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Did a Board Have Authority to Create a Sublet-Fee Bylaw Without Owners' Vote?

Frank Lovece in Legal/Financial on October 3, 2014

136 Greene Street, SoHo, Manhattan

136 Greene Street, SoHo, Manhattan
136 Greene Street, SoHo
Oct. 3, 2014

Thomas Campaniello was a commercial tenant-shareholder at 136 Greene Street, in the tony SoHo neighborhood. Around August 2010, about four years after he started there, Campaniello wanted to sublet his space for $60,000 a month. Fine, said the board —which under the bylaws could not "unreasonably" withhold permission. Just pay us the 10 percent monthly sublet fee and we're good.

Campaniello objected to that, as well as to the board's claimed $3,000 attorney's fees to grant permission. The bylaws didn't authorize a sublet fee, he said, and he refused to pay one. So on October 28, 2011, the board presented Campaniello with a "notice to cure" (i.e., cough up the dough) or vacate the premises within 30 days. In response, he sued the board.

Authorized?

Now, the board did have a sublet fee approved by a bylaw amendment in 1979. Campaniello wasn't arguing that the board didn't intend to have a sublet fee — only that it wasn't authorized to do so under the co-op's certificate of incorporation, making the bylaw was unenforceable

Judge Paul Wooten of State Supreme Court in Manhattan analyzed that the co-op's proprietary lease provided that any consent to subletting "may be subject to such conditions as the Directors … shall impose" and that it further said:

"These By-Laws may be amended, enlarged or diminished either (a) at any shareholders' meeting by vote of shareholders owning two-thirds of the amount of outstanding shares ... provided that the proposed amendment or the substance thereof shall have been inserted in the notice of meeting or that all of the shareholders be present in person or by proxy, or (b) at any meeting of the Board of Directors by a majority vote, provided that the proposed amendment or the substance thereof shall have been inserted in the notice of meeting or that all of the directors are present in. person, except that the Board of Directors may not repeal a By-Law amendment adopted by the shareholders as provided above."

At a meeting in 1979, a majority of the board indeed passed such an amendment, the court found. In fact, Wooten noted, "[T]his broad language in the proprietary lease clearly gives the cooperative the right to collect and impose sublet fees even without a shareholder vote."

Reasonable Fee

As for the attorney's fee, he said, "The original By-Laws provided that upon the transfer of or subletting of any lease, 'the Board of Directors has the authority to fix and assess a reasonable fee to cover actual expenses and attorneys' fees of the Corporation in connection with such a transaction ... '"

In fact, not to put too fine a point on it, "The Court agrees with the defendants that plaintiff's arguments are without merit." It makes you wonder why this lawsuit went as far as it did.

 

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