Gallet Dreyer & Berkey, LLP | Co-op's Weapon against Objectionable Shareholders
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Co-op's Weapon against Objectionable Shareholders

06/09/2011 | Summer 2011 Newsletter
Many cooperative apartment buildings that are plagued by residents who repeatedly violate the proprietary lease or who create a continuing nuisance now have an easier way to evict the objectionable shareholder.

Courts have upheld a cooperative’s right to terminate the lease and evict the offending shareholder, often without the need for a court proceeding to prove the offending conduct, by using the “objectionable conduct” provision of the proprietary lease. Conduct such as repeated instances of excessive noise (from music to barking dogs); offensive odors emanating from an apartment; hoarding or other creation of an unhealthful situation; chronic failure to pay maintenance with no justification; a shareholder’s commencement of baseless lawsuits against the cooperative, its board or other residents; use of an apartment as a B&B or other business; and even a sponsor’s failure to sell apartments coupled with other harm to the cooperative, are examples of conduct that allows the cooperative to proceed under the “objectionable conduct” clause.

In order to proceed, the proprietary lease must have a provision allowing the cooperative to terminate the lease for “objectionable conduct.” That provision usually requires a supermajority vote by the board and/or the shareholders at a special meeting. The cooperative must strictly follow the technical requirements, such as the sending of notices. We also recommend sending a notice to the offending shareholder stating the date of the special meeting at which the shareholders and/or the board will vote on a resolution to terminate the shareholder’s proprietary lease, giving the shareholder a listing of the objectionable conduct which is the basis for the vote and providing the shareholder an opportunity to be present, with or without counsel, and to be heard. We recommend that a professional stenographer record the proceedings.

Provided that the cooperative is acting in the best interests of the shareholders for a proper business purpose, and has documented its case properly and followed all procedural requirements of the lease and court precedents, the courts will likely uphold the termination of the lease without requiring a trial to determine whether the offending conduct did occur or was serious enough to warrant an eviction. This removes the need for neighbors and building employees to testify in a court proceeding against the offending shareholder, making the process faster and less costly.