disbursements incurred as a result of the shareholder's action.

Lawrence H. Wertheim is a partner in the law firm of Himelman, Wertheim & Geller , of Old Bridge, N.J.
Adapted from Habitat January 2002. For the complete article and more, join our Archive >>

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