When a shareholder dies, the co-op board can deny assignment of the apartment's shares to anyone — provided there's a valid reason. There is one major exception: the deceased shareholder's legal spouse. A dispute over that immense power arose recently at a 66-unit prewar co-op in the Kingsbridge section of the Bronx.
At the heart of the dispute was David Burrows, who bought into the co-op in the 1990s, and his longtime partner, Maryann McCabe. When Burrows died in 2018 after a long illness, McCabe claimed to be the apartment's successor under the proprietary lease. The co-op board disagreed. McCabe sued the co-op.
In a client advisory, the law firm Ganfer Shore Leeds & Zauderer writes: "(McCabe) lived with the deceased in the apartment for 15 years and claimed to be the 'equivalent' of the deceased’s spouse, but the two were never legally married. The proprietary lease provides that the board of directors’ consent is required for any transfer of shares, but that 'if the Lessee shall die, consent shall not be unreasonably withheld or delayed to an assignment of the lease and shares to a financially responsible member of the Lessee's family (other than the Lessee's spouse as to whom no consent is required).'"
Despite their long-term relationship, the court ruled, the couple was not legally married since there is no common-law marriage in New York State. An appeals court affirmed the dismissal of the lawsuit.
In the court’s words, “[t]he cooperative board’s decision was made in furtherance of a legitimate corporate purpose, and was not ‘arbitrary and capricious or an abuse of discretion.’” The court found that the board “legitimately applied the terms of paragraph 16 of the proprietary lease to find that petitioner was not the decedent’s spouse and therefore required approval by the board prior to the transfer of the proprietary lease and shares of the subject unit.”
The client advisory adds that after considering McCabe's tax returns and financial information, the cooperative had a legitimate, non-discriminatory reason for finding that she was not “financially responsible” and rejecting her application to become owner of the shares. Accordingly, the board’s decision was protected from further judicial review under the Business Judgment Rule.
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