Adam Bulger in Legal/Financial
The 2002 New York state case 40 West 67th Street vs. Pullman gave co-op boards the right to evict disruptive shareholders. It’s not an easy process. To ensure that shareholders get fair treatment, courts closely scrutinize board action leading up to an eviction. As corporations, boards are bound by the Business Judgment Rule and need to prove they acted in good faith, within their authority, and in the best interest of the shareholders.
When complaints arise, the board and building management should investigate the troublesome tenant and also speak with the person lodging the complaint. Mark Levine, a principal in the management company EBMG, says gathering information from both parties often points to a solution. For example, if noise is the problem and house rules call for 80 percent carpeting throughout the apartment, the manager should make sure the offending unit’s floors are sufficiently covered.
While it’s often difficult to judge “he said, she said” accounts, it’s critical for boards and management to get at the truth.
“You need to prove it, and that’s the hard part,” says attorney Stuart Saft, a partner in the firm Holland & Knight. “You have one person saying ‘I’m not making noise’ or ‘I’m not smoking in the apartment,’ and you have another person saying ‘I am hearing the noise and smelling the smoke.’”
Once board members are certain a shareholder is aggravating other tenants, building management needs to step in. In a letter, management should explain neighbors’ complaints as specifically as possible – listing time, dates and details of bothersome episodes – without risking the anonymity of the tenants making the complaint.
“A written letter is always going to be preferred, and it serves a dual purpose,” Levine says. “It clarifies the complaint and what was done, and establishes a paper trail, should the issue arise again or escalate.”
If the tenant ignores the message, the board’s attorney should follow up with a second letter. That is often a shareholder’s last chance to avoid serious legal consequences.
“The next step for a co-op could be sending an objectionable conduct notice that tells the shareholder ‘If you keep doing what you’re doing, we’re going to terminate your proprietary lease,’” Saft said.
The court cases that followed Pullman spelled out the steps necessary to apply the Pullman doctrine. Boards must call a shareholder meeting and invite the disruptive shareholder and his or her attorney. The shareholder has the right to mount a defense before the board. Depending on the lease, an eviction may require a shareholder-wide vote or a simple majority of board members. Attorney Robert Tierman, a partner in the firm Salon Marrow Dyckman Newman & Broudy, advises that the safest course is to hold a shareholder-wide vote, even if the lease doesn’t call for it.
Lacking the muscle of the Pullman doctrine, condo boards have less power over problem tenants. With the co-op, the corporation owns the building and the shareholder has a proprietary lease. The board, as elected representatives, makes decisions about the building. Since condo apartments are owned individually, getting problem neighbors out of the building is possible only through a lawsuit.
But it’s best to keep problems in the building and out of the courts. Saft recommends catching bad behavior early by amending bylaws, proprietary leases and house rules to give boards the ability to impose fines. Levine adds that some boards have quality-of-life committees that enable board members to settle disputes in arbitration-like settings.
“They’re very useful in creating a less hostile environment, but only if both parties are open to it,” Levine says. “Sitting down with all parties in the same room to openly air grievances can take a heated situation and bring order and compromise.”
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