Moshe Bobker, Partner, Tane Waterman & Wurtzel in Legal/Financial
When shareholders violate the terms of a proprietary lease by not making the apartment their primary residence, boards are within their rights to go to court to evict them. In these situations, boards need to weigh the potential for an amicable resolution against the risks and costs associated with litigation. Early communication and strategic planning are important, and it makes sense for boards to consider alternative solutions to litigation, taking into account their long-term goals and the specific circumstances of each case.
Pre-litigation measures. The proprietary lease will govern requirements as far as notices to cure or notices of default, as well as notices of termination. There is real value in initiating conversations and providing an opportunity for resolution before resorting to costly and time-consuming litigation. The standard proprietary lease has a 30-day notice to cure period.. Depending on the type of default, that amount of time can be shorter, but the standard is 30 days. Even if the lease does not require a board to send a demand letter or notice to a shareholder offering the opportunity to resolve the issue, it is oftentimes a good idea to do that.
A case study. We recently represented a shareholder and the long-term occupant facing eviction from an HDFC. The proprietary lease required the shareholder to maintain the apartment as a primary residence. The occupant situation had evolved over 25 years, starting with a board-approved sublease agreement. This agreement was seemingly overlooked until the board initiated eviction proceedings alleging that the shareholder was not occupying the apartment as a primary residence. As the case progressed through the courts, discussions unfolded about the occupant's lengthy tenure in the building. There were arguments about waivers and discussions about transferring the apartment from the shareholder to the occupant. Initially, these talks didn't really progress. And then, having been before the court several times seeking a resolution, the board did approve the transfer from the shareholder to the occupant, essentially solidifying the occupant’s position in the building.
The takeaway for boards. The board's sudden decision to pursue eviction after decades of apparent inaction may have been brought about by changes in the board composition or new management. Even so, boards should be thinking about their long term goals in these situations. Having that conversation with counsel early on is important. Fostering open communication and seeking amicable resolutions can allow boards to navigate governance issues more efficiently, ultimately benefiting both the community and the individuals involved. And in cases where a long-term relationship exists between the board and the occupant, a more collaborative approach can save time and resources.
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