Landlord served tenant Daniel McCarry with a notice demanding that he vacate in 90 days. The Petition included an allegation that the apartment is not subject to rent stabilization.
Susan Baldwin v Daniel McCarry
Civil Court, Housing Part, New York County
2023 NY Slip Op 50226(U)
L&T Index No. 305742/2020
March 24, 2023
Judge Jack Stoller
Landlord served tenant Daniel McCarry with a notice demanding that he vacate in 90 days. The Petition included an allegation that the apartment is not subject to rent stabilization.
A Landlord’s Holdover (“eviction”) Petition must include an allegation as to whether the apartment is subject to any form of rent regulation. If the Landlord alleges that the subject apartment is not subject to rent regulation, then the Landlord must explain why. In this case, the Landlord alleged that
the premises is exempt from the NYC Rent Stabilization Code, as amended in 1969, as it is located in a cooperative dwelling and is not occupied by a “non-purchasing tenant” as defined under section 352-e of the General Business Law.
After trial, the Court found that the Landlord failed to prove this allegation and dismissed the proceeding, thereby allowing the tenant to remain in possession of the apartment. The Court held that the cooperative corporation was a sham and that the building was “in reality a de facto for-profit rental building.”
At first glance, the nine-unit building appeared to be a co-op building. An Offering Plan for the Cooperative, dated July 15, 1981, was admitted into evidence. Susan Baldwin was the sponsor of the plan. Baldwin conveyed the building to 452 West 23 Owners Inc. by deed dated September 1, 1981. On May 12, 1982, the Sponsor declared the offering plan effective, representing that 23% of the units had been sold. (Two out of nine apartments had been sold, and that is about 23%. At that point in time, a sponsor only had to sell 15% of the units in order to declare the plan effective).
The testimony and the documentary evidence indicated that, although it had been forty years since the plan was declared effective, the sponsor still owned a majority of the apartments. Citing to 511 West 232nd Street Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 152, decided by the Court of Appeals in 2002, Judge Stoller noted as follows:
As a sponsor of the cooperative corporation, Petitioner undertook a duty in good faith to timely sell as many shares in the building as necessary to create a fully viable cooperative.
Instead of selling the apartments, the sponsor opted to rent them at market rates.
In addition, the Court found that the building was run as if it were solely owned by Susan Baldwin. The only members of the Board of Directors were Susan Baldwin and, sometimes, her attorney. Susan Baldwin decided upon the amount of maintenance that was due from the shareholders. Bona fide cooperative corporations hold elections to give other shareholders the opportunity to serve on the Board and thereby participate in the operation of the building. However, in forty years, this cooperative corporation never held an election.
The Court’s decision implies that the Sponsor may have formed a “cooperative” so that she could avoid the strictures of rent regulation: limitations on rent increases and the eviction of tenants.
RECENT DEVELOPMENTS: Prior to the enactment of the New York State Housing Stability and Tenant Protection Act of 2019 (“HSTPA”), signed by the Governor on June 14, 2019, a sponsor was permitted to declare a plan effective if 15% or more of the apartments had been sold. HSTPA provides that a sponsor cannot declare a plan effective until 51% of the apartments have been sold. Then the sponsor would no longer hold the majority of shares. A colleague told me that, as a rule-of-thumb, banks will not underwrite a loan to a prospective purchaser of a cooperative apartment unless about 80% of the shares have been sold. So, in a very real sense, a cooperative is not viable until 80% of the shares have been sold.
When a co-op is not a co-op