The New York Court of Appeals recently issued its decision in
the case of Del Terzo v. 33 Fifth Avenue, which had been
moving through the New York courts for four and half years. The
decision is significant because it establishes statewide
limitations on the exercise of board discretion in many
cooperatives insofar as reviewing the applications of family
members to acquire apartments following the death of a lessee.
At issue in Del Terzo was the application of a
proprietary lease provision providing that after the death of the
lessee "consent shall not be unreasonably withheld to an
assignment of the lease and shares to a financially responsible
member of the Lessee's family." Acting under this
provision, the board had decided not to consent to a transfer to
the two sons of the deceased because only one of them had
meaningful income and assets. The brothers had sought to buy the
apartment jointly, although, at least in the short term, it was
their intention that it be occupied by only the brother who was
less well off. They did not dispute that only one of them satisfied
the board's financial requirements.
The decision by the Court of Appeals affirmed rulings by the
Supreme Court and the Appellate Division that because the
particular lease provision being applied required
"reasonableness" the determination of the board was not
protected by the Business Judgment Rule which generally affords
boards wide leeway and a great deal of judicial deference in their
decision making. The courts' view was that, under the facts of
the case, the board failed the "reasonableness" test. A
secondary argument by the cooperative that it was inappropriate to
permit the apartment in question to be acquired by two adult sons,
both of whom could live there, was brushed aside.
The particular lease provision at issue in Del Terzo is
not universal. A significant number of proprietary leases do not
confer any special rights insofar as transfers on death to family
members are concerned. Others give such rights only to spouses.
However, Del Terzo-type provisions are not uncommon.
Boards in buildings where such provisions exist should be aware of
the Del Terzo decision and, insofar as they consider the
ruling inconsistent with how they feel their cooperative should
operate, they should consider seeking their shareholders'
approval for a lease amendment that would negate its effect. The
courts that considered Del Terzo gave no indication that
there is any restriction on a board's exercise of its normal
prerogatives when considering transfers to family members so long
as the lease in question does not contain special provisions
For all cooperatives, Del Terzo serves as a reminder
that for any decision for which a proprietary lease provides a
"reasonableness" standard, the latitude afforded a board
under the Business Judgment Rule may not be available. In the event
of challenge, such decisions must have been made by a process and
upon standards that a court would view as
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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